## 1. Real Sector and Social Indicators ## Source details **Canonical URL:** [1. Real Sector and Social Indicators](https://www.imf.org/-/media/files/publications/cr/2026/english/1kgzea2026001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2026/english/1kgzea2026001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2026/english/1kgzea2026001.pdf.json) --- ### Context and recent performance - Real GDP expanded by 47 percent between 2021 and 2025, making the Kyrgyz Republic the third-fastest-growing economy in the world. - Per capita GDP in U.S. dollars doubled to 3,100 in 2025. - National Development Program (NDP) 2030 targets adopted in June 2025 include objectives to: - raise nominal GDP from US$23 billion to at least US$30 billion; - reach GDP per capita of US$4,500; - achieve annual GDP growth of 8 percent; - cap the unemployment rate at 5 percent. - Output estimated to have expanded by 11 percent in 2025, driven by construction and trade-related sectors and sustained government spending. - Inflation rose from 6 percent at end-2024 to 11 percent in March 2026, above the NBKR target range (5-7 percent). - Poverty Headcount Ratio (at $8.30 per day, 2021 PPP) and other visual series noted; Poverty rate (national definition, 2024): 25.7 percent. - Selected socioeconomic indicators: - Population (2024): 7.3 (millions) - Gini coefficient (2023): 0.26 - Unemployment rate (2024): 3.7 - Life expectancy at birth (2025): 72.1 (years) - Adult literacy rate (2025): 99.6 (percent) - Per capita GDP (World Bank, 2024): 2,420 (U.S. dollars, million) - Under-five mortality (2025, est.): 12.6 (per 1000 live births) ### Key macrofinancial developments (selected figures) - Overall fiscal surplus: 2.0 percent of GDP in 2024 → 2.6 percent of GDP in 2025 (driven by non-tax revenues 10.3 percent of GDP). - Net financing needs: 8.5 percent of GDP in 2025 (acquisition of financial assets, capital injections into SOEs and financial institutions including Eldik Bank). - Errors and omissions in the BoP: 17 percent of GDP in first three quarters of 2025. - Current account deficit (staff-adjusted): 6.4 percent of GDP in 2024 → around 7.5 percent of GDP in 2025. - International reserves rose from 4 to 6 months of imports (2024→2025) due mainly to revaluation and partial conversion of gold holdings. - Eurobond issuance (first): proceeds US$0.7 billion (3.1 percent of GDP) used to recapitalize Eldik Bank; public debt rose from 36 percent of GDP at end-2024 to 39 percent at end-2025. - NBKR policy rate: rose from 9 to 11 percent in 2025 and to 12 percent in February 2026. - USDKG stablecoin issued: US$50 million (0.2 percent of GDP), pegged to the U.S. dollar, backed by and redeemable for gold, state-endorsed, privately managed. - VASP sector: turnover increased threefold in 2025—exceeding GDP; number of VASPs grew to 188 in 2025; VASP transactions in 2025: USD 31.3 bln., about 138 percent of GDP. ### Outlook (staff projections) - Growth: 11.1 percent in 2025 → 6.1 percent in 2026; medium-term average around 6 percent, converging to potential ~5.3 percent. - Inflation: projected to remain in double digits in 2026 and 2027; return to under 7 percent only in 2030. - Fiscal path: fiscal deficit projected at 4 percent of GDP in 2026 → 3 percent of GDP over medium term; public debt rising to 41 percent of GDP by 2031. - Balance of payments: overall deficit expected to persist; reserves import coverage declining from 6 months in 2025 to 3 months in 2031 under current policies. - DSA: public debt assessed as sustainable with moderate risks of external and overall debt distress. --- ### H3: Policy Discussions — Fiscal Policy - Main findings: - Creating fiscal space is key to support infrastructure and human capital spending. - Staff estimate tax revenue could be raised by up to 4 percent of GDP via: - streamlining VAT exemptions and special tax regimes; - increasing progressivity of the personal income tax; - strengthening revenue administration. - Channeling a larger share of Kumtor profits to the budget would provide additional revenues (current transfers: Kumtor → Kyrgyzaltyn → partial transfer to government). - Expenditures and fiscal deficit projected to increase reflecting investment and a large 2 percent of GDP salary increase for public sector workers envisaged in 2026. - Use of Eurobond proceeds to recapitalize Eldik Bank generated fiscal costs and sustainability risks; Eurobond specifies a bullet repayment in 2030. - Staff recommendations: - Gradually recalibrate toward a less pro-cyclical fiscal stance to moderate demand pressures and improve debt dynamics. - Prudent debt management: prioritize concessional IFI financing for flagship projects; avoid external borrowing without gradual amortization. - Strengthen PFM and budget classification: - Conduct a Fiscal Transparency Evaluation; - Improve targeting of social spending; - Operationalize SOE fiscal risk framework; - Strengthen governance of the Stabilization Fund (SF) or dissolve it (SF transfers in 2025: 87 billion som or 4 percent of GDP; SF expenditure not part of consolidated budget); - Record infrastructure spending and capital injections above the line. - Public pensions: quantify long-term fiscal trajectory; pension burden slated to increase over time. - Authorities’ stance: - Broad agreement with staff on fiscal and debt sustainability. - Do not envisage introducing progressive PIT in place of current flat tax over the medium term. - View SF as extrabudgetary to support socioeconomic development; external borrowing to be for high-return infrastructure. --- ### H3: Policy Discussions — Monetary and Exchange Rate Policies - Findings: - NBKR may need to tighten monetary policy if inflation does not decline. - Policy rate: 9 → 11 percent (2025) → 12 percent (Feb 2026). - Overnight deposit rate raised from 4 to 5 percent (noted elsewhere as to 10 percent in a different authority statement); effective liquidity management concerns persist. - Unsterilized gold purchases and large transfers of central bank profits to the Treasury have added to inflation pressures. - External Sector Assessment: Som overvalued in 2025; external position weaker than implied by fundamentals. - Staff recommendations: - Signal intent to keep real interest rates positive and contain excessive credit growth. - Curtail gold purchases; convert eligible non-monetary gold into monetary gold. - Establish a symmetric and narrower interest rate corridor; use longer-maturity instruments to mop up excess liquidity; raise the overnight deposit rate. - Strengthen NBKR independence and governance: stop regular profit transfers until capital restored; introduce non-executive majority to board and audit committee (implementation status: Not implemented). - Increase exchange rate flexibility and diversify reserve composition to reduce exposure to gold price volatility. - Authorities’ views: - Reaffirm commitment to price stability and stand ready to implement measures to return inflation to 5-7 percent within the medium term. --- ### H3: Policy Discussions — Financial Sector and Supervision - Sector structure and risks: - Financial sector dominated by commercial banks and VASPs; commercial banks largely profitable and well capitalized. - NPLs remain elevated: over 10 percent of total loans. - Credit gap negative but rising; 2025 credit surge led by consumer lending. - Rapid VASP growth, limited AML/CFT supervisory capacity, and USDKG stablecoin issuance raise financial integrity and monetary policy transmission risks. - Supervisory and macroprudential recommendations: - Implement countercyclical capital buffers, limits on loan-to-value ratios, and liquidity requirements. - Strengthen credit risk supervisory review and on-site inspections. - Curtail directed lending by state-owned banks; avoid recapitalization or balance-sheet operations that complicate assessments (example: Eurobond to Eldik Bank). - Strengthen AML/CFT supervision for VASPs, operationalize beneficial ownership registry, review license-holders’ fitness and propriety. - Integrate VA/VASP risk factors into AML/CFT supervision of banks; operationally scale SFSS resources (SFSS had 4 staff positions for VASP supervision, only two available). - Financial soundness indicators (selected exact values, Dec-20 to Dec-25): - Regulatory capital to risk weighted assets: 24.9 (Dec-20), 22.2 (Dec-21), 25.6 (Dec-22), 24.8 (Dec-23), 22.0 (Dec-24), 27.3 (Dec-25). - Nonperforming loans/total loans: 10.5 (Dec-20), 11.1 (Dec-21), 12.8 (Dec-22), 9.2 (Dec-23), 10.8 (Dec-24), 10.8 (Dec-25). - Loan-loss provisioning/nonperforming loans: 58.9 (Dec-20), 63.2 (Dec-21), 67.1 (Dec-22), 67.6 (Dec-23), 45.9 (Dec-24), 39.0 (Dec-25). - Return on equity: 5.5 (Dec-20), 7.8 (Dec-21), 43.4 (Dec-22), 32.4 (Dec-23), 32.5 (Dec-24), 12.4 (Dec-25). --- ### H3: External Sector, Reserves, and Balance of Payments - BoP anomalies and re-exports: - Officially recorded CA deficit projected for 2025: 20.3 percent of GDP (reflects large errors and omissions). - Staff-adjusted true CA deficit for 2025 (accounting for unrecorded re-exports): around 7.5 percent of GDP; staff estimate unrecorded re-exports in 2025: 11.8 percent of GDP. - Officially published 2023 CA errors and omissions: more than 40 percent of GDP. - Reserves and gold: - Gross international reserves (millions USD): 3,044 (2023), 4,923 (2024), 8,698 (2025), 9,246 (2026), 8,904 (2027). - Gross reserves (months of next year imports, eop): 2.4 (2023), 3.8 (2024), 6.0 (2025), 6.0 (2026), 5.4 (2027). - NBKR converted non-monetary