## 1kgzea2023001

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---

### Context
- Pre-pandemic buffers:
  - inflation was in low single digits;
  - external reserves had reached 6.4 months of imports;
  - total public debt had fallen to 51.6 percent of GDP;
  - the fiscal deficit was small.
- Shock and erosion of buffers:
  - public debt stood at 60.8 percent of GDP at end-2021;
  - inflation rose to double digits;
  - reserves declined.
- Social and political:
  - poverty rate increased to 33 percent in 2021 from 25 percent in 2020.
- Structural note:
  - resolution of Kumtor gold mine dispute could strengthen the investment climate and facilitate gold exports.

### Recent developments, outlook, and risks
- Growth and inflation:
  - Real GDP: contracted by 8.6 percent in 2020 and grew by 3.6 percent in 2021.
  - Activity: 7 percent growth in the first eleven months of 2022.
  - 2022 growth drivers: gold production, agriculture, trade, and transportation.
  - Inflation: increased to 14.9 percent in November (y/y); core inflation rose into double digits.
  - Wages/pensions: wage and pension increases introduced from April and October 2022; near doubling of wages in the large public sector.
- External sector and reserves:
  - Current account: surplus in 2020 → deficit of 8.6 percent of GDP in 2021 and widened significantly in 2022.
  - Net money transfers from abroad: declined by 15 percent through October.
  - Imports: increased by 80 percent in the first three quarters of 2022.
  - Large positive errors and omissions: reached 18.6 percent of GDP in H1 2022.
  - Gold: most domestic gold purchased by NBKR; gold exports negligible.
  - Exchange rate: som recovered against the dollar to pre-war levels after initial depreciation.
- Projections and scenarios:
  - Growth: expected 5.5 percent in 2022 and 3.5 percent in 2023.
  - Medium-term potential growth: around 4 percent.
  - Inflation: mid-teens in 2022; about 10 percent by end-2023; mid-single digits thereafter conditional on global commodity prices and monetary tightening.
  - Current account (after re-exports adjustment): projected CA deficit reach 28.7 percent of GDP in 2022; narrow to 10.5 percent in 2023 if gold exports resume.
  - International reserves: projected decline to 2 months of imports by 2027 from 3.9 months in 2021.
  - Scenario without gold exports: CA deficit would remain unsustainably high.
- Major risks (mostly downside):
  - Stronger contraction of the Russian economy → lower remittances and growth, return of migrant workers, higher poverty.
  - Persistent high inflation → increased social pressures.
  - Growth slowdown → deterioration in banks’ loan portfolios.
  - Large new infrastructure projects without fiscal space → wider fiscal deficit and weaker debt sustainability.
  - Other risks: regional conflict escalation, pandemic reemergence, power shortages, sustained reduction in gold prices.
  - Upside: capital and labor immigration from Russia could improve short-term growth.

### Fiscal sector findings and policy recommendations
- 2022 fiscal developments:
  - Amended 2022 budget: general government deficit widened to 5.2 percent of GDP from 0.8 percent in 2021.
  - Excluding Kumtor one-time back taxes of 1.8 percent of GDP, tax revenue increased by 4.3 percent of GDP due to improved tax administration.
  - Expenditure increases:
    - public investment up by about 4 percent of GDP to 10.7 percent of GDP;
    - compensation of employees up by 2.5 percent of GDP to 13 percent of GDP;
    - other increases in social benefits, goods and services, and other spending.
  - Net external financing, incl. partial draw-down of 2021 SDR allocation: accounts for 2.7 percentage points of GDP.
  - Domestic financing: excess bank liquidity could allow raising 2.5 percent of GDP domestically at annual interest rates of up to 16 percent.
  - Issuance of domestic bonds to inject capital into three state-owned banks for subsidized lending adds 1.1 percent of GDP to public debt.
- Staff projections and advice:
  - Fiscal deficit: projected to decline to 4.6 percent of GDP in 2023 and remain just under 5 percent in the medium term.
  - Tax revenue (after one-offs): projected around 25.5 percent of GDP.
  - Public wage bill with full-year impact of 2022 increases and no 2023 indexation:
    - public wage bill would reach almost 14 percent of GDP in 2023;
    - pension increase would add 0.9 percent of GDP to social spending.
  - Domestic interest payments: projected to rise from 0.7 percent of GDP in 2022 to 2.4 percent by 2027.
  - Domestic bond issuance of about 4 percent of GDP per year in a shallow market would raise interest rates and crowd out private credit.
- Debt outlook and staff recommendation:
  - Debt Sustainability Analysis: medium risk of debt distress.
  - Projected deficits keep total public debt under 60 percent of GDP through 2026 due to nominal GDP growth; without consolidation public debt would reach 61 percent of GDP in 2027 and rise thereafter.
  - Staff recommendation: anchor fiscal policy to keep public debt below 60 percent of GDP in the medium term and reduce it further; reduce primary fiscal deficits from estimated 4.2 percent of GDP in 2022 to 1 percent of GDP by end-2027.

### Options to create fiscal space and strengthen PFM
- Revenue-side measures:
  - reduce tax exemptions, incentives, and preferential tax regimes;
  - strengthen taxation of e-commerce;
  - raise excises on tobacco and petroleum;
  - adjust specific excises to inflation;
  - continue e-filing, taxpayer registration, risk-based auditing, expand use of cash registers;
  - bring Kumtor under same tax regime as other gold miners and channel its dividends to the budget;
  - reassess revenue loss from tax exemptions estimated at 3.5 percent of GDP in 2021 Article IV consultation.
- Expenditure-side and PFM measures:
  - contain public wage bill: limit nominal wage growth to below inflation and freeze public employment at current levels → estimated fiscal savings of about 1.5 percent of GDP per year by 2027;
  - allow headcount reduction through attrition and public employment optimization, incl. Presidential decree to reduce central government headcount by up to 30 percent;
  - comprehensive reform of public sector compensation and employment framework;
  - gradually raise electricity tariffs and lower energy sector operating costs; reallocate some savings to targeted social assistance;
  - strengthen PFM: wage bill management, implement IFMIS modules for budget preparation and payroll, limit extra-budgetary funds such as the Stabilization Fund.
- Social protection:
  - pandemic pushed nearly 1 million people into poverty in 2020–21;
  - social spending is high for a low-income country, but coverage, adequacy and targeting weaknesses limit SSN effectiveness;
  - reform objective: develop an adaptive SSN system that is fiscally sustainable and can scale up during downturns.
- Technical assistance:
  - IMF TA could support holistic reform of tax policy and administration, incl. assessment of tax expenditures.

### Fiscal projections and authorities' stance
- Authorities' expectations:
  - digitalization of tax and customs administration will continue to bring revenue in medium term;
  - Presidential decree limiting headcount would reduce wage bill;
  - project fiscal consolidation to reduce public debt to under 43 percent of GDP by 2027;
  - confidence domestic markets would provide financing at reasonable costs if needed.
- Authorities’ debt management strategy (2021-24): nominal public debt limit at 70 percent of GDP.
- Note: authorities diverged from staff on fiscal projections.

### Monetary policy, liquidity, and exchange rate (NBKR actions and staff recommendations)
- NBKR actions and monetary conditions:
  - late November: NBKR lowered policy rate by 100 basis points to 13 percent.
  - October: credit grew by 10 percent y-o-y.
  - Reserve money and broad money growth: reached 33.6 and 29 percent respectively, fueled by NBKR purchases of non-monetary gold.
  - NBKR gold purchases inject domestic liquidity, entail sterilization costs, undermine exports, and concentrate reserve assets in gold.
  - Authorities believe inflation has peaked, project decline through 2023, and agreed to wind down gold purchases; conversion of non-monetary gold to reserve assets guided by NBKR reserve management strategy.
- Staff observations and recommendations:
  - staff recommended restrictive monetary stance and tightening of liquidity until disinflation is firmly established.
  - strengthen monetary policy effectiveness by:
    - fully lifting the cap on NBKR note auction rates,
    - improving liquidity management,
    - better coordinating monetary and fiscal policies,
    - containing government subsidized lending programs with equal access for all banks.
  - discontinue NBKR gold purchases and resume gold exports without NBKR involvement; convert non-monetary gold to foreign exchange to diversify international reserves.
  - greater exchange rate flexibility recommended; FX interventions only to smooth volatility.

### Central bank governance and SDR transfer
- NBKR law and governance:
  - Parliament rejected most draft amendments addressing 2020 Safeguards Assessment recommendations.
  - New law envisages recapitalization and profit distribution mechanisms, but does not introduce a majority of non-executive Board and Audit Committee members or provisions to wind down non-core operations—staff view these as essential.
  - NBKR should divest Keremet Bank and unwind ownership of the Guarantee Fund; enforce strict limits on lending to non-supervised entities.
- SDR allocation transfer:
  - May 2022: Agreement signed to transfer 2021 SDR allocation from NBKR to MoF.
  - Transfer gradual; about two thirds drawn by MoF in 2022 to service external public debt.
  - Staff advised authorities to provide analysis of enabling legislation and will follow up.

### Banking sector soundness and vulnerabilities
- Key indicators (as of September 2022 unless noted):
  - Capital adequacy: 25.1 percent on average.
  - Liquidity ratio: 79.6 percent.
  - NPLs: increased from 10.5 percent in 2020 to 12.8 percent in September 2022.
  - NBKR stress-tests: banks appear resilient to various severe shocks, incl. interest rate shocks, as most government bonds are held to maturity.
- Staff recommendations:
  - NBKR develop comprehensive NPL resolution strategy and be ready to provide liquidity support to solvent banks.
  - Authorities requested Fund TA on payment systems.
  - Isolation of major Russian banks increased correspondent banking costs but not a major cross-border payments challenge.

### Structural reforms and governance
- Potential gains:
  - Governance reforms could increase growth by 1.2 percentage points each year, larger with accompanying reforms.
- Anti-corruption and procurement:
  - strengthen laws/regulations to minimize corruption opportunities;
  - digitization of tax administration and public access to income and asset declarations are important steps;
  - recommendations: broaden asset declaration access, strengthen verification, establish triggers for illicit enrichment investigations.
  - draft amendment to public procurement law that would exclude competitive bidding, if passed, would undermine procurement integrity and risk concessional external financing.
  - audits published, but full contracts and beneficial owner identities remain to be published as committed.
  - emergence of SOE monopolies (e.g., Kara-Balta Distillery) undermines competition.
- SOE governance recommendations (key areas):
  a. streamline and harmonize legislation defining legal forms of government ownership and reporting/disclosure; subject all SOEs to public procurement law;
  b. articulate clear ownership policy defining objectives, mandates, and divestment criteria;
  c. establish corporate governance framework for professional management and oversight, starting with largest SOEs;
  d. strengthen institutional oversight: SOEs publish audited accounts; government publish annual SOE sector performance review;
  e. MoF exercise financial oversight over all SOEs.
- AML/CFT:
  - 2018 reforms improved risk-based supervision and beneficial ownership transparency.
  - Kyrgyz Republic complies or mostly complies with 39 of 40 FATF recommendations.
  - Eurasian Group: understanding of ML/FT risks is low; confiscation of proceeds rarely effective.
  - Recommendation: strengthen analytical and implementation capacity of risk-based AML/CFT supervision and cross-border monitoring.

