Statement at the Conclusion of an IMF Staff Mission to the Kyrgyz Republic

Press Release No. 11/38
February 11, 2011

An International Monetary Fund (IMF) team, led by Mr. Nadeem Ilahi, visited Bishkek January 31–February 4, 2010 to review recent economic developments, discuss immediate policy priorities in the context of the new government’s economic plans.

At the conclusion of the visit, Mr. Ilahi made the following statement:

“The Kyrgyz economy, which suffered from political and ethnical turmoil last year, is recovering more quickly than expected, mainly because of improved security, the return of political stability, better-than-expected agricultural performance, and a timely fiscal stimulus. Looking ahead, continued improvements in security and strong external demand could yield non-gold economic growth of 4–5 percent in 2011. With gold production expected to expand by 10 percent, overall Gross Domestic Product (GDP) growth could be higher.

“Inflation, which began to rise sharply in the middle of 2010 and reached 19.2 percent at
year-end, has been primarily driven by exogenous shocks. Higher inflation is beginning to be entrenched in inflationary expectations and is likely to have an adverse effect on the well being of the poor through an erosion of real incomes. The mission welcomes the National Bank of the Kyrgyz Republic (NBKR) recent tightening of monetary policy, as well as its willingness to tighten further if underlying inflation persists.

“The mission supports an expansionary fiscal stance to sustain the recovery and help those worst affected by last year’s crisis. Nonetheless, the risk of inflation becoming entrenched argues for keeping this fiscal expansion within reasonable bounds. Across-the-board increases in public sector wages and pensions may not be the most effective way to alleviate poverty, and could exacerbate inflationary pressures and limit the government’s ability to undertake the needed medium-term fiscal consolidation. The mission encourages the authorities to utilize targeted social programs to provide social assistance to the poor.

“The authorities’ move to nationalize, restructure and initiate the resolution of Asia Universal Bank (AUB) last summer helped contain a possible systemic crisis in the banking system. We encourage the government to complete AUB resolution promptly and in accordance with the best practice.

“The authorities’ longer term intentions to improve the investment climate through strengthening property rights, minimizing corruption and leveling the playing field for investors are the right steps in putting the economy on a sustainable growth path.

“The government has expressed an interest in financial support under a medium-term program with the Fund. It is in the process of formulating a comprehensive strategy of economic development, which could be the basis for such a program. Discussions on a future program are expected to take place during a follow-up IMF mission in the coming months.”



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