gold to monetary gold worth $3.4 billion at end-2025; NBKR non-monetary gold holdings equivalent to over $1.3 billion at end-December 2025 (historic purchase values). - FX intervention in 2025: NBKR sold $672.9 million equivalent in FX. - BoP projections and vulnerabilities: - Gross reserves projected to decline to 5.6 months in 2026 and to 2 months by 2031 (after Eurobond bullet repayment), below IMF adequacy metric 4.5 months for credit-constrained economies. - Policy recommendation: convert remaining non-monetary gold to monetary gold to increase gross reserves by ~2 months of imports in 2026 and strengthen resilience. - Balance of payments projections (selected USD mn): - Current account balance: -6,822 (2024), -4,114 (2025), -5,526 (2026), -1,875 (2027), -1,990 (2028). - Exports, fob: 3,385 (2024), 5,142 (2025), 3,789 (2026), 8,595 (2027), 9,458 (2028). - Of which Gold: 1,284 (2024), 2,506 (2025), 780 (2026), 3,687 (2027), 4,104 (2028). - Imports, fob: 11,672 (2024), 11,678 (2025), 12,223 (2026), 13,589 (2027), 14,561 (2028). - Errors and omissions: 6,450 (2024), 2,978 (2025), 3,892 (2026). --- ### H3: Debt Sustainability and Public Debt Dynamics - Public debt: - Total public debt: 42.0 (2023), 36.2 (2024), 39.4 (2025), 42.3 (2026), stabilizing around 41 percent over medium term; projected 41.3 percent of GDP by 2031 in some tables. - Domestic debt rose from 11.3 percent of GDP (2024) to 15.8 percent (2025). - External PPG debt: 23.6 percent of GDP at end-2025. - Key DSA findings: - Staff assess public debt as sustainable with moderate risks of external and overall debt distress. - PV of PPG external debt: 18.5 percent of GDP in 2025 → projected to 15.2 percent by end-2036. - Under extreme stress tests (exports shock and growth shock), multiple external debt indicators breach thresholds in medium term; PV of public debt breaches its benchmark under most extreme growth shock. - Debt service-to-revenue ratio projected to rise to 23.8 percent in 2031 and 2036. - Eurobond bullet repayment in 2030 is a material rollover risk. - Policy recommendations: - Improve revenue mobilization, contain wage bill and energy subsidies, strengthen debt management, seek concessional financing, and improve public investment management. - Revise Debt Management Strategy (MTDS alignment), set term-to-maturity targets, lift interest rate caps to allow market price discovery, and strengthen public debt management capacity. --- ### H3: Public Pension System (PPS) — Sustainability and Policy Options - PPS structure and 2025 steady state: - PAYGO DB scheme; PAYGO contribution effective rate: 17 percent of salary for formal sector employees and employers. - SF expenditures: ~7.5 percent of GDP; of which PPS ~5.5 percent of GDP; overhead ~1 percentage point of GDP. - PAYGO pension outlays: ~110 billion soms; contributions: 83 billion soms; overhead costs: 10 billion soms (2025 figures). - Contributors: ~1 million; Retirees drawing old age pensions: ~700,000; formal sector retiree dependency ratio: ~10 percent; effective ratio accounting for all beneficiaries: 70 percent in 2025. - Average annual wage economy-wide: 499,471 soms; retirees average pension: 140,000 soms. - Lowest modeled pension (2025): 78,000 soms; national poverty line per capita per year (2024): 65,417 soms. - Baseline scenario projections: - Decreasing contribution rate raises PPS deficit to over 3.3 percent of GDP by 2035. - Contributions fall from 4.3 to 1.5 percent of GDP by 2035; outlays fall from 6.4 to 4.8 percent of GDP by 2035. - Deficit narrows to 0.5 percent of GDP by 2065 as headcount growth dominates. - Alternative scenario (lower growth and headcount growth): - Deficit 4 percent of GDP in 2035; remains 1.8 percent of GDP by 2065. - Policy considerations: - Continuous monitoring and transparent reporting alongside the annual budget. - Gradual, well-calibrated policy changes; weigh permanent reductions in contribution rates against fiscal costs and offset via broadening base or compliance. - Consider gradual increases in statutory retirement ages, stricter eligibility, containment of overhead costs, and indexation aligned with inflation. - Contingency measures should be pre-designed and modeled. --- ### H3: Structural Reforms, Governance, and Labor/AI Considerations - Structural reform priorities: - Reduce state footprint in the economy; level playing field and reduce barriers to private sector entry. - Strengthen SOE oversight, performance, transparency, and governance. - Advance tariff reforms to improve cost recovery in energy SOEs. - Governance and anti-corruption: - Implement the 2025-2030 Anti-Corruption Strategy; integrity vetting of judicial candidates; expand asset disclosure and verification. - Informality and labor market: - Informality concentrated in low-automation activities; SMEs ~50 percent of GDP. - Recommendations: unemployment insurance system operating countercyclically; vocational training; job search and placement services; expand SMEs’ access to finance. - AI readiness: - Labor market exposure to generative AI currently moderate. - Address constraints via reforms in digital infrastructure, workforce skills, governance/legal frameworks, and data systems. --- ### H3: Risk Assessment Matrix (February 2026) — Major risks and policy advice (select) - Geopolitical tensions: Likelihood High; advice: allow more exchange rate flexibility; targeted safety nets; tax/revenue measures to create fiscal space. - Trade-related risks (Protectionism): Likelihood High; advice: exchange rate flexibility; strengthen oversight of crypto payments; accelerate structural reforms. - Commodity price volatility: Likelihood High; impact: inflation, CA deterioration; advice: exchange rate flexibility, targeted social assistance, seek concessional financing. - Disorderly AI correction: Likelihood High; advice: supervisory vigilance and calibrated stress tests. - Fiscal vulnerabilities and higher interest rates: Likelihood High; advice: create fiscal space, accelerate structural reforms. - Financial integrity shock (AML): modeled impacts include GDP growth decline (example phrase: "4.9 percent following the AML shock"), budget deficit rising from "3.8 percent" to "4.6 percent", and reserves falling from "3.2 months" (baseline 2031) to "1.8 months" in AML shock. --- ### H3: Implementation Status — Annex I (selected) - Fiscal policy recommendations: - Increase PIT progressivity: Not implemented. - Streamline VAT exemptions and special regimes: Some progress (limited validity periods introduced in 2025). - Digitalization and single tax database: Some progress (introduced in 2025). - Contain public wage bill: Not implemented. - Channel Kumtor net profits to treasury: Some progress (part transferred in 2025). - Improve targeting of social spending: No progress. - Operationalize SOE fiscal risk framework: Some progress (IMF TA conducted). - Enhance transparency of Stabilization Fund: No progress. - Monetary and financial recommendations: - Maintain tight interest rate policy: Some progress (policy rate increases but inflation remains above target). - Drain excess liquidity: Not implemented. - Lengthen maturities of policy instruments: Some progress (3- and 6-month notes introduced June 2025). - Convert remaining non-monetary gold to international reserves: Some progress. - Strengthen NBKR governance/autonomy (non-executive majority, discontinue profit transfers until capital restored): Not implemented. - Data recommendations: - Improve BoP statistics to reduce errors and omissions: Not implemented. - Develop and publish discrete quarterly GDP estimates: Some progress (TA support ongoing). --- ### H3: Technical Assistance, Capacity, and Data Needs - Data quality broadly adequate but improvements needed: - Large errors and omissions in BoP complicate analysis. - National accounts improvements required to minimize large revisions. - IMF stands ready to provide technical assistance; ongoing missions through March 2026 across national accounts, GFS, BoP, PFM, AML/CFT, and SOE governance. --- *Source: IMF staff report excerpt — "1. Real Sector and Social Indicators" (content unit: 1kgzea2026001).