### Climate-related policies
- Rationale and recommendations:
  - Kyrgyz Republic exposed to global warming risks; needs climate adaptation policy to strengthen resilience.
  - Create fiscal space for green infrastructure, healthcare, training, and social safety nets.
  - Despite low carbon footprint, contribute to mitigation by reducing pollution, expanding renewables, and raising electricity tariffs to cost recovery to attract private investment.
- Authorities' views:
  - intend to optimize non-strategic commercial SOEs starting with telecom;
  - committed to green energy, agriculture and industry, environmentally friendly transportation, sustainable tourism, waste management, and green cities;
  - highlighted financial constraints as impediment.

### Staff appraisal: macro outlook and policy priorities
- Macroeconomic summary:
  - resilience shown but elevated risks: migration from Russia supported activity; inflation surged; external and fiscal balances deteriorated; reserves declined; poverty increased.
  - total public debt fell largely because of high nominal GDP and real appreciation of the exchange rate.
  - outlook subject to heightened uncertainty; policy flexibility constrained by reduced buffers and limited concessional financing.
- Staff policy priorities:
  - fiscal: reduce deficits while creating space for priority infrastructure, health, education, and social protection; restore fiscal buffers and keep public debt below 60 percent of GDP in medium term;
  - recommended growth-friendly consolidation: reduce tax expenditures, optimize tax policy, strengthen administration, reduce wage bill, raise electricity tariffs;
  - channel Kumtor dividends to the budget to ease financing constraints;
  - strengthen social safety nets.
  - monetary/external: aim to reduce inflation to mid-single digits via restrictive policy and liquidity tightening; discontinue NBKR gold purchases; resume gold exports; accumulate reserves; allow greater exchange rate flexibility; renew NBKR law amendments to strengthen governance.
  - governance/structural: strengthen income and asset declarations, maintain competitive bidding in procurement, implement SOE ownership and oversight policy, strengthen AML/CFT.
  - climate: develop adaptation policy, create fiscal space, invest in renewables, reduce pollution, raise electricity tariffs.

### Risk Assessment Matrix (selected risks and policy advice)
- Conjunctural risks:
  - Intensifying spillovers from Russia’s war in Ukraine — Likelihood/Timeframe: High / Medium.
    - Policy advice: maintain exchange rate flexibility, calibrate monetary policy, provide targeted support, reduce universal subsidies, eliminate inefficient tax exemptions, seek external concessional financing, enhance financial oversight.
  - Commodity price shocks — Likelihood/Timeframe: High / Medium.
    - Policy advice: maintain exchange rate flexibility, tight monetary policy, targeted social assistance, seek concessional financing.
  - Systemic social unrest — Likelihood/Timeframe: High / Medium.
    - Policy advice: reduce inefficient energy subsidies, strengthen social safety nets, mobilize donor financing, prioritize governance reforms.
  - De-anchoring of inflation expectations and stagflation — Likelihood/Timeframe: Medium / Medium.
    - Policy advice: maintain exchange rate flexibility, tight monetary policy, create fiscal space, strengthen safety nets.
  - Abrupt global slowdown or recession — Likelihood/Timeframe: Medium / Medium.
    - Policy advice: maintain exchange rate flexibility, calibrate monetary policy, targeted support, reduce subsidies, seek concessional financing.
  - Local Covid-19 outbreaks — Likelihood/Timeframe: Medium / Medium.
    - Policy advice: secure vaccines, strengthen social safety nets, support affected sectors.
- Domestic risks:
  - Sustained reduction in gold prices — Likelihood/Timeframe: Medium / Medium.
    - Policy advice: allow more exchange rate flexibility and strengthen business environment.
  - A rise in public debt — Likelihood/Timeframe: Medium / High.
    - Policy advice: pursue fiscal consolidation, delay low-priority capital spending, accelerate structural reforms.

### External sector assessment, REER, and measurement issues
- Errors and omissions and transit trade:
  - Large positive errors and omissions likely capture unrecorded transit trade and remittances: 7 percent of GDP in 2021; 18.6 percent of GDP in H1 2022.
  - Share of Russia in total exports rose from 14 percent in 2021 to 38 percent in H1 2022.
- Exchange rate and REER:
  - som: annual depreciation of 8.6 percent in 2021; intra-month moves within 2.5 percent band.
  - REER: depreciated by 3.7 (percent?) during 2021; appreciated by almost 12 percent during first 10 months of 2022.
  - Staff assesses exchange rate as somewhat overvalued in the range of 5-10 percent in 2021, considering NBKR net sales of $699 million during 2021.
  - If at least half of unrecorded transactions were recorded, overvaluation would reduce to under 5 percent.
- External statistics issues:
  - Improvements needed in estimating shuttle trade, transit trade within Custom Union, remittances, direct investment transactions, and cross-border transactions related to gold mining.
- EBA-lite and REER model results (2021):
  - CA-Actual: -8.6 (percent of GDP).
  - CA Norm (CA model): -5.3 (percent of GDP).
  - CA Gap (CA model): -3.5 (percent of GDP).
  - REER Gap: 10.2 (CA model column) and -15.0 (REER model column).
  - Policy gap: 3.4 percent of GDP.

### Debt sustainability and fiscal outlook (selected quantitative findings)
- Public and PPG debt levels:
  - Public debt: 51.6 percent of GDP in 2019; 67.6 percent in 2020; 60.8 percent in 2021; 58.3 percent in 2022.
  - External PPG debt: 50.6 percent of GDP at end-2021.
  - PV of PPG external debt: 35.7 percent of GDP in 2021; projected about 23.2 percent of GDP by end-2027.
- Debt-carrying capacity:
  - Composite Indicator (CI) index: 3.06 (threshold for strong = 3.05).
- Key debt dynamics and projections:
  - With projected deficits, total public debt under baseline stays under 60 percent of GDP through 2026; without consolidation would reach 61 percent in 2027 and rise thereafter.
  - Under baseline, PV of total public debt expected to reach around 61 percent of GDP by 2027 and over 68 percent by 2038.
  - Debt service-to-revenue rises to more than 20 percent over next five years and remains at that level until 2032 due to high domestic interest rates.
- Stress tests and risks:
  - Standard stress tests do not breach external debt thresholds, but customized stress tests (e.g., discontinuation of gold exports or deep export shock) breach thresholds for PV of debt-to-exports and debt service-to-exports.
  - Most severe growth shock: PV of debt-to-GDP breaches 70 percent by 2026; PV of debt-to-revenue reaches 300 percent in 2032; debt service-to-revenue above 35 percent by 2032.
  - Staff assesses overall risk of debt distress as “moderate”.
- Policy implications:
  - Urgent fiscal consolidation needed; reduce primary deficit below 1 percent of GDP in medium term from projected 2.4 percent.
  - Create fiscal space by lowering wage bill and energy subsidies, prioritizing expenditure, improving tax policy and administration, and strengthening public investment and debt management.
  - Mobilize concessional financing and implement structural reforms to support exports and growth.

### Social and demographic indicators (selected)
- Population (2021): 6.6 million.
- GINI Index (2020): 0.29.
- Unemployment rate (ILO estimate, 2021): 9.1 percent.
- Life expectancy at birth (2020): 72.0 years.
- Poverty rate (national definition, 2020): 33 percent.
- Adult literacy rate (2018): 99.6 percent.
- Per capita GDP (World Bank, 2021): 1,276 (U.S. dollars, in million U.S. dollars? source table states "in million of U.S. dollars, 2021: 1,276").
- Under-five mortality (2020): 18 per 1000 live births.

### Key macroeconomic tables and projections (selected exact series)
- Nominal GDP (billions of soms), 2019–27: 619, 602, 723, 859, 1,009, 1,129, 1,242, 1,363, 1,486.
- Nominal GDP (millions of U.S. dollars), 2019–27: 8,872, 7,792, 8,549, 10,061, 11,275, 11,969, 12,779, 13,617, 14,410.
- Real GDP (growth in percent), 2019–27: 4.6, -8.6, 3.6, 5.5, 3.5, 3.8, 4.0, 4.0, 4.0.
- Consumer prices (12-month percent change, eop), 2019–27: 3.1, 9.7, 11.2, 5.4, 10.0, 6.0, 5.5, 5.5, 4.0.
- Current account balance (percent of GDP), 2019–27: -12.1, 4.8, -8.6, -28.7, -10.6, -10.0, -9.1, -8.5, -8.0.
- Gross international reserves (millions of U.S. dollars), 2019–27: 2,176, 2,628, 2,779, 2,367, 1,994, 1,724, 1,608, 1,582, 1,571.
- Gross reserves (months of next year imports, eop), 2019–27: 6.4, 5.3, 3.9, 3.6, 2.9, 2.4, 2.2, 2.0, 2.0.
- State government revenues (millions of soms), 2019–27: 167,431; 152,149; 209,827; 300,895; 325,781; 369,415; 401,601; 437,425; 473,658.
- State government expense (millions of soms), 2019–27: 140,047; 150,648; 173,000; 253,509; 310,421; 342,845; 378,484; 412,428; 447,956.
- Net lending/borrowing (overall balance, millions of soms), 2019–27: -4,028; -22,946; -9,427; -44,395; -46,762; -49,913; -58,721; -65,689; -74,723.
- Reserve money (percent change, eop), 2019–23: 11.0, 24.8, 6.5, 40.4, 6.4.
- Broad money (percent change, eop), 2019–23: 12.8, 23.9, 19.1, 27.7, 9.6.
- Credit to private sector (percent change, eop), 2019–23: 14.9, 12.6, 11.7, 9.9, 7.8.

### Data, technical assistance, and statistical improvements
- TA provided (January 2014 – November 2022) across FAD, MCM, LEG, STA covering tax administration, PFM, public investment management, monetary policy, banking supervision, AML/CFT, price statistics, national accounts, GFS, external sector statistics, and more.
- National accounts:
  - NSC plans to release quarterly GDP estimates in June 2023 in parallel with implementation of 2008 SNA and major revision of time series.
- Government Finance Statistics:
  - annual GFS compiled for whole general government since 2018; quarterly general government data reported starting Q1 2018.
  - Improvements ongoing: resume PSDS reporting, expand debt instrument coverage, reconcile consolidated general government macro statistics.

*Source: IMF staff report — 1. Real Sector and Social Indicators.*

### 1. Real Sector and Social Indicators _______________________________________________________________ 3

### 1. Real Sector and Social Indicators

### Context
- The Kyrgyz Republic maintained macroeconomic stability through the Covid shock due to pre-pandemic buffers:
  - inflation was in low single digits;
  - external reserves had reached 6.4 months of imports;
  - total public debt had fallen to 51.6 percent of GDP;
  - the fiscal deficit was small.
- New challenges emerged from spillovers of Russia’s war in Ukraine and the global slowdown, with high exposure to Russia through remittances, trade (including energy imports) and financial linkages.
- Macroeconomic buffers were largely eroded by end-2021:
  - public debt stood at 60.8 percent of GDP at end-2021;
  - inflation rose to double digits;
  - reserves declined.
- The political situation remained calm; poverty rose based on authorities’ estimates:
  - poverty rate increased to 33 percent in 2021 from 25 percent in 2020.
- Resolution of Kumtor gold mine dispute could strengthen the investment climate and facilitate gold exports.

