IMF Executive Board Completes Fourth Review Under the PRGF Arrangement with the Kyrgyz Republic and Approves US$1.9 Million Disbursement

Press Release No. 07/104
May 21, 2007

The Executive Board of the International Monetary Fund (IMF) has completed the fourth review of the Kyrgyz Republic's economic performance under the three-year Poverty Reduction and Growth Facility (PRGF) arrangement. The completion of the review enables the release of an amount equivalent to SDR 1.27 million (about US$1.9 million). This brings total disbursements under the arrangement to SDR 6.34 million (about US$9.6 million).

The PRGF arrangement was approved on February 23, 2005 (see Press Release No. 05/40) for an amount equivalent to SDR 8.88 million (about US$13.5 million).

Following the Executive Board discussion of the Kyrgyz Republic's economic performance, Murilo Portugal, Deputy Managing Director and Acting Chair, said:

"The Kyrgyz authorities have maintained macroeconomic discipline, comfortably meeting the end-2006 quantitative targets under the PRGF-support program despite a challenging political environment. The economic program for 2007 aims at preserving economic stability and advancing structural reform to improve living standards in a low-inflation environment.

"The Country Development Strategy (CDS) for 2007-10 offers a comprehensive blueprint for stepping up economic and social development and achieving the Millennium Development Goals. The CDS appropriately prioritizes good governance and reduction of corruption; creation of a friendly business climate; and removal of deep-seated impediments to sustained and rapid private sector-led growth. Successful implementation of the CDS hinges on rallying broad domestic support for reform and carefully costing and prioritizing poverty reducing spending, especially given the limited resource envelope following the decision to forego further debt relief.

"Fiscal prudence must remain the linchpin of macro-economic stability and debt sustainability. It will be essential to check the upward drift in current spending observed in recent years and improve the targeting of spending. Measures are also needed to offset the immediate fiscal impact of the recent reduction in the retirement age, and to reform the pension system, setting it on a sound financial footing.

"Passage of the new tax code would create a sound basis for further improvements in tax administration. The authorities recognize the importance of managing carefully the fiscal decentralization process to forestall a short-term loss of fiscal control, and the need to build capacity and define clearly the competencies and responsibilities of each government tier.

"A firm monetary policy will be essential to keep inflation in check. The monetary authorities are encouraged to largely refrain from large unsterilized intervention in the foreign exchange market, while continuing to enhance indirect instruments of monetary control, and being ready to adjust policy interest rates if needed.

"The updated Financial System Stability Assessment highlights the progress made in modernizing the financial sector, but there is scope for further strengthening financial sector supervision—especially in advance of the introduction of a deposit insurance scheme for small depositors in 2008. It will be important to take well-sequenced steps to bolster financial intermediation and capital market development, as well as to increase the central bank's autonomy," Mr. Portugal said.



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