* ### 1. Real Sector and Social Indicators ______________________________________________________________ 15 ### 1. Real Sector and Social Indicators ### Context - The Kyrgyz Republic is transitioning from low-income status. - Since 2022, expanded trade flows, robust remittance and capital inflows, and strong construction activity supported by government spending have underpinned rapid growth. - Real GDP expanded by 47 percent between 2021 and 2025, making the Kyrgyz Republic the third-fastest-growing economy in the world. - Per capita GDP in U.S. dollars doubled, reaching 3,100 in 2025. - In June 2025, the authorities adopted the National Development Program (NDP) 2030 with objectives to: - raise nominal GDP from the current US$23 billion to at least US$30 billion; - reach GDP per capita of US$4,500; - achieve annual GDP growth of 8 percent; - cap the unemployment rate at 5 percent. - Authorities broadly agree on reform priorities but prefer a longer horizon for implementation. ### Recent Macroeconomic Developments - Output is estimated to have expanded by 11 percent in 2025, driven by construction and trade-related sectors and sustained government spending. - Inflation rose from 6 percent at end-2024 to 11 percent in March 2026, above the NBKR target range (5-7 percent). - The overall fiscal surplus increased from 2.0 percent of GDP in 2024 to 2.6 percent of GDP in 2025, reflecting large non-tax revenues (10.3 percent of GDP), including proceeds from the liquidation of seized assets and profit transfer from the central bank. - Net financing needs were large, estimated at 8.5 percent of GDP in 2025, due to acquisition of financial assets—mostly capital injections into SOEs and financial institutions, including Eldik Bank. - Errors and omissions in the balance of payments remained significant at 17 percent of GDP in the first three quarters of 2025, likely reflecting unrecorded trade and financial flows. - The current account deficit, adjusted for unrecorded flows, is estimated to have increased from 6.4 percent of GDP in 2024 to around 7.5 percent of GDP in 2025, driven by higher imports and lower gold exports. - International reserves rose—from 4 to 6 months of imports—owing mainly to revaluation of monetary gold holdings and partial conversion of non-monetary gold into monetary gold. - The country issued its first eurobond; proceeds of US$0.7 billion (3.1 percent of GDP) were used to recapitalize Eldik Bank, which lent most funds to the Government. This reversed the downward public debt trajectory: public debt rose from 36 percent of GDP at end-2024 to 39 percent at end-2025. - Financial sector: dominated by commercial banks and virtual asset service providers (VASPs). In 2025, VASPs increased turnover threefold—exceeding GDP—while AML/CFT supervisory resources remain limited. The Ministry of Finance issued a stablecoin (USDKG) of US$50 million (0.2 percent of GDP), pegged to the U.S. dollar, backed by and redeemable for gold, endorsed by the state, but privately managed. ### Outlook and Risks - Growth projection: decline from 11.1 percent in 2025 to 6.1 percent in 2026 as temporary drivers unwind. - Medium-term projection: growth to average around 6 percent before gradually converging to estimated potential rate of about 5.3 percent. - Fiscal outlook: fiscal deficit projected at 4 percent of GDP in 2026, decreasing to 3 percent of GDP over the medium term; public debt rising to 41 percent of GDP by 2031. - DSA indicates public debt remains sustainable with moderate risks of external and overall debt distress. - Balance of payments: overall deficit expected to persist, international reserves import coverage declining from 6 months in 2025 to 3 months in 2031 under current policies. - Inflation path: projected to remain in double digits in 2026 and 2027 and return to under 7 percent only in 2030. - Risks (tilted to the downside): - External: possible trade reversals; fall in gold prices affecting fiscal revenues, exports, and reserve value. - Domestic: entrenched inflation; fiscal vulnerabilities. - Financial integrity: international sanctions related to third countries; VASP expansion without strong legal, supervisory and regulatory framework could undermine monetary policy and banking stability. - Severe global shock scenario: higher global oil prices would raise domestic costs and inflation; slowdown in regional trading partners could reduce re-export trade and remittances. Overall impact expected to be manageable. ### Authorities’ Views (Macro) - Authorities envisage strong growth continuing, with the state as the engine of economic development supported by large investment projects. - They are mindful of inflation risks but consider the current monetary policy stance and well-anchored inflation expectations will maintain medium-term price stability within 5–7 percent. - The authorities view the war in the Middle East as a risk for energy prices and inflation but not fundamentally altering the baseline at this stage. ### Policy Discussions — A. Fiscal Policy Findings and recommendations: - Creating fiscal space is key to support infrastructure and human capital spending. - Staff estimates tax revenue could be raised by up to 4 percent of GDP through: - streamlining VAT exemptions and special tax regimes; - increasing progressivity of the personal income tax; - strengthening revenue administration. - Channeling a larger share of Kumtor profits to the budget would provide additional revenues. (Kumtor transfers all profit to SOE Kyrgyzaltyn; Kyrgyzaltyn transfers only a part of Kumtor’s profits to the government.) - Expenditures and the fiscal deficit are projected to increase, reflecting investment and a large (2 percent of GDP) salary increase for public sector workers envisaged in 2026. - A gradual recalibration toward a less pro-cyclical fiscal stance would help moderate demand pressures and improve debt dynamics. - Prudent debt management is needed: flagship projects financed by concessional lending from IFIs, but use of Eurobond proceeds to recapitalize Eldik Bank generated fiscal costs and sustainability risks; the Eurobond specifies a bullet repayment in 2030 and external borrowing without gradual amortization heightens rollover risks. - Stronger PFM measures and proper budget classification recommended: - Conduct a Fiscal Transparency Evaluation; - Improve targeting of social spending; - Operationalize the SOE fiscal risk framework; - Strengthen governance of the Stabilization Fund (SF) or dissolve it. (Transfers from the state budget to the SF in 2025 amounted to 87 billion som or 4 percent of GDP; SF expenditure is not part of the consolidated budget.) - Record infrastructure spending and capital injections into SOEs above the line to better assess the underlying fiscal position. - Public pensions: basic modeling shows the pension burden (ratio of benefit payments to contributions) is slated to increase over time. Authorities need to quantify the long-term fiscal trajectory and burden on the national budget. Authorities’ views on fiscal policy: - Authorities broadly agree with staff’s assessment and reaffirm commitment to fiscal and debt sustainability. - They do not envisage introducing a progressive personal income tax in place of the current flat tax regime over the medium term. - Non-tax revenues this year expected to remain at last year’s level. - The SF is viewed as an extrabudgetary fund to support socioeconomic development; external borrowing to be associated primarily with high-return infrastructure investments. ### Policy Discussions — B. Monetary and Exchange Rate Policies Findings and recommendations: - NBKR may need to tighten monetary policy if inflation does not decline. - In 2025, policy rate rose from 9 to 11 percent, and to 12 percent in February 2026. - Overnight deposit rate was raised from 4 to 5 percent but remains too low to be fully effective. - Financial conditions remain accommodative; unsterilized gold purchases and large transfers of central bank profits to the Treasury have added to inflation pressures. - Recommended monetary policy measures include: - Signal intent to keep real interest rates positive and contain excessive credit growth; - Curtail gold purchases; - Establish a symmetric and narrower interest rate corridor; - Use longer-maturity instruments to mop up excess liquidity; - Raise the overnight deposit rate. - Strengthening NBKR independence and governance is critical: - Repeated profit transfers while capital remains below statutory thresholds risk undermining credibility; - Authorities encouraged to uphold constitutional law governing NBKR, discontinue regular profit transfers until capital is adequately restored, and ensure monetary policy decisions remain aligned with price stability mandate. - Exchange rate and reserves: - Greater exchange rate flexibility and diversification of reserve composition would enhance resilience; - High concentration in gold exposes the economy to commodity-price volatility; - Continued diversification of reserves and conversion of eligible gold into monetary gold recommended. - External Sector Assessment indicates the Som is overvalued in 2025; external position weaker than implied by medium-term fundamentals and desirable policies. - Contributing factors: strong domestic demand and high import content of consumption leading to gradual decrease in reserves over the medium term. - Recommended measures: more flexible exchange rate, reforms to improve competitiveness, countercyclical fiscal stance. - Restrictions on export of US dollar cash introduced in 2023 constitute an outflow CFM under the Institutional View on the Liberalization and Management of Capital Flows. Authorities’ views on monetary policy: - Authorities reaffirm commitment to price stability; consider inflation expectations well anchored and stand ready to implement necessary measures to return inflation to 5-7 percent within the medium-term. ### Policy Discussions — C. Financial Sector Policies - The financial sector is small but growing fast, dominated by commercial banks (state-owned and private) and VASPs. - Commercial banks are largely profitable, well capitalized, and stable notwithstanding sanctioning of four small banks by the EU, the UK, and the US for allegedly helping Russia evade Western sanctions. - Rapid VASP growth and limited AML/CFT supervisory capacity raise financial integrity risks. - The issuance of the USDKG stablecoin (US$50 million or 0.2 percent of GDP) is a notable development in cross-border payments infrastructure. *Source: IMF staff report excerpt — "1. Real Sector and Social Indicators" (PDF chapter).