### Recent developments, outlook, and risks
- Growth and inflation developments:
  - Real GDP contracted by 8.6 percent in 2020 and grew by 3.6 percent in 2021.
  - Activity picked up strongly from Q4 2021 and continued into 2022, with 7 percent growth in the first eleven months of 2022.
  - Growth drivers in 2022: gold production, agriculture, trade, and transportation.
  - Inflation increased to 14.9 percent in November (y/y); core inflation rose into double digits.
  - Wage and pension increases introduced from April and October 2022, respectively, with near doubling of wages in the large public sector.
- External sector and reserves:
  - Current account: surplus in 2020 → deficit of 8.6 percent of GDP in 2021 and widened significantly in 2022.
  - Net money transfers from abroad declined by 15 percent through October.
  - Imports increased by 80 percent in the first three quarters of 2022, partly due to higher oil prices.
  - Large positive errors and omissions reached 18.6 percent of GDP in H1 2022.
  - Most domestic gold was purchased by the National Bank of the Kyrgyz Republic (NBKR); gold exports were negligible.
  - The som recovered against the dollar to pre-war levels after initial depreciation.
- Projections and scenarios:
  - Growth expected to reach 5.5 percent in 2022 and slow to 3.5 percent in 2023.
  - Medium-term potential growth rate projected around 4 percent.
  - Inflation expected to remain in the mid-teens in 2022; decline to about 10 percent by end-2023 and to mid-single digits thereafter contingent on moderation of global commodity prices and adequate monetary tightening.
  - After adjusting for re-exports, the CA deficit projected to reach 28.7 percent of GDP in 2022 but narrow to 10.5 percent in 2023 provided gold exports resume.
  - International reserves projected to decline to 2 months of imports by 2027 from 3.9 months in 2021.
  - Without gold exports, the CA deficit would remain at unsustainably high levels.
- Risks (mostly to the downside):
  - Stronger contraction of the Russian economy → lower growth and remittances, return of migrant workers, reduced disposable incomes, and higher poverty.
  - Persistent high inflation → increased social pressures.
  - Growth slowdown → deterioration in banks’ loan portfolios.
  - Large new infrastructure projects without additional fiscal space (e.g., China–Kyrgyzstan-Uzbekistan railway, Kambarata-1 hydropower plant) → wider fiscal deficit and weaker debt sustainability.
  - Other downside risks: escalation of regional conflicts, reemergence of the pandemic, power supply shortages, sustained reduction in gold prices.
  - Upside: new wave of capital and labor immigration from Russia could improve short-term growth.

### Fiscal sector findings and policy recommendations
- 2022 fiscal developments:
  - The amended 2022 budget envisages widening of the general government deficit to 5.2 percent of GDP from 0.8 percent in 2021.
  - Excluding Kumtor’s onetime payment of back taxes of 1.8 percent of GDP, tax revenue increased by 4.3 percent of GDP due to improved tax administration.
  - Expenditure increases included:
    - public investment up by about 4 percent of GDP to 10.7 percent of GDP;
    - compensation of employees up by 2.5 percent of GDP to 13 percent of GDP;
    - other increases in social benefits, goods and services, and other spending.
  - Net external financing, including partial draw-down of the 2021 SDR allocation, accounts for 2.7 percentage points of GDP.
  - Excess bank liquidity could allow raising the remaining 2.5 percent of GDP domestically at annual interest rates of up to 16 percent.
  - Issuance of domestic bonds to inject capital into three state-owned banks for subsidized lending adds 1.1 percent of GDP to public debt.
- Staff projections and advice:
  - Staff projects the fiscal deficit to decline to 4.6 percent of GDP in 2023 and remain just under 5 percent of GDP in the medium term.
  - After adjusting for one-off Kumtor payments, total tax revenue is projected to remain around 25.5 percent of GDP.
  - With full-year impact of wage and pension increases and no wage indexation in 2023:
    - public wage bill would reach almost 14 percent of GDP in 2023;
    - pension increase would add 0.9 percent of GDP to social spending;
    - domestic interest payments projected to rise from 0.7 percent of GDP in 2022 to 2.4 percent by 2027.
  - Raising about 4 percent of GDP per year in a shallow domestic bond market would lead to higher interest rates and crowding out of private sector credit.
- Debt outlook:
  - Debt Sustainability Analysis implies a medium risk of debt distress.
  - Projected deficits keep total public debt under 60 percent of GDP through 2026 due to nominal GDP growth; without consolidation public debt would reach 61 percent of GDP in 2027 and keep rising thereafter.
  - Staff recommendation: anchor fiscal policy to keep public debt below 60 percent of GDP in the medium term and reduce it further. This entails reducing primary fiscal deficits from the estimated 4.2 percent of GDP in 2022 to 1 percent of GDP by end-2027 (the debt-stabilizing primary balance to maintain public debt around the current level).
- Options to create fiscal space and strengthen PFM:
  - Revenue-side measures:
    - reduce tax exemptions, incentives, and preferential tax regimes;
    - strengthen taxation of e-commerce;
    - raise excises on tobacco and petroleum (noted as low by international standards);
    - adjust other specific excises to inflation;
    - continue e-filing, taxpayer registration, risk-based auditing, and expand use of cash registers.
    - bring Kumtor under the same tax regime as other gold mining companies and channel its dividends to the budget.
    - reassess revenue loss from tax exemptions estimated at 3.5 percent of GDP in the 2021 Article IV consultation in light of the new tax code and structural changes.
  - Expenditure-side and PFM measures:
    - contain the public wage bill: limit nominal wage growth to below inflation and freeze public employment at current levels → estimated fiscal savings of about 1.5 percent of GDP per year by 2027;
    - allow headcount reduction through attrition and public employment optimization, including implementation of the Presidential decree to reduce central government headcount by up to 30 percent;
    - pursue comprehensive reform of public sector compensation and employment framework;
    - gradually raise electricity tariffs and lower energy sector operating costs to reduce subsidies, with some savings used for targeted social assistance;
    - strengthen PFM: wage bill management, implement IFMIS modules for budget preparation and payroll, and limit extra-budgetary funds such as the Stabilization Fund.
- Social protection:
  - Prior to 2020, poverty had been declining and inequality was relatively low.
  - The pandemic pushed nearly 1 million people into poverty in 2020–21.
  - Social spending is high compared to low-income countries and the CCA, but coverage, adequacy and targeting weaknesses limited SSN effectiveness.
  - Reform objective: strengthen efficiency and develop an adaptive SSN system that provides adequate and well-targeted benefits to the vulnerable in a fiscally sustainable manner and can scale up during downturns.
- Technical assistance:
  - IMF technical assistance could support a holistic reform of tax policy and administration, including assessment of tax expenditures.

*Source: IMF staff report — 1. Real Sector and Social Indicators.*

### 16.      The authorities diverged from staff on fiscal projections. They believe that the

### 16.      The authorities diverged from staff on fiscal projections. They believe that the

### Fiscal projections and authorities' stance
- Authorities' expectations:
  - Digitalization of tax and customs administration that delivered strong revenue performance in 2022 will continue to bring more revenue in the medium term.
  - Presidential decree limiting headcount in government bodies would reduce the wage bill.
  - Project fiscal consolidation to reduce public debt to under 43 percent of GDP by 2027.
  - Confidence that domestic markets would be able to provide necessary financing at reasonable costs, should the need arise.
  - Debt management strategy for 2021-24 puts a limit on public debt at 70 percent of GDP.

### Monetary policy, liquidity, and exchange rate (NBKR actions and staff recommendations)
- NBKR actions and monetary conditions:
  - In late November the NBKR lowered its policy rate by 100 basis points to 13 percent to encourage higher bank lending.
  - In October credit grew by 10 percent y-o-y.
  - Reserve money and broad money growth reached 33.6 and 29 percent respectively, fueled by the NBKR’s purchases of non-monetary gold.
  - NBKR’s extensive purchases of gold result in an injection of domestic liquidity and entail significant sterilization costs; they also undermine exports and concentrate reserve assets in gold.
  - Authorities (NBKR) believe inflation has peaked and project a decline through 2023; they assessed increased liquidity as unlikely to support financial intermediation, and lowered policy rates after the mission's conclusion to encourage bank lending; they agreed to wind down gold purchases.
  - Conversion of non-monetary gold to reserve assets will take into account global gold price dynamics and be guided by NBKR’s reserve management strategy.

- Staff observations and recommendations:
  - High food and fuel prices, immigration from Russia and strong GDP and real wage growth may keep inflation pressures elevated; staff recommended a restrictive monetary stance and tightening of liquidity until disinflation is firmly established.
  - Recent increase in the interest rate cap on NBKR note auctions is welcome; effectiveness of monetary policy can be strengthened by:
    - fully lifting the cap,
    - improving liquidity management,
    - better coordinating monetary and fiscal policies,
    - containing Government’s subsidized lending programs.
  - All banks, including private ones, should have equal access to any such program to provide a level playing field.
  - Staff recommended discontinuation of gold purchases by the NBKR and resumption of gold exports without NBKR’s involvement; conversion of the non-monetary gold on the NBKR’s balance sheet to foreign exchange would considerably increase and diversify international reserves.
  - Given heightened risks, greater exchange rate flexibility gains importance to absorb future shocks; FX interventions should only be used to smooth volatility.
  - Temporary relaxation of some prudential regulations introduced during the pandemic are now being phased out (welcome), but limits on export of foreign exchange cash by financial institutions remain in place.

### Central bank governance and SDR transfer
- NBKR law and governance:
  - Parliament rejected most draft amendments to the NBKR law aimed to address the 2020 Safeguards Assessment recommendations.
  - New law envisages proper recapitalization and profit distribution mechanisms, but does not introduce:
    - a majority of non-executive members of the NBKR Board and the Audit Committee, or
    - provisions to wind down non-core central bank operations.
  - Staff view: these provisions are essential to strengthen governance and independence; renewed efforts needed to introduce them in the law expediently.
  - NBKR should continue efforts to divest Keremet Bank and develop a strategy to unwind its ownership of the Guarantee Fund. Enforcing strict limits on lending to non-supervised entities is critical.

- SDR allocation transfer:
  - In May 2022, authorities signed an Agreement to transfer ownership of the 2021 SDR allocation from the NBKR to the MoF.
  - The transfer takes place gradually and about two thirds of the allocation was drawn by the MoF in 2022 to service external public debt.
  - Transaction implemented based on directives and legal opinions from domestic authorities stating the transaction does not contradict domestic laws.
  - Staff advised authorities to provide the analysis of enabling legislation to justify the transaction and will continue to follow up; staff informed authorities about forthcoming Fund review of the use of the 2021 SDR allocations by the membership.

### Banking sector soundness and vulnerabilities
- Banking system indicators (as of September 2022 unless noted):
  - Capital adequacy: 25.1 percent on average.
  - Liquidity ratio: 79.6 percent.
  - Nonperforming loans (NPLs) increased from 10.5 percent in 2020 to 12.8 percent of banking system loans in September 2022.
  - Asset quality has weakened; NPLs may weaken further if the economy slows.
  - NBKR stress-tests indicate banks appear resilient to various severe shocks, including interest rate shocks, as most government bonds are held to maturity.
- Staff recommendations:
  - NBKR should develop a comprehensive NPL resolution strategy and be ready to provide liquidity support to solvent banks as needed.
  - Authorities requested Fund TA on payments systems.
  - Isolation of major Russian banks raised costs of correspondent banking but does not seem to pose a major challenge for cross-border payments.

### Structural reforms and governance
- Potential gains:
  - Governance reforms could increase growth by 1.2 percentage points each year, with larger gains if accompanied by other reforms.
- Anti-corruption and public procurement:
  - Laws and regulations should be strengthened to minimize opportunities for corruption.
  - Digitization of tax administration and allowing public access to income and asset declarations were important steps.
  - Recommendations: broaden asset declaration access, strengthen verification of declared information, and establish triggers for investigation and prosecution for illicit enrichment.
  - Draft amendment to public procurement law to exclude competitive bidding, if passed, would undermine procurement integrity and increase corruption risks; it could weaken the investment climate and risk access to concessional external financing.
  - Audits of public procurement contracts, including emergency pandemic spending, have been published, but full contracts and identities of beneficial owners remain to be published as committed under the RFI/RCF.
  - Emergence of state-owned monopolies (example: Kara-Balta Distillery) undermines competition and risks misallocation of resources.

- State-Owned Enterprises (SOE) governance recommendations:
  - SOEs are a significant source of economic and fiscal risk; legal and corporate governance frameworks are fragmented and lack a clear ownership policy.
  - Key reform areas:
    a. Streamline and harmonize legislation to define legal forms of government ownership; role and powers as a shareholder; and reporting and disclosure requirements. All SOEs should be subject to the public procurement law.
    b. Articulate a clear ownership policy to define government objectives as a shareholder, the mandate of each SOE, and criteria for retaining versus divesting SOEs.
    c. Establish a strong corporate governance framework to ensure professional management and oversight; start with the largest SOEs given capacity limitations.
    d. Strengthen institutional oversight to ensure transparency and accountability: SOEs should publish audited financial accounts; government should publish annual reviews of SOE sector performance, reporting how it exercised ownership rights.
    e. The MoF should exercise financial oversight over all SOEs.

- AML/CFT and cross-border monitoring:
  - 2018 reforms improved risk-based AML/CFT supervision and transparency of beneficial ownership.
  - Kyrgyz Republic complies or mostly complies with 39 of the 40 FATF recommendations.
  - Eurasian Group effectiveness assessment found understanding of ML/FT risks is low and confiscation of proceeds of crime is rarely effective.
  - Recommendation: strengthen analytical and implementation capacity of risk-based AML/CFT supervision and monitoring of cross-border activities to detect and recover proceeds of crimes, including corruption.

### Climate-related policies
- Rationale and recommendations:
  - Kyrgyz Republic is particularly exposed to global warming risks and needs a climate adaptation policy to strengthen resilience.
  - Requires creating fiscal space for additional public spending on green infrastructure, healthcare, training and education, and social safety nets.
  - Despite low carbon footprint, country should contribute to global mitigation by reducing air, soil, and water pollution, expanding renewables, and raising electricity tariffs to cost recovery to attract private investment in clean power generation.
- Authorities' views:
  - Authorities shared staff’s assessment of reform priorities, intend to optimize number of non-strategic commercial SOEs starting with telecom, and have committed to address climate-related challenges with priorities including green energy, agriculture and industry, environmentally friendly transportation, sustainable tourism, waste management, and green cities.
  - They highlighted financial constraints as an impediment to climate policies.

### Staff appraisal: macroeconomic outlook and policy priorities
- Recent performance and risks:
  - Kyrgyz Republic showed resilience but risks are elevated: migration of capital and productive labor from Russia supported activity; inflation surged; external and fiscal balances deteriorated; international reserves declined; poverty increased.
  - Total public debt fell largely because of high nominal GDP and real appreciation of the exchange rate.
  - Outlook subject to heightened uncertainty as macroeconomic buffers have been eroded.
  - Decline in net inflow of remittances suggests adverse spillovers from the war in Ukraine are starting to materialize; high commodity prices, global slowdown and tightening global financial conditions likely to weigh on output growth.
  - Policy flexibility constrained by reduced buffers and limited forthcoming concessional external financing.

- Fiscal policy recommendations:
  - Aim to reduce deficits while creating space for priority spending on infrastructure, health and education, and social protection.
  - Reverse expansionary stance in 2022 in coming years to restore fiscal buffers, contain build-up of public debt, and alleviate financing constraints.
  - Staff recommends maintaining public debt below 60 percent of GDP in the medium term and reducing it more thereafter.
  - Growth-friendly consolidation measures: reduce tax expenditure, optimize tax policy, strengthen tax and customs administration, reduce public sector wage bill, raise electricity tariffs to reduce energy subsidies.
  - Channeling dividends of the state-owned Kumtor Gold Company to the budget would significantly ease financing constraints.
  - Strengthening social safety nets to support poverty reduction.

- Monetary and external recommendations:
  - Monetary policy should aim at reducing inflation to mid-single digits, requiring a restrictive monetary policy stance and tightening of liquidity.
  - Discontinue NBKR’s purchases of gold to prevent further injection of liquidity; resumption of gold exports is critical for balance of payments sustainability.
  - The exchange rate was overvalued by about 5-10 percent in 2021, but NBKR remains committed to exchange rate flexibility.
  - Renewed efforts needed to introduce amendments to the NBKR law to strengthen governance and operational independence.

- Governance and structural reform priorities:
  - Important governance gaps remain; addressing them could have a transformative impact on investment and growth.
  - Reduce opportunities for corruption by strengthening income and asset declarations and investigating illicit enrichment.
  - Maintain competitive bidding in public procurement and extend it to SOEs; exclusion would increase corruption risks and may jeopardize concessional financing.
  - Implement a comprehensive SOE ownership and oversight policy and strengthen AML/CFT framework and cross-border monitoring.

- Climate policy priority:
  - Develop a climate adaptation policy, create fiscal space for green spending, invest in renewables, reduce pollution, and raise electricity tariffs to support private investment in clean power.

*Source: Excerpt from IMF staff report content provided in the supplied PDF content unit.*

### 35.      Staff recommends that the next Article IV consultation is held on a standard 12-month

### 1kgzea2023001 - 35.      Staff recommends that the next Article IV consultation is held on a standard 12-month cycle.

### Social and Demographic Indicators
- Population (in millions, 2021): 6.6
- GINI Index (2020): 0.29
- Unemployment rate (ILO estimate, in percent, 2021): 9.1
- Life expectancy at birth in years (2020): 72.0
- Poverty rate (in percent, national definition, 2020): 33
- Adult literacy rate (percent of popul., 2018): 99.6
- Per capita GDP (World Bank, in million U.S. dollars, 2021): 1,276
- Under-five mortality (per 1000 live births, 2020): 18

### Real Sector: GDP, Inflation, and Growth Projections
- Nominal GDP (in billions of soms), 2019–27: 619, 602, 723, 859, 1,009, 1,129, 1,242, 1,363, 1,486
- Nominal GDP (in millions of U.S. dollars), 2019–27: 8,872, 7,792, 8,549, 10,061, 11,275, 11,969, 12,779, 13,617, 14,410
- Real GDP (growth in percent), 2019–27: 4.6, -8.6, 3.6, 5.5, 3.5, 3.8, 4.0, 4.0, 4.0
- Nongold real GDP (growth in percent), 2019–27: 4.1, -9.0, 3.9, 4.9, 3.7, 4.0, 4.1, 4.1, 4.1
- GDP per capita (in U.S. dollars), 2019–27: 1,389, 1,196, 1,285, 1,481, 1,627, 1,691, 1,768, 1,847, 1,914
- Consumer prices (12-month percent change, eop), 2019–27: 3.1, 9.7, 11.2, 5.4, 10.0, 6.0, 5.5, 5.5, 4.0
- Consumer prices (12-month percent change, average), 2019–27: 1.1, 6.3, 11.9, 13.5, 12.4, 7.8, 5.8, 5.5, 4.8

### External Sector: Trade, Reserves, and Current Account
- Current account balance (in percent of GDP), 2019–27: -12.1, 4.8, -8.6, -28.7, -10.6, -10.0, -9.1, -8.5, -8.0
- Exports of goods and services (in millions of U.S. dollars), 2019–27: 3,126, 2,444, 3,301, 4,399, 5,356, 5,682, 5,958, 6,315, 6,716
- Export growth (percent change), 2019–27: 13.8, -21.8, 35.0, 33.3, 21.8, 6.1, 4.9, 6.0, 6.4
- Imports of goods and services (in millions of U.S. dollars), 2019–27: 5,690, 4,060, 5,938, 8,587, 7,820, 8,207, 8,464, 8,851, 9,281
- Gross International reserves (in millions of U.S. dollars), 2019–27: 2,176, 2,628, 2,779, 2,367, 1,994, 1,724, 1,608, 1,582, 1,571
- Gross reserves (months of next year imports, eop), 2019–27: 6.4, 5.3, 3.9, 3.6, 2.9, 2.4, 2.2, 2.0, 2.0
- External public debt outstanding (in percent of GDP), 2019–27: 43.3, 57.9, 50.6, 46.9, 44.1, 41.1, 39.1, 37.0, 35.2
- External public debt service-to-export ratio (in percent), 2019–27: 6.6, 9.7, 5.6, 7.9, 8.1, 7.9, 6.7, 6.9, 6.6

### Balance of Payments Highlights (in millions of U.S. dollars)
- Current account balance, 2019–27: -1,073, 374, -739, -2,885, -1,195, -1,201, -1,157, -1,161, -1,159
- Trade balance, 2019–27: -2,626, -1,440, -2,420, -3,860, -2,223, -2,323, -2,331, -2,381, -2,427
- Exports, fob, 2019–27: 2,043, 2,016, 2,779, 3,696, 4,653, 4,950, 5,195, 5,455, 5,882
- Imports, fob, 2019–27: 4,669, 3,456, 5,199, 7,556, 6,876, 7,272, 7,752, 8,578, 9,281
- Current transfers (net), 2019–27: 2,270, 2,246, 2,521, 2,039, 2,101, 2,182, 226, 823, 542
- Financial account, 2019–27: 466, -473, 567, 446, 790, 919, 978, 1,039, 1,021
- Errors and omissions, 2019–27: 566, -104, 602, 1,868, 0, 0, 0, 0, 0
- Overall balance, 2019–27: 47, -123, 564, -390, -300, -172, -64, -1, -10

### Monetary Sector and Central Bank Accounts (NBKR)
- Reserve money (percent change, eop), 2019–23: 11.0, 24.8, 6.5, 40.4, 6.4, 11.9, 10.0, 5.6, 4.5
- Broad money (percent change, eop), 2019–23: 12.8, 23.9, 19.1, 27.7, 9.6, 11.9, 10.0, 9.8, 9.0
- Credit to private sector (percent change, eop), 2019–23: 14.9, 12.6, 11.7, 9.9, 7.8, 21.5, 2.5, -2.5, -6.0
- Credit to private sector (in percent of GDP), 2019–23: 24.2, 28.1, 26.1, 24.1, 22.2, 24.0, 22.4, 19.9, 17.2
- NBKR net foreign assets (in millions of soms), 2019–23: 160,750, 222,109, 222,086, 202,633, 192,116
- Reserve money (in millions of soms), 2019–23: 118,065, 147,338, 156,908, 220,312, 234,409
- Gross International Reserves (in millions of U.S. dollars), 2019–23: 2,176, 2,628, 2,779, 2,367, 1,994
- Exchange rate, som per U.S. dollar, end of period: 69.6, 82.6, 86.8, ...