* ### 23. Supervisory vigilance is warranted in view of elevated NPLs, the rapid expansion of ### 1kgzea2026001 - 23. Supervisory vigilance is warranted in view of elevated NPLs, the rapid expansion of ### Financial-sector risks and supervisory recommendations - At over 10 percent of total loans, NPLs remain elevated, which suggests pockets of vulnerability. - The credit gap is still negative, but its upward trajectory implies heightened risks, especially since the surge in credit to the economy in 2025 was led by consumer lending. - Staff-recommended macroprudential and supervisory actions: - Implement macroprudential regulatory measures such as countercyclical capital buffers, limits on loan-to-value ratios, and liquidity requirements to ensure resilience to shocks. - Strengthen supervisory review of credit risk management practices. - Curtail directed lending by state-owned commercial banks, including for energy projects. - Avoid operations that add unnecessary complexity to bank balance sheets (example cited: use of Eurobond proceeds to recapitalize Eldik Bank). - Intensify on-site inspections and ensure commercial banks scrutinize lending decisions more closely. - Financial-sector priorities identified in the staff appraisal: - Strengthen supervisory capacity and risk monitoring. - Consider proactive macroprudential measures to safeguard financial stability and resilience. - Reduce subsidized lending via state-owned banks and strengthen operational liquidity management. ### Virtual assets, cross-border flows, and financial integrity - The fast-growing virtual assets sector, cross-border payments and trade pose new risks, requiring strengthened mitigation measures (Annex VII referenced). - AML/CFT regulatory strengthening for VASPs is underway, notably expanding licensing requirements to the beneficial owners of VASPs. - This should be followed by a comprehensive review of current license-holders to ensure absence of criminal control in the sector. - The recent rapid growth of the number and turnover of VASPs requires stronger supervisory capacity and assessment of ML/TF risks posed by virtual assets, including banks’ exposure. - Other financial-integrity measures: - Strengthen corporate transparency and screening of cross-border financial flows. - Enhance risk-based post-clearance monitoring of controlled goods to address re-export and diversion risks. - Note: While the amount of issuance of the USDKG stablecoin is limited, additional issuances of stablecoins could undermine the NBKR’s ability to conduct monetary policy. - To support confidence in the stablecoin, holders should have an effective legal claim on the issuer and access to timely convertibility at par; robust governance and risk-management arrangements are required. - Priorities for AML/CFT and virtual assets: - Operationalize the beneficial ownership registry. - Strengthen supervision and governance of VASPs, align with international standards, ensure robust financial stability safeguards, protect consumers, mitigate illicit finance risks, and monitor trade in controlled goods. ### Supervisory stance on directed lending and state-owned banks - Directed lending by state-owned commercial banks should be discouraged because it may: - Exacerbate uncertainty around assessments of projects’ economic and financial viability. - Obscure commercial principles guiding lending decisions. - Create potential adverse macro-financial implications for the economy. - Recommendation: Avoid recapitalization or balance-sheet operations that complicate assessment of state-owned commercial banks’ financial soundness. ### Macro policy assessment and recommendations (staff appraisal) - Growth and inflation context: - Rapid growth supported by external trade, robust remittances and capital inflows, and strong construction activity supported by government spending. - Stronger domestic demand pressures and external factors have elevated inflation above the NBKR’s target range. - Rapid credit growth, strong wage increases and elevated liquidity point to overheating that requires timely policy response. - Fiscal policy recommendations: - Create fiscal space to support priority infrastructure and social spending while containing domestic demand. - Mobilize additional revenue by streamlining VAT exemptions and special tax regimes, increasing PIT progressivity, and strengthening revenue administration. - Strengthen public financial management: contain the public wage bill, gradually reduce energy subsidies, improve targeting of social spending, and strengthen public investment management. - Prudent debt management, avoidance of quasi-fiscal financing, and stronger fiscal risk monitoring—especially related to SOEs—are critical. - The Stabilization Fund should either be dissolved or fully incorporated into the fiscal perimeter to ensure transparent fiscal reporting and risk assessments. - Monetary policy recommendations: - Remain focused on returning inflation to the NBKR’s target range and anchoring expectations. - Recent policy rate increase deemed appropriate given external pressures and strong domestic demand. - Strengthen the operational framework through improved liquidity management, a narrower and more symmetric corridor, and reduced subsidized lending via state-owned banks. - Strengthen NBKR independence and governance: suspend regular profit transfers until capital is restored and ensure policy decisions align with the price stability mandate. - External sector and reserves: - Greater exchange rate flexibility and more diversified reserves would enhance resilience. - Reserves have risen due to gold revaluation; high concentration in gold increases exposure to price volatility. - Continued diversification and conversion of eligible gold into monetary gold would strengthen external resilience and reserve management. ### Structural reforms and labor/AI considerations - Multi-pronged structural reform priorities: - Reduce the footprint of the state in the economy and focus on creating an enabling environment for the private sector. - Level the playing field for the private sector and reduce barriers to entry; advance tariff reforms to improve cost recovery in energy SOEs. - Strengthen financial performance oversight of SOEs, enhance SOE management and transparency, promote competition and bolster private sector development. - Governance and anti-corruption: - Address macro-critical governance weaknesses to avert macro-financial risks and spur growth. - Continue implementing the 2025-2030 Anti-Corruption Strategy and strengthen rule of law via integrity vetting of judicial candidates. - Enhance asset disclosure by public officials by expanding scope of published information and strengthening verification procedures. - AI and labor market: - Labor market exposure to generative AI is currently moderate, largely due to concentration in low-automation informal-sector activities. - Address constraints to AI adoption through reforms in digital infrastructure, workforce skills, governance/legal frameworks and data systems (forthcoming annex on Measuring AI Preparedness referenced). - Reducing informality: - Establish an unemployment insurance system designed to operate countercyclically to reduce reliance on informal work. - Complementary measures: vocational training, job search assistance, job placement services, and expanded SMEs’ access to finance to facilitate formalization. ### Data adequacy and statistical needs - Data quality is broadly adequate for surveillance, but improvements are needed: - Large errors and omissions in the balance of payments remain and complicate staff analysis. - National accounts statistics could be improved to minimize frequent large revisions. - The IMF stands ready to provide technical assistance in these areas. - Priority: strengthen the quality of macroeconomic statistics—particularly external sector statistics and national accounts—to enhance policy analysis and risk assessment. *Source: https://www.imf.org/-/media/files/publications/cr/2026/english/1kgzea2026001.pdf* ### 42. Staff recommends that the next Article IV consultation be held on a standard 12- ### 1kgzea2026001 - 42. Staff recommends that the next Article IV consultation be held on a standard 12- ### Overview / Staff recommendation - Staff recommends that the next Article IV consultation be held on a standard 12-month cycle. ### Real sector and social indicators - Growth outpaced comparators for the past 4 years, supported by trade and construction. - Inflation is above target and is described as "threatening recent poverty reduction." - Per capita income rose sharply in recent years while income inequality remained comparable to peers. - Poverty Headcount Ratio at $8.30 per day (2021 PPP, in percent of the population): chart distinguishes Tajikistan, Kyrgyz Republic, Uzbekistan for years 2015–2024 (visual data referenced; $8.30 per day noted as "a close approximation of the Kyrgyz national poverty rate"). - GDP per Capita (in USD, index, 2020=100): series shown for 2020–2025 with CCA Average, LIC, Kyrgyz Republic indices (visual data referenced). ### External and monetary sectors - Current account deficit remains sizable and is offset by large errors and omissions (figure annotation). - Higher gold prices and conversion of non-monetary to monetary gold boosted reserves. - The exchange rate appreciated in real effective terms; nominal and real effective exchange rates series shown (Base 100 - December 2009). - Interest rates remained subdued; interbank repo, policy interest rate, NBKR 7 Day Note, Som lending rate and interest rate corridor charts shown (series through Oct-25). - Reserve and monetary aggregates (selected exact values from tables): - Gross International reserves (in millions of U.S. dollars): 3,044 (2023), 4,923 (2024), 8,698 (2025), 9,246 (2026), 8,904 (2027). - Gross reserves (months of next year imports, eop): 2.4 (2023), 3.8 (2024), 6.0 (2025), 6.0 (2026), 5.4 (2027). - Exchange rate (soms per U.S. dollar, average): 87.8 (2023), 87.1 (2024), 87.4 (2025). - Net international reserves (NBKR accounts, in millions of soms): 258,986 (2023), 406,015 (2024), 715,136 (2025), 769,530 (2026), 737,536 (2027). ### Real sector projections and composition - Real GDP growth (growth in percent): 9.0 (2023), 11.5 (2024), 11.1 (2025), 6.1 (2026), 5.8 (2027), 6.1 (2028), 5.4 (2029), 5.3 (2030), 5.2 (2031). - GDP per capita (in U.S. dollars): 2,191 (2023), 2,568 (2024), 3,131 (2025), 3,502 (2026), 3,759 (2027), 3,998 (2028), 4,222 (2029), 4,424 (2030), 4,599 (2031). - Consumer prices (12-month percent change, eop): 7.3 (2023), 6.3 (2024), 9.4 (2025), 12.5 (2026), 10.5 (2027), 8.5 (2028), 7.5 (2029), 6.5 (2030), 6.5 (2031). - Gold contributions (staff estimates) highlighted in Table 2: - Gold (in billions of soms, memorandum): 76 (2023), 85 (2024), 128 (2025), 196 (2026), 238 (2027), 305 (2028), 356 (2029), 388 (2030), 401 (2031). - Non-Gold GDP (in billions of soms): 1,257 (2023), 1,497 (2024), 1,848 (2025), 2,147 (2026), 2,522 (2027), 2,899 (2028), 3,290 (2029), 3,720 (2030), 4,206 (2031). ### Fiscal sector — key metrics and projections - General government finances (percent of GDP, selected items): - Revenue: 34.5 (2023), 34.5 (2024), 38.5 (2025), 33.4 (2026), 31.4 (2027), 31.2 (2028), 31.1 (2029), 30.8 (2030), 30.6 (2031). - Expense: 26.1 (2023), 25.7 (2024), 26.3 (2025), 27.5 (2026), 25.6 (2027), 25.3 (2028), 25.3 (2029), 25.4 (2030), 25.3 (2031). - Overall balance (net lending/borrowing): 1.6 (2023), 2.0 (2024), 2.6 (2025), -3.8 (2026), -3.5 (2027), -3.6 (2028), -3.1 (2029), -2.8 (2030), -2.8 (2031). - Net lending/borrowing excluding CKU railways: 1.6 (2023), 2.0 (2024), 3.0 (2025), -2.6 (2026), -2.5 (2027), -2.6 (2028), -2.5 (2029), -2.8 (2030), -2.8 (2031). - Total government debt (percent of GDP): 42.0 (2023), 36.2 (2024), 39.4 (2025), 41.4 (2026), 40.6 (2027), 40.5 (2028), 40.4 (2029), 40.6 (2030), 40.8 (2031). - Of which domestic debt (percent of GDP): 10.9 (2023), 11.3 (2024), 15.8 (2025), 14.8 (2026), 13.3 (2027), 12.3 (2028), 12.6 (2029), 16.0 (2030), 18.5 (2031). - State government finances (in millions of soms, selected lines): - Revenues: 394,541 (2023), 463,800 (2024), 669,491 (2025), 684,781 (2026), 754,645 (2027). - Taxes: 292,265 (2023), 343,396 (2024), 454,131 (2025), 529,487 (2026), 623,003 (2027). - Expense: 297,065 (2023), 330,880 (2024), 444,295 (2025), 551,196 (2026), 597,701 (2027). - Net lending/borrowing (overall balance): 6,952 (2023), 23,563 (2024), 37,977 (2025), -89,945 (2026), -97,089 (2027). - Net lending/borrowing excl. CKU railway: 6,952 (2023), 23,563 (2024), 45,402 (2025), -61,001 (2026), -67,773 (2027). - Net financing needs (in millions of soms): 32,115 (2023), 7,828 (2024), 175,545 (2025), 144,414 (2026), 89,581 (2027). ### Balance of payments and external sector projections - Current account balance (in millions of U.S. dollars): -6,822 (2024), -4,114 (2025), -5,526 (2026), -1,875 (2027), -1,990 (2028). - Excluding transfers: -9,133 (2024), -6,886 (2025), -8,588 (2026), -5,203 (2027), -5,662 (2028). - Trade balance (in millions of U.S. dollars): -8,287 (2024), -6,536 (2025), -8,434 (2026), -4,993 (2027), -5,103 (2028). - Exports, fob (in millions of U.S. dollars): 3,385 (2024), 5,142 (2025), 3,789 (2026), 8,595 (2027), 9,458 (2028). - Of which Gold: 1,284 (2024), 2,506 (2025), 780 (2026), 3,687 (2027), 4,104 (2028). - Imports, fob (in millions of U.S. dollars): 11,672 (2024), 11,678 (2025), 12,223 (2026), 13,589 (2027), 14,561 (2028). - Current transfers (net): 2,311 (2024), 2,772 (2025), 3,062 (2026), 3,327 (2027), 3,671 (2028). - Gross official reserves (–, increase): 64 (2024), -139 (2025), -3,775 (2026), -549 (2027), 342 (2028). - Errors and omissions: 6,450 (2024), 2,978 (2025), 3,892 (2026). ### Financial soundness indicators and banking sector - Kyrgyz banks are described as well capitalized and liquid; profitability remains strong but NPLs are elevated. - Selected FSIs (Dec-20 to Dec-25): - Regulatory capital to risk weighted assets: 24.9 (Dec-20), 22.2 (Dec-21), 25.6 (Dec-22), 24.8 (Dec-23), 22.0 (Dec-24), 27.3 (Dec-25). - Tier 1 capital to risk weighted assets: 21.6 (Dec-20), 19.2 (Dec-21), 19.2 (Dec-22), 20.3 (Dec-23), 17.4 (Dec-24), 28.6 (Dec-25). - Liquidity ratio: 64.9 (Dec-20), 71.3 (Dec-21), 82.8 (Dec-22), 77.4 (Dec-23), 73.1 (Dec-24), 87.1 (Dec-25). - Nonperforming loans/total loans: 10.5 (Dec-20), 11.1 (Dec-21), 12.8 (Dec-22), 9.2 (Dec-23), 10.8 (Dec-24), 10.8 (Dec-25). - Loan-loss provisioning/nonperforming loans: 58.9 (Dec-20), 63.2 (Dec-21), 67.1 (Dec-22), 67.6 (Dec-23), 45.9 (Dec-24), 39.0 (Dec-25). - Return on equity: 5.5 (Dec-20), 7.8 (Dec-21), 43.4 (Dec-22), 32.4 (Dec-23), 32.5 (Dec-24), 12.4 (Dec-25). - Loans/deposits: 95.9 (Dec-20), 80.3 (Dec-21), 65.0 (Dec-22), 66.0 (Dec-23), 64.3 (Dec-24), 67.2 (Dec-25). - Share of foreign currency deposits in total deposits: 43.4 (Dec-20), 42.2 (Dec-21), 48.3 (Dec-22), 49.3 (Dec-23), 45.7 (Dec-24), 36.3 (Dec-25). - Share of foreign currency loans in total loans: 33.0 (Dec-20), 28.0 (Dec-21), 23.6 (Dec-22), 22.1 (Dec-23), 20.1 (Dec-24), 18.0 (Dec-25). ### Selected socioeconomic indicators (Table 1) - Population (in millions, 2024): 7.3 - Gini coefficient (2023): 0.26 - Unemployment rate (2024): 3.7 - Life expectancy at birth in years (2025): 72.1 - Poverty rate (in percent, national definition, 2024): 25.7 - Adult literacy rate (percent of popul., 2025): 99.6 - Per capita GDP (in million U.S. dollars, World Bank, 2024): 2,420 - Under-five mortality (per 1000 live births, 2025, est.): 12.6 *Source: Kyrgyz authorities; and IMF staff estimates and projections (content unit: 1kgzea2026001).* ### Annex I. Implementation of Key Recommendations of the ### Annex I. Implementation of Key Recommendations of the 2025 Article IV Consultation ### Fiscal Policy — Create fiscal space - Improve Tax administration - Recommendation: Increase the progressivity of the PIT. - Implementation status: Not implemented. - Recommendation: Streamline VAT exemptions and special tax regimes. - Implementation status: Some progress is made. Limited validity periods were introduced for certain tax exemptions in 2025. - Recommendation: Improve the revenue administration through digitalization, strengthening the taxpayer registry, and enhancing compliance risk management. - Implementation status: Some progress is made. Digitalization of tax procedures continues, single tax database was introduced in 2025. - Optimize expenditure - Recommendation: Contain the public wage bill by capping wage increases to below inflation while limiting headcount through attrition. - Implementation status: Not implemented. - Recommendation: Reform the public employment and compensation framework. - Implementation status: Some progress is made. The IMF TA was conducted on public wage bill and report is shared with the authorities. - Recommendation: Reduce energy subsidies by continuing to raise electricity tariffs to reach full cost-recovery by 2030. - Implementation status: Some progress is made. Residential electricity tariffs were increased. The authorities plan further increase based on tariff plan. - Strengthen PFM - Recommendation: Channel Kumtor’s net profits to the treasury. - Implementation status: Some progress is made. Part of Kumtor’s profits were transferred to the treasury in 2025. - Recommendation: Improve the targeting of social spending. - Implementation status: There has been no progress. - Recommendation: Introduce the Integrated Financial Management Information System modules for budget preparation and wage bill management. - Implementation status: Not implemented. - Recommendation: Operationalize an SOE fiscal risks management framework. - Implementation status: Some progress is made. The IMF TA was conducted on enhancing the fiscal risk analysis. - Recommendation: Enhance transparency of extrabudgetary funds such as Stabilization Fund. - Implementation status: There has been no progress. - Recommendation: Strengthen the public debt management framework. - Implementation status: Not implemented. *italic: Source — Annex I. Implementation of Key Recommendations of the 2025 Article IV Consultation (provided content)* ### Monetary/Exchange Rate, Financial Policies, and Safeguards Assessment - Maintain price stability and improve the effectiveness of monetary policy - Recommendation: Maintain adequately tight interest rate policy. - Implementation status: Some progress is made. Despite multiple increases in the policy rate, inflation exceeds the central bank’s target range. - Recommendation: Drain excess liquidity to contain excessive credit growth. - Implementation status: Not implemented. - Recommendation: Lengthen maturities of monetary policy instruments. - Implementation status: Some progress is made. Central bank notes of 3-and 6-months maturity were introduced in June 2025. - Recommendation: Eliminate the interest rate cap on the NBKR note auctions. - Implementation status: Not implemented. - Recommendation: Allow greater flexibility of the exchange rate to strengthen competitiveness and provide a buffer against external shocks. - Implementation status: Limited progress is made. The KGS depreciated by 0.5 percent relative to December 2024. - Recommendation: Convert the remaining stock of non-monetary gold to international reserves. - Implementation status: Some progress is