### Monetary Survey (Broad Money and Credit)
- Net foreign assets (in millions of soms), 2019–23: 164,586, 246,056, 269,446, 261,833, 257,236
- Net domestic assets (in millions of soms), 2019–23: 65,674, 39,192, 70,333, 172,182, 218,615
- Domestic credit (in millions of soms), 2019–23: 136,370, 149,184, 166,419, 215,526, 260,959
- Broad money (M2X) (in millions of soms), 2019–23: 230,261, 285,248, 339,778, 434,015, 475,851
- Broad money (M2X) (12-month change, in percent), 2019–23: 12.8, 23.9, 19.1, 27.7, 9.6
- Credit to the rest of the economy (in percent of GDP), 2019–23: 24.2, 28.1, 26.1, 24.1, 22.2

### State Government Finances (in millions of soms)
- Revenues, 2019–27: 167,431; 152,149; 209,827; 300,895; 325,781; 369,415; 401,601; 437,425; 473,658
- Taxes, 2019–27: 121,526; 104,702; 147,907; 230,081; 260,593; 292,536; 317,400; 346,362; 376,347
- Grants (including project grants), 2019–27: 13,595; 11,916; 13,738; 20,221; 11,807; 12,688; 13,608; 14,292; 15,168
- Expense, 2019–27: 140,047; 150,648; 173,000; 253,509; 310,421; 342,845; 378,484; 412,428; 447,956
- Compensation of Employees, 2019–27: 58,482; 66,549; 65,230; 99,904; 128,066; 143,213; 155,192; 167,507; 179,681
- Interest (total), 2019–27: 7,785; 8,465; 8,437; 10,970; 14,526; 22,051; 29,197; 35,814; 43,408
- Net lending/borrowing (overall balance), 2019–27: -4,028; -22,946; -9,427; -44,395; -46,762; -49,913; -58,721; -65,689; -74,723
- Total amortization, 2019–27: -10,132; -11,917; -12,384; -17,543; -26,999; -29,382; -29,227; -36,292; -40,817

### State Government Finances (in percent of GDP)
- Revenues, 2019–27: 27.0, 25.3, 29.0, 35.0, 32.3, 32.7, 32.3, 32.1, 31.9
- Taxes, 2019–27: 19.6, 17.4, 20.5, 26.8, 25.8, 25.9, 25.6, 25.4, 25.3
- Expense, 2019–27: 22.6, 25.0, 23.9, 29.5, 30.8, 30.4, 30.5, 30.3, 30.2
- Net lending/borrowing (overall balance), 2019–27: -0.7, -3.8, -1.3, -5.2, -4.6, -4.4, -4.7, -4.8, -5.0
- Gross operating balance, 2019–27: 4.4, 0.2, 5.1, 5.5, 1.5, 2.4, 1.9, 1.8, 1.7
- Net acquisition of nonfinancial assets (in percent of GDP), 2019–27: 5.2, 4.1, 6.4, 10.7, 6.2, 6.8, 6.6, 6.7, 6.8

### General Government (GFSM 2014) — Consolidated Highlights
- Revenues (in millions of soms), 2019–27: 201,217; 185,582; 245,585; 339,933; 367,688; 415,569; 451,388; 491,509; 531,279
- Expense (in millions of soms), 2019–27: 169,467; 180,367; 204,353; 291,993; 351,663; 388,259; 427,472; 465,659; 504,637
- Net lending/borrowing, 2019–27: -484; -19,588; -5,441; -44,391; -46,744; -49,902; -58,718; -65,690; -74,710
- Gross operating balance (in millions of soms), 2019–27: 31,750; 5,215; 41,233; 47,940; 16,025; 27,309; 23,915; 25,850; 26,643
- Net acquisition of nonfinancial assets (in millions of soms), 2019–27: 32,235; 24,803; 46,673; 92,332; 62,769; 77,211; 82,633; 91,540; 101,353

### National Accounts — Sectoral Growth Rates (real terms)
- Agriculture, Hunting, Fishing, Forestry (growth in percent), 2019–27: 2.5, 1.1, -5.0, 6.0, 3.0, 3.0, 3.0, 3.0, 3.0
- Industry (growth in percent), 2019–27: 6.6, -7.5, 7.2, 12.5, 2.4, 2.9, 3.0, 3.0, 3.0
- Industry without Gold (growth in percent), 2019–27: 3.9, -10.0, 12.9, 5.5, 4.0, 5.0, 5.0, 5.0, 5.0
- Construction (growth in percent), 2019–27: 10.7, -15.9, -4.8, 5.5, 6.0, 9.1, 9.1, 9.1, 9.1
- Transport, Communication, Trade, Other, Net Taxes on Products: sectoral growth rates reported for 2019–27 in Table 2.

*Source: IMF staff estimates and projections as presented in the Kyrgyz Republic country tables and accompanying text in the supplied content unit.*

### Annex I. Risk Assessment Matrix

### Annex I. Risk Assessment Matrix

### Conjunctural Risks
- Intensifying spillovers from Russia’s war in Ukraine
  - Likelihood / Timeframe: High / Medium
  - Possible Impact / Transmission Channels:
    - Stronger contraction of the Russian economy could result in lower growth and remittances, trade disruptions, and a possible return of migrant workers.
    - Reduction in disposable incomes combined with high inflation, if persistent, would reduce growth, raise public debt, increase poverty, and add to social pressures.
  - Policy Advice:
    - Maintain exchange rate flexibility and calibrate monetary policy to contain inflation.
    - Provide targeted support to the most vulnerable, while creating additional fiscal space by reducing universal subsidies, eliminating inefficient tax exemptions, and seeking external concessional financing.
    - Enhance oversight of the financial system and mitigate risks to the banking sector.

- Commodity price shocks
  - Likelihood / Timeframe: High / Medium
  - Possible Impact / Transmission Channels:
    - Higher food and energy prices would increase inflationary pressures, weaken the CA and the exchange rate, lead to food and energy insecurity, and cause social discontent.
    - Depreciation would increase public debt. Higher gold prices would strengthen the current account.
  - Policy Advice:
    - Maintain exchange rate flexibility and adequately tight monetary policy to prevent second round inflation.
    - Provide targeted social assistance to the poor, while seeking external concessional financing.

- Systemic social unrest
  - Likelihood / Timeframe: High / Medium
  - Possible Impact / Transmission Channels:
    - Rising inflation, declining incomes, and worsening inequality amplify social unrest and political instability, causing capital outflows from EMDEs, slowing economic growth, and giving rise to economically damaging populist policies.
    - Significant reduction of remittances and incomes combined with high inflation would further increase poverty, result in social discontent, and undermine political stability.
  - Policy Advice:
    - Reduce inefficient energy subsidies to create fiscal space and strengthen social safety nets. Seek to mobilize more donor financing.
    - Prioritize reforms that have greatest potential to improve the business climate and support activity (e.g. governance).

- De-anchoring of inflation expectations and stagflation
  - Likelihood / Timeframe: Medium / Medium
  - Possible Impact / Transmission Channels:
    - Supply shocks to food and energy prices sharply increase headline inflation and pass through to core inflation, de-anchoring inflation expectations and triggering a wage-price spiral in tight labor markets.
    - Central banks tighten monetary policy more than envisaged leading to weaker global demand, currency depreciations in EMDEs, and sovereign defaults; could lead to stagflation.
    - Inflation would rise sharply and the current account deficit widen, resulting in strong exchange rate pressures. Social conditions would deteriorate and poverty increase. Depreciation would increase public debt.
  - Policy Advice:
    - Maintain exchange rate flexibility and adequately tight monetary policy to prevent second round inflation.
    - Create more fiscal space by optimizing expenditure and the tax system, strengthen social safety nets and seek external concessional financing.

- Abrupt global slowdown or recession
  - Likelihood / Timeframe: Medium / Medium
  - Possible Impact / Transmission Channels:
    - Global and idiosyncratic risk factors cause a synchronized sharp growth slowdown, with outright recessions in some countries, spillovers through trade and financial channels, and downward pressures on some commodity prices.
    - Kyrgyz Republic’s relatively limited integration into the global economy dampens the likely impact of a global downturn, except for the spillovers from Russia.
  - Policy Advice:
    - Maintain exchange rate flexibility and calibrate monetary policy to contain inflation.
    - Provide targeted support to the most vulnerable, while creating additional fiscal space by reducing universal subsidies, eliminating inefficient tax exemptions, and seeking external concessional financing.
    - Enhance oversight of the financial system and mitigate risks to the banking sector.

- Local Covid-19 outbreaks
  - Likelihood / Timeframe: Medium / Medium
  - Possible Impact / Transmission Channels:
    - Outbreaks in slow-to-vaccinate countries or emergence of more contagious vaccine-resistant variants force new lockdowns or inhibit commerce, resulting in extended supply chain disruptions, slower growth, capital outflows, and debt distress in some EMDEs.
    - Renewed lockdowns and trade disruptions could result in significant growth slowdown or contraction.
  - Policy Advice:
    - Secure vaccines to minimize spread of the virus, strengthen social safety nets and provide support to the most affected and vital sectors of the economy.

### Domestic Risks
- Sustained reduction in gold prices
  - Likelihood / Timeframe: Medium / Medium
  - Possible Impact / Transmission Channels:
    - Portfolio reallocation due to rising yields on other financial assets could result in lower prices for gold.
    - Lower gold prices would weaken growth, the external and fiscal positions.
  - Policy Advice:
    - Allow for more exchange rate flexibility and strengthen the business environment to support economic activity.

- A rise in public debt
  - Likelihood / Timeframe: Medium / High
  - Possible Impact / Transmission Channels:
    - New large infrastructure projects, and higher domestic interest rates due to increased domestic borrowing would widen fiscal deficits and result in build-up of public debt and higher debt service.
    - Accumulation of high interest debt would pose a risk to debt sustainability and undermine investor confidence.
  - Policy Advice:
    - Pursue fiscal consolidation by strengthening tax policy and administration, and reducing energy subsidies and the public wage bill.
    - Delay low-priority capital spending.
    - Accelerate structural reforms to support private sector led growth.

### Risk Guidance and Definitions
- The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff).
- Likelihood definitions (staff’s subjective assessment): “low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent.
- The RAM reflects staff views on the source of risks and the overall level of concern at the time of discussions with the authorities.
- Non-mutually exclusive risks may interact and materialize jointly.
- “Short-term” and “medium-term” indicate that the risk could materialize within one year and three years, respectively.

*Annex I. Risk Assessment Matrix — Kyrgyz Republic (excerpt).*

### 3.      However, the headline CA deficit could be overstated. Large positive errors and omissions

### 3.      However, the headline CA deficit could be overstated. Large positive errors and omissions

### Errors, omissions, and transit trade
- Large positive errors and omissions are likely capturing unrecorded transit trade and remittances:
  - 7 percent of GDP in 2021
  - 18.6 percent of GDP in H1 2022
- Non-energy trade shows a significant increase in imports from outside the Eurasian Economic Union (EAEU) and a simultaneous increase in exports to Russia:
  - Share of Russia in total exports rose from 14 percent in 2021 to 38 percent in H1 2022
- Recorded re-exports are likely only a fraction of actual volumes because:
  - Intra-EAEU trade is not subject to tariffs
  - Filing by exporters is voluntary
- These possible discrepancies would render the external sector weaker than it actually is.

### Exchange rate developments
- The Kyrgyz som remained broadly stable against the USD during 2021:
  - Intra-month movements remained well within the 2.5 percent band
  - On an annual basis, the som depreciated by 8.6 percent
- Real effective exchange rate (REER) and related indicators:
  - REER depreciated by 3.7 during 2021, reflecting the inflation gap and depreciation of the som against trading partner’s currency basket as indicated by the depreciated nominal effective exchange rate (NEER) and 8 percent growth in Relative Price Index (RPI)
  - REER has appreciated by almost 12 percent during the first 10 months of 2022

### Reserves and projections
- Gross reserves:
  - Declined to 3.9 months of imports of goods and services from 5.3 months in 2020
  - Higher FDI and private sector external borrowing were outweighed by the weaker current account
- Projected gross reserves:
  - About 3.6 months of imports of goods and services in 2022
  - 2.9 months in 2023
  - 2.0 months by 2027
- The 2.0 months by 2027 level is slightly below the IMF’s reserve adequacy metrics for credit constrained economies.

### External assessment (fragment)
- The Current Account (CA) model identifies a negative current account gap of 4.7 percent of GDP and suggests an overvaluation of REER by

*Source: KYRGYZ REPUBLIC — IMF staff estimates and country authorities (extracted from the provided content).*

### 10.2 percent (Text Table). The large

### 1kgzea2023001 - 10.2 percent (Text Table). The large

### External position assessment and exchange rate
- The large negative output gap further raises the actual CA deficit by additional 1.1 percent of GDP.
- Adjustors applied:
  - Tourism adjustor: 0.7 percent of GDP.
  - No temporary adjustment for remittances as the war in Ukraine is expected to have a lasting impact in the medium term.
  - Overall adjustor decrease to the actual CA deficit: 0.7 percent of GDP.
- Policy gap: 3.4 percent of GDP, primarily reflecting a tighter fiscal stance compared to its desired level and a smaller fiscal stimulus and stronger fiscal position in Kyrgyz Republic compared to the world in 2021.
- Real Effective Exchange Rate (REER) model:
  - Points to an undervaluation of about 15 percent.
  - REER-norm and REER fitted values are higher than the actual REER, implying the need for REER appreciation to close the gap with its norm.
  - Real interest rate gap between Kyrgyz Republic and rest of the world is the major contributor to REER norm.
- Staff Assessment:
  - Staff assesses the external position of Kyrgyz Republic in 2021 as weaker than the level implied by medium-term fundamentals and desirable policies.
  - The CA and REER models yield opposite results.
  - Large positive errors and omissions are likely capturing unrecorded current account transactions – transit trade and remittances mostly.
  - If at least half of this was recorded in the current account, the overvaluation would reduce to under 5 percent.
  - In the REER model, the main cause of the undervaluation is the interest rate differential with the rest of the world, implying results driven by capital and financial account, which are limited and considerably smaller than the CA.
  - Significant foreign exchange interventions – net sales of $699 million by the NBKR during 2021 – lead staff to view the exchange rate as somewhat overvalued in the range of 5-10 percent.
  - Recommended measures: fiscal consolidation, resumption of gold exports, accumulation of reserves, and reforms to strengthen competitiveness to help align the external sector with fundamentals.

### EBA-lite Model Results, 2021 (Table 1 summary)
- CA model (in percent of GDP):
  - CA-Actual: -8.6
  - Cyclical contributions (from model) (-): 1.1
  - COVID-19 adjustor (-): 0.7
  - Additional temporary/statistical factors (-): 0.0
  - Natural disasters and conflicts (-): -0.2
  - Adjusted CA: -8.7
  - CA Norm (from model): -5.3
  - Adjusted CA Norm: -5.3
  - CA Gap: -3.5
    - o/w Relative policy gap: 3.4
  - Elasticity: -0.34
- REER model:
  - CA Gap (REER column): 5.1 (as reported in table under CA Gap / REER model)
  - REER Gap (in percent): 10.2 (CA model column) and -15.0 (REER model column)
- Methodological notes from table:
  - 1/ Based on the EBA-lite 3.0 methodology
  - 2/ Additional cyclical adjustment to account for the temporary impact of the pandemic on tourism (0.7 percent of GDP) and no temporary adjustment for remittances (as the war in Ukraine is expected to have a lasting impact in the medium term).
  - 3/ Cyclically adjusted, including multilateral consistency adjustments.

### External sector measurement issues and statistics
- Errors and omissions likely capture unrecorded transit trade and remittances.
- External Sector Statistics:
  - Starting with 2017, quarterly balance of payments and IIP compiled and disseminated on BPM6 basis.
  - Improvements needed in estimation of shuttle trade, transit trade within the Custom Union and remittances.
  - Coverage gaps in transactions related to direct investment (inward and outward), including investment income, and cross-border transactions related to gold mining.
  - Work needed to adjust trade statistics to Eurasia Custom Union requirements and reconcile customs declarations database for trade with CU members and rest of world.
- External Debt and reporting:
  - External Debt Division of NBKR monitors public sector external debt and submits gross external debt statistics (GEDS) to World Bank’s QEDS database.
  - Compilation of QEDS executed in collaboration with NBKR, which provides inputs on private sector external debt (banks and other sectors).

### Policy-relevant findings and recommendations
- Staff view exchange rate as somewhat overvalued in the range of 5-10 percent in 2021, considering NBKR net sales of $699 million.
- If at least half of unrecorded transactions were recorded, overvaluation would reduce to under 5 percent.
- Policy recommendations:
  - Fiscal consolidation.
  - Resumption of gold exports.
  - Accumulation of reserves.
  - Reforms to strengthen competitiveness.
  - Improving tax collections, reducing the wage bill and energy subsidies, strengthening debt management, avoiding non-concessional borrowing, and improving public investment management to reduce fiscal imbalances and contain debt vulnerabilities.

### Debt sustainability and fiscal outlook
- Risk ratings:
  - Risk of external debt distress: Moderate
  - Overall risk of debt distress: Moderate
- Rationale:
  - Rapid accumulation of domestic debt drives overall moderate risk.
  - No breach of external debt thresholds under any standard shock, but customized stress test on exports (discontinuation of gold exports, rapid rise in transit trade, heightened global uncertainty) leads staffs to judge external public debt sustainable at moderate risk.
  - PV of total public debt-to-GDP does not breach its threshold under the baseline before 2032, but it does under a standard stress test.
- Current debt-carrying capacity assessed as strong, but fiscal space is narrowing after the substantial public wage increase in 2022.
- Without fiscal consolidation public debt will continue to rise in the longer term.

### Technical assistance, data, and institutional capacity (selected)
- TA and capacity development provided (January 2014 – November 2022) across multiple IMF departments (FAD, MCM, LEG, STA, etc.) covering:
  - Tax Administration, Public Finance Management, Public Investment Management, Treasury and Accounting Reform, Fiscal Rules, Fiscal Risk Disclosure.
  - Monetary policy framework, inflation targeting, central bank digital currency, banking supervision, cyber security, IFRS 9 training, and central bank operations.
  - AML/CFT follow-up and legal drafting.
  - Price statistics, national accounts, government finance statistics, external sector statistics, monetary and financial statistics, and financial soundness indicators.
- National Accounts improvements:
  - NSC plans to release quarterly GDP estimates in June 2023 in parallel with implementation of the System of National Accounts 2008 (2008 SNA) and major revision of national accounts time series.
- Government Finance Statistics:
  - Since 2018, annual GFS compiled for whole general government and quarterly general government data reported for publication in the IFS starting Q1 2018.
  - Data compiled using GFSM 2014 analytical framework.
  - Issues: on-lending to loss-making energy SOEs incorrectly classified; PSDS reporting suspended with latest data reported for Q1 2019.
  - Ministry of Finance working to: i) improve fiscal data in accordance with GFSM 2014; ii) resume PSDS reporting and expand coverage of debt instruments; iii) reconcile macro statistics for consolidated general government.

*Source: IMF Staff calculations and Kyrgyz Republic—Staff Report for the 2022 Article IV Consultation—Informational Annex (January 4, 2023).*

### 1. Public and Publicly Guaranteed (PPG) debt covers state government debt (both central

### 1kgzea2023001 - 1. Public and Publicly Guaranteed (PPG) debt covers state government debt (both central 

### Coverage and definitions
- PPG debt covers state government debt (both central and local government), state guarantees, and the debt of the central bank to the IMF.
- Almost all public sector debt is issued by the central government.
- The 2021 SDR allocation (SDR 170 million, equivalent to USD 242 million) was transferred from the National Bank of the Kyrgyz Republic (NBKR) to the Government to pay for external debt service; the full amount is projected to be drawn down over 2022-23 and therefore is counted fully toward public debt after that point.
- Local governments: no external debt and insignificant domestic debt.
- Social security fund: no debt.
- State-owned enterprises (SOEs): mostly borrow from the government and have no external debt; short-term domestic borrowing from the banking sector is limited and they do not have long-term domestic debt.
- Government guarantees: government has no outstanding guarantees (Budget Code prevented guarantees since 2007, but recent changes allow guarantees subject to conditions being developed).

### Contingent liabilities and shock assumptions
- Given liabilities associated with the energy sector (equivalent to around 20 percent of GDP), a combined contingent liability shock of 7 percent of GDP was applied:
  - 2 percent of GDP: operational risk from structural cash shortfall of loss-making energy sector SOEs (default value reflects possible losses from SOE operations).
  - 5 percent of GDP: default value representing the average cost to the government during a financial crisis.
- PPPs: default applied is 35 percent of PPP stock → 0.0 (in this country’s calculation).
- Financial market default value (minimum): 5 percent of GDP.
- Total contingent liability shock (2+3+4+5) = 7.0 (in percent of GDP).

### Debt levels and composition (historical and end-2021)
- Public debt increased to 67.6 percent of GDP in 2020 (from 51.6 percent in 2019); fell to 60.8 percent of GDP in 2021.
- External debt decreased by 7.3 percentage points of GDP between 2020 and 2021; domestic debt increased marginally.
- Domestic public debt holders: commercial banks 50 percent; social security fund 30 percent.
- External debt currency composition at end-2021:
  - SDR: 36.8
  - USD: 46.3
  - EUR: 4.5
  - Other: 12.4
- External debt composition by creditor at end-2021:
  - China: 41.6
  - AsDB: 15.6
  - IDA (World Bank): 15.2
  - IMF: 8.0
  - Other: 19.5
- External PPG debt was 50.6 percent of GDP at end-2021; private external debt was 26.5 percent of GDP.
- PV of PPG external debt:
  - 2021: 35.7 percent of GDP (decreased from about 36 percent at end-2020 in previous DSA).
  - Projected by end-2027: about 23.2 of percent of GDP.

### Underlying macroeconomic assumptions and projections
- Growth and inflation:
  - Growth: 3.7 percent in 2021; estimated 5.5 percent in 2022; medium/long-term potential 4 percent.
  - End-of-period inflation: 11.2 percent in 2021; mid-teens in 2022 (15.4 percent in October); forecast to decline to 10 percent in 2023 and to mid-single digits thereafter.
- Fiscal policy:
  - Overall budget deficit: 0.8 percent of GDP in 2021 (from 3.3 percent in 2020); estimated 5.2 percent of GDP in 2022 due to public wage, pension and social assistance increases.
  - Interest payments from non-concessional domestic debt: rise from 0.7 percent of GDP in 2022 to 2.4 percent by 2027.
  - Overall deficit projected to increase from more than 4.6 percent of GDP in 2023 to around 5 percent over the long term.
  - No dividend payments assumed from Kumtor despite full state ownership.
- External sector:
  - Current account: surplus of 4.5 percent of GDP in 2020; deficit of 8.6 percent of GDP in 2021.
  - Current account deficit projected to reach 28.7 percent of GDP in 2022 and recover to about 10 percent of GDP in 2023; expected to narrow to around 8 percent by 2027 with external support (entirely as loans).
  - Remittances: declined by 13 percent on a net basis for the first 9 months through September (year not specified in excerpt).
- Financing assumptions:
  - New external borrowing assumed mostly concessional; country expected to remain IDA-eligible over projection horizon.
  - IDA loan disbursements increased to around US$70 million by 2030 (roughly twice previous DSA), then reduced to around US$25 million over the following 8 years.
  - Share of net domestic borrowing: increase to over 40 percent of gross financing needs in 2022 (from almost zero in 2021); projected to fill more than 60 percent of gross financing needs by 2027.
  - Domestic borrowing rates assumed in 2023: 12.4 to 16.4 percent for maturities between 1 year and 20 years; gradual decrease by 2027 to between 6.7 and 10.7 percent respectively.