made. The NBKR converted a portion of its remaining stock of non-monetary gold to monetary gold. - Recommendation: Curb the subsidized lending through state-owned banks. - Implementation status: Policy proposals are awaited. - Recommendation: Remove restrictions on export of US dollars cash which were introduced in 2023. - Implementation status: Some progress is made. Restrictions on exports of US dollar cash by banks were lifted, while restrictions for individuals remain in place. - Strengthen NBKR’s governance and autonomy - Recommendation: Introduce a non-executive majority to the NBKR’s board and the audit committee. - Implementation status: Not implemented. - Recommendation: Divest ownership in the Guarantee Fund and wind down non-core central bank operations. - Implementation status: Not implemented. - Recommendation: Discontinue the NBKR profit transfers to the state budget until its capital reaches the statutory threshold. - Implementation status: Not implemented. - Financial sector policies - Recommendation: Align capital markets legislation with international standards and clearly define the roles and functions of Central Security Depositories, custodians, registrars, and settlement agents. - Implementation status: Not implemented. - Recommendation: Integrate FATF and Basel Committee standards for crypto assets (risk-based capital charges, robust risk management, clear categorization and reporting). - Implementation status: Some progress is made. The IMF TA mission was conducted on enhancing regulatory framework for crypto assets activity. *italic: Source — Annex I. Implementation of Key Recommendations of the 2025 Article IV Consultation (provided content)* ### Data adequacy - Recommendation: Improve BoP statistics to reduce Errors and Omissions. - Implementation status: Not implemented. - Recommendation: Develop and publish discrete quarterly GDP estimates. - Implementation status: Some progress is made. Work is ongoing with TA support from CCAMTAC. *italic: Source — Annex I. Implementation of Key Recommendations of the 2025 Article IV Consultation (provided content)* ### Structural Reforms — Reduce the state footprint and strengthen governance - Reduce the state footprint in the economy - Recommendation: Develop a comprehensive SOE ownership and management strategy. - Implementation status: Not implemented. - Recommendation: Improve SOE corporate governance, oversight, reporting and disclosure frameworks. - Implementation status: Some progress is made. Under the IMF TA workshops for SOEs were conducted to enhance accountability and transparency. - Recommendation: Reduce SOE footprint. - Implementation status: Not implemented. - Recommendation: Avoid the use of price controls and state monopolies. - Implementation status: Policy proposals are awaited. Price controls on meat and coal are in place. - Strengthen governance - Recommendation: Improve transparency and efficiency of public procurement. - Implementation status: Not implemented. - Recommendation: Broaden the scope of income and asset declarations by public officials and enhance public access to it. - Implementation status: Not implemented. - Recommendation: Implement the anti-corruption strategy. - Implementation status: Some progress is made. A specific anti-corruption unit was introduced in the Ministry of Finance. - Recommendation: Advance labor market flexibility. - Implementation status: Not implemented. - Strengthen the AML/CFT framework - Recommendation: Strengthen the analytical and implementation capacity of risk-based AML/CFT supervision and monitoring of cross border activities. - Implementation status: Not implemented. *italic: Source — Annex I. Implementation of Key Recommendations of the 2025 Article IV Consultation (provided content)* ### Annex II. Risk Assessment Matrix (February 2026) — Conjunctural and Structural Risks, Likelihood, Impacts, and Policy Advice - Geopolitical Tensions and Intensification of Conflicts - Likelihood / Timeframe: High - Possible impact / transmission: A reversal of trade flows and a stronger contraction of the Russian economy could result in lower growth and remittances, trade disruptions, and a possible return of migrant workers. The resulting reduction in disposable incomes could increase poverty and add to social pressures. - Policy advice: - Allow for more exchange rate flexibility and recalibrate monetary policy to respond to possible inflation pressures. - Provide targeted support and safety nets to the most vulnerable, while creating additional fiscal space by improving the targeting of social spending, streamlining VAT exemptions and special tax regimes, increasing the progressivity of the personal income tax, and strengthening revenue administration. - Trade-related Risks (Protectionism and Trade Disruptions; New Trade Agreements) - Likelihood / Timeframe: High (Protectionism) / Low (New Trade Agreements) - Possible impact: The Kyrgyz Republic’s relatively limited integration into the global economy dampens the likely impact of trade policy and investment shocks. - Policy advice: - Allow for more exchange rate flexibility and recalibrate monetary policy to respond to possible inflation pressures. - Provide targeted support and safety nets to the most vulnerable, while creating additional fiscal space by improving targeting of social spending, streamlining VAT exemptions and special tax regimes, increasing the progressivity of the personal income tax, and strengthening revenue administration. - Enhance oversight of the financial and banking systems, including crypto-based payments and assets. - Accelerate structural reforms to support private sector-led growth. - Commodity price volatility - Likelihood / Timeframe: High - Possible impact: 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: - Allow for more exchange rate flexibility and adequately recalibrate monetary policy to contain second round inflation. - Provide targeted social assistance to the poor, while seeking external concessional financing. - Disorderly AI Correction - Likelihood / Timeframe: High - Possible impact: Limited integration of the Kyrgyz banking system in international financial markets would contain the impact, but a growth slowdown could weaken banks’ asset quality. - Policy advice: - Maintain supervisory vigilance and closely monitor banks' balance sheets. - Calibrate stress tests to reflect such a risk. - Fiscal Vulnerabilities and Higher Interest Rates - Likelihood / Timeframe: High - Possible impact: High global interest rates would increase the cost of external borrowing, including a Eurobond, and the interest bill, and negatively impact public debt. - Policy advice: - Increase fiscal space by improving the targeting of social spending, streamlining VAT exemptions and special tax regimes, increasing the progressivity of the personal income tax, and strengthening revenue administration. - Accelerate structural reforms to support private sector-led growth. - Policy Uncertainty - Likelihood / Timeframe: High / Medium - Possible impact: Adverse impact on fiscal and external positions due to delays in policy implementation and lower indirect tax receipts. This would delay large infrastructure projects, slow economic growth, and increase poverty. - Policy advice: - Enhance expenditure efficiency and maintain fiscal prudence. - Build up targeted social assistance programs for the vulnerable. - Allow greater exchange rate flexibility to facilitate external adjustment. - Social Discontent - Likelihood / Timeframe: Medium / Medium - Possible impact: A significant reduction in remittances and incomes combined with high inflation would further increase poverty, result in social discontent, higher country risk and lower investment and growth. - Policy advice: - Allow for more exchange rate flexibility and adequately recalibrate monetary policy to contain inflation. - Provide targeted support and safety nets to the most vulnerable, while creating additional fiscal space by improving the targeting of social spending, streamlining VAT exemptions and special tax regimes, increasing the progressivity of the personal income tax, and strengthening revenue administration. - Accelerate reforms to support private sector-led growth. - Sudden correction in construction activity - Likelihood / Timeframe: Medium / Medium - Possible impact: Normalization of re-export trade, slowdown in remittances, or tighter domestic liquidity conditions reducing demand for housing and construction services. - Policy advice: - Strengthen monetary policy transmission to contain excess liquidity. - Enhance supervisory monitoring of construction-related credit exposures and asset quality. - Ensure transparent and well-sequenced public investment planning to smooth demand and support a more sustainable growth path. - Cyberthreats - Likelihood / Timeframe: High / Medium - Possible impact: Cyberattacks could disrupt the payment system, which relies on electronic means, triggering financial and economic instability. - Policy advice: - Enhance cybersecurity. - Climate change - Likelihood / Timeframe: Medium / Medium - Possible impact: The Kyrgyz Republic could face escalating natural disasters such as droughts, heatwaves, floods, mudflows, and landslides, causing land degradation, air pollution, infrastructure damage, and loss of life. - Policy advice: - Foster mitigation policies by advancing the green transformation, and taking adaptation measures by building fiscal buffers to deal with natural disaster shocks. - Labor Shortages and Remittances - Likelihood / Timeframe: Medium / Medium - Possible impact: A contraction of the Russian economy could result in lower growth and remittances, trade disruptions, and a possible return of migrant workers. The resulting reduction in disposable incomes could increase poverty and add to social pressures. - Policy advice: - Allow for more exchange rate flexibility and recalibrate monetary policy to respond to possible inflation pressures. - Provide targeted support and safety nets to the most vulnerable, while creating additional fiscal space by improving the targeting of social spending, streamlining VAT exemptions and special tax regimes, increasing the progressivity of the personal income tax, and strengthening revenue administration. - AI Acceleration - Likelihood / Timeframe: Medium / Medium - Possible impact: The sectors of the Kyrgyz Republic’s economy have generally low productivity that could benefit from AI-based enhancements, but other structural constraints remain (energy, economic governance). - Policy advice: - Accelerate structural reforms to support private sector-led growth. *italic: Source — Annex II. Risk Assessment Matrix (February 2026) (provided content)* ### Annex III. External Sector Assessment — Overall assessment and foreign assets/liabilities - Overall assessment (2025) - The external position of the Kyrgyz Republic in 2025 is assessed to remain substantially weaker than the level implied by medium-term fundamentals and desirable policies. - Official Balance of Payments (BoP) data for 2025 reflect the actual data, including large chronic errors and omissions, for the first half of the year. - The officially reported current account has been adjusted to account for the portion of errors and omissions, which, in the view of staff, reflect large unrecorded re-exports to Russia. - The current account gap and the associated overvaluation reflect strong domestic demand for imports. - Gross official foreign exchange reserves exceed the IMF reserve adequacy metric for resource-constrained economies, but they are projected to decline over the medium term. - Potential policy responses - Maintain exchange rate flexibility in the presence of inadequacies in BOP data. - Implement reforms to strengthen competitiveness and reduce procyclical fiscal stimulus, with a view to reducing external sector imbalances and aligning the external sector with fundamentals in the medium term. - Foreign assets and liabilities: Position and trajectory - Background: - The Net International Investment Position (NIIP) has gradually improved since 2024 as a percentage of GDP, thanks in large part to the high nominal GDP growth. - NIIP improved significantly from -38 percent of GDP in 2024 to -30 percent of GDP in 2025. - Gross foreign assets declined slightly from 56 percent of GDP in 2024 to 54 percent of GDP, owing to exceptional GDP growth in 2025, and despite a sharp increase in international reserves (by 28.8 percent in nominal US$ terms). - Gross foreign liabilities fell from 94 percent of GDP to 83 percent, also due to high nominal GDP growth (external public and publicly guaranteed debt, trade credit and advances, and foreign direct investment liabilities of around 33, 11, and 30 percent of GDP, respectively). *italic: Source — Annex III. External Sector Assessment (provided content)* ### 2. Assessment: The less negative NIIP does not pose immediate risks to external stability. In the ### 2. Assessment: The less negative NIIP does not pose immediate risks to external stability. ### External position and NIIP - NIIP in 2025: -30 (Percent of GDP) - Gross Assets in 2025: 54 (Percent of GDP) - Debt Assets in 2025: 1.0 (Percent of GDP) - Gross Liab. in 2025: 83 (Percent of GDP) - Debt Liab. in 2025: 33 (Percent of GDP) - Conclusion: The less negative NIIP does not pose immediate risks to external stability. In the medium term, concessional external public debt coupled with limited portfolio capital inflows largely mitigate external risks. Improvements began in 2022 after relative NIIP stability over the preceding five years. ### Current Account — Background - Officially recorded current account (CA) deficit projected for 2025: 20.3 percent of GDP (down from 25.3 percent in 2024). - 2025 CA deficit reflects a half year of chronically large errors and omissions of around 14 percent of GDP; 2024 reflected actual errors and omissions for the full year of just under 17 percent of GDP. - Officially published 2023 current account errors and omissions: more than 40 percent of GDP. - Imports estimated to have stabilized in 2025 as the re-export trade matured after three years of rapid growth. - 2025 estimated CA reflects: - higher modeled gold exports, - strong net inflows of remittances of over 14 percent of GDP, - very strong real GDP growth of 11.1 percent. - Staff true current account deficit for 2025, adjusted for errors and omissions reflecting unrecorded re-exports: around 7.5 percent of GDP (stable relative to the true CA deficit for 2024). ### Current Account — Assessment and re-exports adjustment - Staff estimate of unrecorded re-exports in 2025: 11.8 percent of GDP (mainly to the Eurasian Customs Union, mainly Russia). - Adjusted CA deficit accounting for unrecorded re-exports in 2025: 8.4 percent of GDP. - Medium-term CA projection: about 7 percent of GDP by 2031, mainly due to imports related to Kambarata HPP and the China-Uzbekistan-Kyrgyzstan Railway. ### EBA-lite model results and CA/REER assessment (2025) - CA model results: - CA-Actual: -24.4 (in percent of GDP) - Cyclical contributions (from model): 0.2 (in percent of GDP) - Additional temporary/statistical factors (reflects unrecorded re-exports in the first three quarters of 2025): -15.9 (in percent of GDP) - Natural disasters and conflicts: -0.3 (in percent of GDP) - Adjusted CA: -8.4 (in percent of GDP) - CA Norm (from model, cyclically adjusted, including multilateral consistency adjustments): -4.3 (in percent of GDP) - Adjustments to the norm: 0.0 (in percent of GDP) - Adjusted CA Norm: -4.3 (in percent of GDP) - CA Gap: -4.1 (in percent of GDP) - o/w Relative policy gap: 2.3 (in percent of GDP) - Elasticity: -0.4 - REER Gap (in percent): 11.4 (CA model) - REER model results: - REER model CA Gap: 1.7 (in percent of GDP) - REER Gap (in percent): -4.7 (REER model) - Implications: - CA model implies a negative current account gap of 4.1 percent of GDP and an overvaluation of the som by 11.4 percent (Text Table). - Adjusted for the war in Ukraine shock, 2025 CA deficit would narrow to 8.4 percent of GDP, consistent with a negative CA gap of over 4 percent of GDP and an overvaluation of the som by 11 percent. - REER model implies a small undervaluation of the som by 4.7 percent, at odds with CA model’s implied overvaluation. ### Real Exchange Rate and interpretation - Nominal: Kyrgyz som depreciated by 2.6 percent against the USD during 2025. - REER: Real effective exchange rate depreciated marginally during 2025, reflecting inflation differential and limited nominal effective appreciation. - Staff judgment: more weight is placed on CA model results because: - REER-norm and REER fitted values are higher than actual REER, implying a need for appreciation to close the gap. - REER model results driven mainly by interest rate differential (capital and financial accounts), which are considerably smaller than the CA balance in the Kyrgyz Republic. - Policy implication: sustaining strong growth with limited inflation beyond the 2022–2025 boom requires alignment of the external sector with fundamentals via prudent reserve management and reforms to strengthen competitiveness. ### Capital and Financial Accounts: flows and vulnerabilities - Capital and financial account balance (excluding changes in reserves) in 2025: 7.7 percent of GDP (improved from 7.4 percent in 2024), driven by small increases in net FDI under the financial account and net official flows under the capital account. - Assessment of vulnerability: - Kyrgyz Republic remains potentially vulnerable to sudden shifts in global and regional financial conditions, especially related to Russia (main export market and main source of remittances). - Policy recommendation: secure more concessional financing and implement reforms consistent with regional or global integration to attract higher FDI inflows and mitigate medium-term vulnerabilities. ### FX intervention and reserves level - FX market intervention in 2025: NBKR sold the equivalent of $672.9 million in FX (32 percent of all sales in Q2 and 43 percent in Q4). - Rationale for sales: mop up excess liquidity from NBKR’s ongoing purchase of domestically produced gold and contain growing inflationary pressures. - NBKR converted non-monetary gold to monetary gold worth $3.4 billion at end-2025, which more than offset FX sales impact on international reserves. - Eurobond proceeds: $0.7 billion. - Reserves change: reserves increased by more than $3.6 billion from 4 months of prospective imports (including re-exports) in 2024 to over 6.3 months in 2025. - Projections: - Gross reserves projected to decline to 5.6 months in 2026. - Gross reserves projected to decline to 2 months by 2031 (after the Eurobond bullet repayment), below IMF reserve adequacy metric of 4.5 months for credit-constrained economies. - NBKR non-monetary gold holdings: equivalent to over $1.3 billion at end-December 2025 (valued at historic purchase prices). - Policy implication: converting existing non-monetary gold to monetary gold would increase gross reserves by around 2 