### Debt-carrying capacity and thresholds
- Composite Indicator (CI) index: 3.06 (threshold for strong debt-carrying capacity is 3.05).
  - CI vintages: 3.06 (final), 3.03 (previous vintage), 3.16 (two previous vintages).
- External debt burden thresholds for "Strong" classification:
  - PV of external debt in % of Exports: 240
  - PV of external debt in % of GDP: 55
  - Debt service in % of Exports: 21
  - Debt service in % of Revenue: 23
- Total public debt benchmark (Strong): PV of total public debt in percent of GDP = 70

### External DSA findings and stress tests
- Under the baseline scenario, all four external debt ratios remain below their respective thresholds.
- Private external debt expected to decline to 21.6 percent of GDP by 2027.
- PV of PPG external debt projected to decline to about 23.2 of percent of GDP by end-2027 (below the 55 percent threshold).
- Unlike previous DSA, all external debt ratios remain under thresholds even under standard stress tests due to declining external borrowing and higher nominal denominators from inflation.
- Customized stress test on exports (mirroring non-export of gold or collapse in transit trade):
  - Doubles the size of the exports growth shock to two standard deviations, yielding negative export growth of almost 35 percent in 2023 and 2024.
  - Causes sustained breach of thresholds for PV of debt-to-exports ratio and debt service-to-exports ratio.
- External PPG debt service by creditor categories is projected (text figure referenced) with debt service as share of GDP rising toward a peak in 2027.

### Public DSA findings and vulnerabilities
- PV of debt-to-GDP ratio (total public debt) increases gradually under baseline but does not breach the 70 percent threshold by 2032.
- Public debt estimated to have subsided to 58.3 percent of GDP in 2022 (from 60.8 percent in 2021).
- Under baseline, PV of total public debt expected to reach around 61 percent of GDP by 2027 and continue to rise to over 68 percent of GDP by 2038 (contrast with previous DSA where it decreased to under 50 percent by 2040).
- Debt service-to-revenue (including grants) rises to more than 20 percent over the next five years and remains at that level until 2032 due to high interest rates on domestic debt.
- Most severe stress test: growth shock
  - Under growth shock, PV of debt-to-GDP breaches 70 percent of GDP by 2026.
  - PV of debt-to-revenue would reach 300 percent in 2032.
  - Debt service-to-revenue would rise above 35 percent by 2032.
  - These trajectories point to potentially severe debt and liquidity difficulties in the long run.

### Risk rating and vulnerabilities (staff assessment)
- Mechanical standard stress tests suggest a ‘low’ risk rating, but staff assess external debt to be sustainable and at “moderate” risk of debt distress.
- Reasons for maintaining “moderate” rating:
  - Customized export stress test breaches thresholds.
  - Heightened uncertainty including high residual for 2022, downside regional risks from Russia’s invasion of Ukraine, global financial tightening and higher interest rates, potential reversal of denominator effects if inflation abates, increased demand for public spending due to inflation erosion of purchasing power, and limited export diversification.
- Overall assessment: external debt sustainable under baseline but moderate risk of external debt distress given tail risks and vulnerabilities.

*Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1kgzea2023001.pdf*

### 12. The risk of debt distress for overall public debt remains “moderate”, as the PV of debt-

### 12. The risk of debt distress for overall public debt remains “moderate”, as the PV of debt-

### Debt sustainability assessment
- The PV of debt-to-GDP ratio breaches its threshold of 70 percent before 2032 under a standard stress test.
- This ratio is driven by growing domestic borrowing at high interest rates in the absence of concessional external finance.
- Over time, interest payments become an accelerating driver of financing needs and an important contributor to automatic debt dynamics.
- Total public debt is still assessed as sustainable since the ratio under the baseline ceases to increase before 2042.

### Fiscal space and risks
- Staffs see fiscal space to absorb shocks narrowing due to the rapid deterioration of the total PPG debt in the near term.
- The breach of the threshold under a standard stress test by 2026 indicates that the Kyrgyz Republic needs urgent fiscal consolidation.
- Envisaged domestic financing for the foreseeable future creates additional risks:
  - It could crowd out lending to the private sector.
  - It could constrain delivery of public services.

### Policy recommendations and adjustments
- Authorities need to take near-term decisions to:
  - Reduce the fiscal deficit.
  - Strengthen public debt and expenditure management.
  - Improve the business climate.
- To keep public debt sustainable, the primary deficit should be reduced under 1 percent of GDP in the medium term from the projected 2.4 percent.
- Additional fiscal space can be created by:
  - Lowering the wage bill and energy subsidies.
  - Prioritizing other expenditure.
  - Improving tax policy and administration to raise more revenue.
- To meet growing spending needs on health and education, infrastructure, and social assistance without undermining debt sustainability, further efforts are needed to:
  - Strengthen public debt management.
  - Strengthen public investment management to contain contingent liabilities and spur growth.
  - Raise spending efficiency.
- These efforts would strengthen engagement with donors and help mobilize additional concessional financing.
- Equally important are structural reforms to improve the business environment and strengthen the competitiveness of Kyrgyz exports over the medium and long term.

### AUTHORITIES’ VIEWS

*Source: IMF staff report excerpt.*

### 15. The authorities broadly shared the views of Bank and Fund staff. They noted that they

### 15. The authorities broadly shared the views of Bank and Fund staff. They noted that they

### Authorities' stance and fiscal framework
- The authorities stated they have a nominal debt ceiling of 70 percent of GDP and reiterated their commitment to adhere to it.
- Their medium-term budget projections assume a continuous increase in budget revenue leading to surpluses and reduced borrowing needs, consistent with their debt rule.
- Authorities recognized challenges to debt sustainability if fiscal policy were laxer, including:
  - increased cost of borrowing domestically,
  - the shallowness of the domestic debt market,
  - limited external concessional financing options.

### External Debt Sustainability — Baseline scenario (selected indicators, in percent of GDP unless otherwise indicated)
- External debt (nominal): 2019: 72.8; 2020: 87.4; 2021: 77.1; 2022: 72.2; 2023: 68.5; 2024: 64.4; 2025: 61.5; 2026: 58.4; 2027: 56.6; 2032: 52.9; 2042: 48.9; (later entries include) 1.3; 59.3.
- Public and publicly guaranteed (PPG) external debt: 2019: 43.3; 2020: 57.9; 2021: 50.6; 2022: 46.7; 2023: 44.0; 2024: 40.9; 2025: 39.0; 2026: 36.9; 2027: 35.1; 2032: 31.4; 2042: 27.3; plus entries: 51.0; 36.9.
- Change in external debt: 2019: -3.7; 2020: 14.6; 2021: -10.3; 2022: -4.9; 2023: -3.7; 2024: -4.1; 2025: -2.9; 2026: -3.1; 2027: -1.8; 2032: -0.7; 2032 (later): -0.6.
- Identified net debt-creating flows: 2019: 3.1; 2020: 12.8; 2021: -5.7; 2022: 21.0; 2023: 3.6; 2024: 2.3; 2025: 1.2; 2026: 0.7; 2027: 0.3; 2032: -1.8; additional entries: 0.3; 4.2; 1.9.
- Non-interest current account deficit: 2019: 11.5; 2020: -5.7; 2021: 7.9; 2022: 28.1; 2023: 10.0; 2024: 9.5; 2025: 8.5; 2026: 8.0; 2027: 7.6; 2032: 5.1; 2042: 5.0; extra entries: 10.2; 9.0.
- Deficit in balance of goods and services: 2019: 28.9; 2020: 20.7; 2021: 30.9; 2022: 41.6; 2023: 21.9; 2024: 21.1; 2025: 19.6; 2026: 18.6; 2027: 17.8; 2032: 16.7; 2042: 21.7; additional: 34.6; 20.2.
- Net current transfers (negative = inflow): 2019: -25.6; 2020: -28.8; 2021: -29.5; 2022: -20.3; 2023: -18.6; 2024: -18.2; 2025: -17.7; 2026: -17.3; 2027: -16.9; 2032: -18.3; 2042: -21.0; extra entries: -28.7; -18.0.
- Net FDI (negative = inflow): 2019: -3.8; 2020: 7.5; 2021: -6.6; 2022: -4.1; 2023: -4.8; 2024: -5.3; 2025: -5.5; 2026: -5.5; 2027: -5.5; 2032: -5.5; 2042: -3.3; additional: -4.2; -5.3.

Sustainability indicators (selected):
- PV of PPG external debt-to-GDP ratio (projections): 35.7; 32.3; 29.3; 27.8; 26.4; 24.7; 23.1; 19.9; 18.3.
- PV of PPG external debt-to-exports ratio (projections): 92.5; 73.8; 61.8; 58.6; 56.5; 53.1; 49.6; 44.6; 42.7.
- PPG debt service-to-exports ratio (projections): 5.7; 9.1; 6.2; 7.4; 6.8; 6.6; 6.1; 6.8; 6.9; 4.4; 3.7.
- PPG debt service-to-revenue ratio (projections): 6.6; 9.9; 7.5; 8.7; 9.1; 8.8; 8.1; 9.0; 9.3; 5.7; 4.8.
- Gross external financing need (Million of U.S. dollars): 2019: 1,367.0; 2020: 818.7; 2021: 727.3; 2022: 3,088.4; 2023: 1,281.0; 2024: 1,209.3; 2025: 1,120.0; 2026: 1,169.7; 2027: 1,182.4; 2032: 838.8; 2042: 1,885.7.

Key macroeconomic assumptions (selected):
- Real GDP growth (in percent): 2019: 3.8; 2020: -8.6; 2021: 3.7; 2022: 5.5; 2023: 3.5; 2024: 3.8; 2025: 4.0; 2026: 4.0; 2027: 4.0; 2032: 3.7; 2042: 4.0; additional entries: 3.0; 4.0.
- GDP deflator in US dollar terms (change in percent): 2019: 2.5; 2020: -3.9; 2021: 5.8; 2022: 11.6; 2023: 8.2; 2024: 2.2; 2025: 2.7; 2026: 2.5; 2027: 1.7; 2032: 1.0; 2042: 0.5; extra: 3.1.
- Effective interest rate (percent) 4/: 2019: 0.9; 2020: 1.1; 2021: 0.9; 2022: 0.8; 2023: 0.8; 2024: 0.8; 2025: 0.9; 2026: 0.9; 2027: 0.9; 2032: 0.9; 2042: 0.8; extra: 0.9.
- Growth of exports of G&S (US dollar terms, in percent): 2019: 13.8; 2020: -21.8; 2021: 35.0; 2022: 33.3; 2023: 21.8; 2024: 6.1; 2025: 4.9; 2026: 6.0; 2027: 6.4; 2032: 3.7; 2042: 4.8; extra: 1.7; 9.0.
- Growth of imports of G&S (US dollar terms, in percent): 2019: -3.8; 2020: -28.7; 2021: 46.3; 2022: 44.6; 2023: -8.9; 2024: 4.9; 2025: 3.1; 2026: 4.6; 2027: 4.9; 2032: 4.5; 2042: 5.7; extra: 4.2; 6.6.
- Grant element of new public sector borrowing (in percent): projections include values such as 40.7; 35.9; 37.6; 37.9; 37.7; 38.0; 36.3; 33.2; 37.9.
- Government revenues (excluding grants, in percent of GDP): 2019: 30.3; 2020: 28.9; 2021: 32.1; 2022: 37.2; 2023: 35.3; 2024: 35.7; 2025: 35.3; 2026: 35.0; 2027: 34.7; 2032: 33.9; 2042: 33.4; extra entries: 31.4; 35.0.
- Aid flows (Million of US dollars) 5/: 2019: 195.0; 2020: 154.3; 2021: 162.4; 2022: 402.3; 2023: 300.7; 2024: 310.3; 2025: 323.6; 2026: 330.3; 2027: 354.4; 2032: 313.4; 2042: 386.0.
- Grant-equivalent financing (in percent of GDP) 6/: projections include 4.9; 2.5; 2.3; 2.2; 2.2; 2.2; 1.5; 1.3; (additional) 2.3.
- Nominal GDP (Million of US dollars): listed entries include 8,872; 7,792; 8,549; 10,061; 11,274; 11,967; 12,778; 13,615; 14,408; 18,331; 29,888.
- Nominal dollar GDP growth: 7.3; -12.2; 9.7; 17.7; 12.1; 6.2; 6.8; 6.6; 5.8; 4.7; 5.0; 3.6; 7.2.

Memorandum items (selected):
- PV of external debt: 62.2; 57.8; 53.9; 51.3; 48.9; 46.2; 44.6; 44.6; 41.4; 39.8.
- PV of external debt in percent of exports (memo): 161.2; 132.2; 113.4; 108.1; 104.8; 99.6; 95.7; 92.8; 93.0.
- Total external debt service-to-exports ratio: 21.9; 27.8; 18.4; 15.2; 12.8; 12.4; 12.3; 13.0; 13.2; 13.1; 10.0; 10.7.
- PV of PPG external debt (Million of US dollars): 3,052.6; 2,347.4; 3,308.7; 3,327.9; 3,367.7; 3,355.6; 3,328.8; 3,646.3; 4,564.6.

Notes on methodology (as presented in the source):
- 1/ Includes both public and private sector external debt.
- 3/ Residual includes exceptional financing (changes in arrears and debt relief), changes in gross foreign assets, and valuation adjustments; for projections also includes contribution from price and exchange rate changes.
- 4/ Current-year interest payments divided by previous period debt stock.
- 5/ Defined as grants, concessional loans, and debt relief.
- 6/ Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt).
- 7/ Assumes that PV of private sector debt is equivalent to its face value.

### Public Sector Debt Sustainability — Baseline scenario (selected indicators, in percent of GDP)
- Public sector debt 1/: 2019: 51.6; 2020: 67.6; 2021: 60.8; 2022: 58.3; 2023: 57.9; 2024: 57.7; 2025: 58.7; 2026: 59.6; 2027: 60.9; 2032: 70.6; 2042: 77.3; additional entries: 57.1; 62.4.
- Of which: external debt (public sector): 2019: 43.3; 2020: 57.9; 2021: 50.6; 2022: 46.7; 2023: 44.0; 2024: 40.9; 2025: 39.0; 2026: 36.9; 2027: 35.1; 2032: 31.4; 2042: 27.3; extra: 51.0; 36.9.
- Change in public sector debt: 2019: -3.2; 2020: 16.0; 2021: -6.8; 2022: -2.5; 2023: -0.4; 2024: -0.2; 2025: 1.0; 2026: 0.9; 2027: 1.4; 2032: 2.0; 2042: -0.3.
- Identified debt-creating flows: 2019: -4.8; 2020: 13.0; 2021: -7.6; 2022: 0.1; 2023: 0.8; 2024: 0.9; 2025: 1.2; 2026: 1.1; 2027: 1.2; 2032: 1.7; 2042: -0.6; projections: 0.4; 1.2.
- Primary deficit: 2019: -0.8; 2020: 2.3; 2021: 0.0; 2022: 4.2; 2023: 3.5; 2024: 2.9; 2025: 2.7; 2026: 2.4; 2027: 2.4; 2032: 2.0; 2042: -0.4.
- Revenue and grants: 2019: 32.5; 2020: 30.8; 2021: 34.0; 2022: 39.6; 2023: 36.5; 2024: 36.8; 2025: 36.3; 2026: 36.1; 2027: 35.8; 2032: 34.6; 2042: 34.1; extra: 33.6; 36.0.
- Of which: grants: 2019: 2.2; 2020: 2.0; 2021: 1.9; 2022: 2.4; 2023: 1.2; 2024: 1.1; 2025: 1.1; 2026: 1.0; 2027: 1.0; 2032: 0.7; 2042: 0.7.

Sustainability indicators (public DSA, selected):
- PV of public debt-to-GDP ratio (projections, selected): 46.0; 44.1; 44.4; 45.0; 46.5; 47.7; 49.3; 59.4; 68.5.
- PV of public debt-to-revenue and grants ratio (projections, selected): 135.6; 111.6; 121.8; 122.4; 127.8; 132.3; 137.8; 171.6; 200.9.
- Debt service-to-revenue and grants ratio 3/: 6.2; 9.3; 7.1; 9.8; 14.3; 15.6; 16.2; 17.8; 18.9; 17.8; 19.9.
- Gross financing need 4/: 2019: 1.1; 2020: 5.1; 2021: 4.2; 2022: 9.2; 2023: 8.8; 2024: 8.6; 2025: 8.6; 2026: 8.8; 2027: 9.1; 2032: 8.1; 2042: 6.4; additional: 2.3.

Key macro and fiscal assumptions used in the public DSA (selected):
- Real GDP growth (in percent): see external DSA values repeated (2019: 3.8; 2020: -8.6; 2021: 3.7; 2022: 5.5; 2023: 3.5; 2024: 3.8; 2025–2027: 4.0; 2032: 3.7; 2042: 4.0; others: 3.0; 4.0).
- Average nominal interest rate on external debt (in percent): 1.5; 1.8; 1.4; 1.2; 1.3; 1.3; 1.4; 1.4; 1.4; 1.5; 1.6; 1.4; 1.4.
- Average real interest rate on domestic debt (in percent): 2019: -3.8; 2020: -6.0; 2021: -13.7; 2022: -5.9; 2023: -3.7; 2024: 3.5; 2025: 6.0; 2026: 6.1; 2027: 6.7; 2032: 6.6; 2042: 6.1; additional entries: -6.1; 4.3.
- Inflation rate (GDP deflator, in percent): 2019: 3.4; 2020: 6.4; 2021: 15.8; 2022: 12.7; 2023: 13.4; 2024: 7.8; 2025: 5.8; 2026: 5.5; 2027: 4.8; 2032: 4.0; 2042: 4.0; extra: 6.5; 6.4.
- Growth of real primary spending (deflated by GDP deflator, in percent): 2019: 3.5; 2020: -4.6; 2021: 6.3; 2022: 36.2; 2023: -5.4; 2024: 3.0; 2025: 2.4; 2026: 2.3; 2027: 3.1; 2032: 2.2; 2042: 3.1; additional: 2.3; 5.2.
- Primary deficit that stabilizes the debt-to-GDP ratio 5/: 2019: 2.4; 2020: -13.8; 2021: 6.8; 2022: 6.8; 2023: 4.0; 2024: 3.0; 2025: 1.8; 2026: 1.5; 2027: 1.0; 2032: 0.0; 2042: -0.1; projections: 1.0; 1.3.
- PV of contingent liabilities (not included in public sector debt): 0.0 across reported years.

Notes on public DSA methodology (as presented in the source):
- 1/ Coverage: central, state, local governments, central bank, government-guaranteed debt. Definition of external debt is Residency-based.
- 2/ Underlying PV of external debt-to-GDP ratio in the public DSA differs from external DSA due to exchange rate projection differences.
- 3/ Debt service defined as sum of interest and amortization of medium- and long-term, and short-term debt.
- 4/ Gross financing need defined as primary deficit plus debt service plus stock of short-term debt at end of last period and other debt creating/reducing flows.
- 5/ Defined as primary deficit minus change in public debt-to-GDP ratio ((-): a primary surplus) that stabilizes debt ratio in the year in question.
- 6/ Historical averages: past 10 years; projections: first year of projection and next 10 years.

### Stress tests, sensitivity analysis, and risks (selected)
- Figures and tables present a range of alternative scenarios, bound tests (B1–B6), tailored tests (C1–C4), and sensitivity analyses for key indicators of public and PPG external debt, 2022–2032.
- Table 3 and Table 4 report projected indicator values under alternative scenarios and bound/tailored tests for PV of debt-to-GDP, PV of debt-to-exports, debt service-to-exports, debt service-to-revenue, PV of debt-to-revenue, and debt service-to-revenue ratios across 2022–2032.
- Selected baseline and alternative values (examples from sensitivity tables):
  - PV of debt-to-GDP ratio baseline series (2022–2032): 32 29 28 26 25 23 22 21 21 20 20.
  - Under alternative A1 (historical averages) PV series: 32 32 32 33 33 34 36 38 41 43 46.
  - Public sector debt PV-to-GDP baseline (2022–2032): 44 44 45 46 48 49 51 53 55 57 59.
  - Under bound tests (e.g., B1 Real GDP growth) public debt PV-to-GDP can rise markedly (examples shown in tables; many bold values indicate breaches of benchmarks).

### Key takeaways and implications (as represented in the source)
- Baseline projections show declining nominal external debt and PPG shares over the medium term under the authorities' revenue-driven fiscal consolidation assumptions.
- Debt indicators remain sensitive to shocks: stress tests and sensitivity analyses display scenarios where PV of debt-to-GDP, PV of debt-to-exports, and debt service ratios breach commonly used thresholds under adverse shocks or reversion to historical averages.
- Authorities flagged specific vulnerabilities to a laxer fiscal stance:
  - domestic borrowing costs could rise,
  - domestic debt market depth is limited,
  - external concessional financing options are limited.
- The indicators and stress tests underscore the importance of adhering to the nominal debt ceiling of 70 percent of GDP and sustaining revenue-based fiscal consolidation to reduce borrowing needs.

*Source: Country authorities; and staff estimates and projections (as presented in the IMF staff document).*

### 2.5 percentage points of GDP in

### 1kgzea2023001 - 2.5 percentage points of GDP in

### Key statistics and labels
- "2.5 percentage points of GDP in"
- "approx. top quartile"
- Years shown: 2016, 2017, 2018, 2019, 2020, 2021, 2022, 2023
- Additional years shown in projection panel: 2018, 2019, 2020, 2021, 2022, 2023, 2024, 2025, 2026, 2027
- Vertical axis labels appearing as: "-5", "-4", "-3", "-2", "-1", "0", "1"
- Secondary vertical axis labels appearing as: "-10", "-8", "-6", "-4", "-2", "0", "2", "4", "6", "8"
- Another vertical axis scale shown as: "0", "2", "4", "6", "8", "10", "12", "14", "16", "18", "20", "22", "24", "26", "28", "30"
- Small vertical range shown as: "-1", "0", "1", "2", "3", "4", "5"

### Scenario labels / series
- "In percentage points of GDP"
- "In percent"
- "Baseline"
- "Multiplier = 0.2"
- "Multiplier = 0.4"
- "Multiplier = 0.6"
- "Multiplier = 0.8"
- "Historical"
- "Projected (Prev. DSA)"
- "Projected (Curr. DSA)"

### Chart context (implicit from labels)
- Two temporal panels: one covering 2016–2023 and another covering 2018–2027.
- Multiple multiplier scenarios explicitly labeled: "Multiplier = 0.2", "Multiplier = 0.4", "Multiplier = 0.6", "Multiplier = 0.8".
- Distinct series for baseline and historical versus projected (Previous DSA and Current DSA).

*Source: 1kgzea2023001 - 2.5 percentage points of GDP in*

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_Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1kgzea2023001.pdf_