months of import of goods and services in 2026 and gradually decline to around 4 months by 2031. ### Policy recommendations and priorities (from text) - Prudent management of reserves to align external sector with fundamentals. - Reforms to strengthen competitiveness to sustain growth without inflationary pressures. - Secure more concessional financing. - Implement reforms to foster regional/global integration and higher FDI inflows. - Consider conversion of non-monetary gold to monetary gold to strengthen reserves. ### Public Pension System (PPS) — Annex V: key findings on sustainability and adequacy - Purpose of Annex: assess sustainability and adequacy of the old-age PPS; identify drivers and policy variables; analyze projected fiscal impact under stresses; discuss considerations to maintain fiscal sustainability. - Summary conclusion: Modeling shows the PPS faces sustainability issues exacerbated by medium-term risks. - Social Fund (SF) role and 2022/2025 figures: - SF is autonomous public agency with rank of ministry responsible for social welfare and all pension payments; pensions accounted for 85 percent of its budget in 20225. - Structure of the PPS: - Operates de facto as modified “pay-as-you-go” (PAYGO) “defined benefits” (DB) scheme. - DB: percentage of last salary in active service, on top of a basic flat rate benefit. - PAYGO contribution effective rate: 17 percent of salary for formal sector employees and employers. - The rest of PPS financed by transfer from state budget. - SF finances and expenditure: - Overall SF expenditures in recent years: around 7.5 percent of GDP. - Of SF expenditures: 5.5 percentage points of GDP for PPS; around 1 percentage point of GDP for overhead administrative costs. - PPS contributions amount to 4.5 percent of GDP; remainder of SF revenue covered by state budget. - Dependency and coverage concerns: - In 2025 there were around 100,000 retirees who were contributors to the PAYGO scheme, and around 700,000 beneficiaries of old-age pensions. - Roughly 1 million current contributors. - Formal sector retiree dependency ratio: around 10 percent; effective ratio accounting for all beneficiaries: 70 percent. - OECD vigilance threshold: invites vigilance if ratio exceeds 30. - Recent policy shifts affecting sustainability: - Government cut PAYGO contributory rate by 10 percentage points for new adherents to entice formalization, undermining earmarked revenue base and increasing budget burden. - Overhead costs remain high at 12 percent of SF expenditure (though decreased over past 5 years). - Comparative Central Asia context: - PAYGO remains dominant across Central Asia except Kazakhstan (fully funded DC). - Statutory pensionable ages (M/W): Kazakhstan 63/61; Kyrgyz Rep. 63/58; Tajikistan 63/58; Turkmenistan 62/57; Uzbekistan 60/55. - Minimum qualifying years: Kyrgyz Rep. 6 (projected to increase to 20 by 2045); Tajikistan 25/20; Turkmenistan 5; Uzbekistan 25/20. - Contribution rate (Insured/Employer): Kazakhstan 10/5; Kyrgyz Rep. 8/15; Tajikistan 2/20; Turkmenistan 0/20; Uzbekistan 0.1/12. - Kyrgyz Republic and Uzbekistan have higher formal old-age dependency ratio of 9-10 (versus 6-7 percent in Tajikistan and Turkmenistan). - Old-age pension expenditure of Kyrgyz Republic: 6.7 percent of GDP (highest among compared Central Asian countries); others between 3-4.5 percent of GDP. *Source: KYRGYZ REPUBLIC — INTERNATIONAL MONETARY FUND.* ### 7. The analysis focuses on the PAYGO DB public pensions, using a simple model ### 7. The analysis focuses on the PAYGO DB public pensions, using a simple model ### Model design and inputs - Model structure by gender includes three major clusters of variables: - (i) demographic variables: population growth, mortality; - (ii) economic variables: GDP growth proxied by headcount growth, inflation proxied by indexation, structure and distribution of wages, promotion, attrition; - (iii) PPS specifications: number of contributors, pensioners, initial pension amount, defined benefit policy, partial pensions for early retirees, contribution policy, etc. - Model outputs (PPS projections) include: - (i) PPS demographics over time: number of contributors and pensioners, dependency ratio, life expectancy; - (ii) PPS benefits and finances: wage bill, pensions, PPS revenues, PPS current balance, etc. ### Calibration (base year and 2025 steady state) - Base year start: 1996; model approximates PPS steady state in 2025. - 2025 PPS financials and demographics: - PAYGO DB pension outlays: around 110 billion soms. - PAYGO contributions: 83 billion soms. - Overhead costs: 10 billion soms. - Formal sector employees: estimated at around 1 million evenly split between the private sector and the State. - Population cited: 7.3 billion. - Average annual wage economy-wide: 500,000 soms. - Retirees drawing old age pensions: 700,000 retirees averaging 140,000 soms. - Pension age: 63 for men and 58 for women. - Both genders start work at 18 years old. ### Baseline scenario assumptions (select) - Headcount growth justified at 4 percent (up from 2 percent). - Higher inflation starting in 2025 justifies higher indexation. - Contribution rate decreases by 10 percentage points (driving higher headcount growth in formal employment and gradual lowering of new non-contributing retirees). - Selected tabulated assumptions (1986-2025 baseline and 2026–2035 annual entries): - Annual headcount growth (percent): 2.1 (1986-2025), then 4.0 for 2026–2035. - Annual retiree attrition (percent): 2.0 (1986-2025), then 1.0 for 2026–2035. - Wage indexation (percent): 2.3 (1986-2025), then 8.0 (2026), 7.0 (2027), 6.0 (2028), 5.0 (2029–2035). - Pension indexation (percent): same profile as wage indexation. - Salary (annual weighted average - soms): 499,471 (1986-2025); 539,325 (2026); 576,789 (2027); 611,239 (2028); 641,312 (2029); 672,713 (2030); 705,511 (2031); 739,784 (2032); 775,608 (2033); 813,064 (2034); 852,239 (2035). - Number of contributors: 1,000,209 (1986-2025); 1,031,491 (2026); 1,024,046 (2027); 1,068,959 (2028); 1,089,617 (2029); 1,111,629 (2030); 1,135,060 (2031); 1,159,998 (2032); 1,186,502 (2033); 1,214,637 (2034); 1,244,466 (2035). - Pension (percent of last salary): 28.0 for all years shown. - Mandatory contribution (percent of salary): 16.7 (1986-2026), then 15.7 (2027), 14.7 (2028), 13.7 (2029), 12.7 (2030), 11.7 (2031), 10.7 (2032), 9.7 (2033), 8.7 (2034), 7.7 (2035). - Promotion rate (between 5 grades): 5.0 for all years shown. - Annual labor force attrition (percent): 0.5 (1986-2025), then 1.0 for 2026–2035. - Annual labor force lateral entry (percent): 1.0 (1986-2025), then 0.0 for 2026–2035. ### Baseline outlook: demographics and financial dynamics - Demographics: - Effective dependency ratio (total pensioners as share of formal employment): 70 percent in 2025, improving to around 36 percent by 2065 due to fast growth of the labor force in the formal sector and constrained growth in pensioners. - Financials: - Over the next ten years, the decreasing contribution rate raises the PPS deficit to over 3.3 percent of GDP by 2035. - Contributions fall from 4.3 to 1.5 percent of GDP by 2035. - Outlays fall from 6.4 to 4.8 percent of GDP by 2035. - The deficit narrows thereafter to 0.5 percent of GDP by 2065 as headcount growth becomes the dominant driver and the increase of non-contributing retirees is limited. - Standard of living concerns for retirees: - Average pension is only one third of the average wage in 2025. - Average pensions do not fully track inflation over the long term. - Lowest modeled pension for 2025: 78,000 soms. - National poverty line (per capita per year in 2024): 65,417 soms. ### Alternative scenario and sensitivity - Alternative scenario assumptions: lower real economic growth of 3 percent (instead of 5) and lower workforce headcount growth of 2 percent (instead of 4). - Resulting PPS profile under alternative scenario: - Deficit is 4 percent of GDP in 2035. - Deficit falls more slowly, remaining at 1.8 percent of GDP by 2065. - General finding: PPS is highly sensitive to economic and demographic developments; effects are difficult to counteract rapidly with PPS-specific policy measures. ### Policy considerations and recommendations - Fiscal governance and monitoring: - Continuous monitoring and transparent reporting of PPS finances alongside the annual budget are essential. - Early identification of adverse trends is critical to avoid abrupt and procyclical fiscal corrections. - Design and sequencing of policy changes: - Policy changes affecting contributions or benefits should be gradual and well-calibrated. - Permanent reductions in contribution rates should be weighed carefully against fiscal costs and, where possible, offset by broadening the contribution base or strengthening compliance. - Critical ratios and controls: - Monitor critical ratios diligently. - Avoid allowing overhead costs to increase at the same rate as nominal GDP, loosening eligibility criteria for old-age pensions, or allowing pension indexation in excess of inflation. - Maintaining indexation broadly in line with inflation and containing administrative spending can deliver sizable long-term savings. - Contingency planning: - Pre-design and model contingency measures in advance to address evolving economic and demographic developments. - Options include gradual increases in statutory retirement ages—particularly in response to rising longevity—and restrictions on eligibility for non-contributors; such measures can significantly improve balances if implemented early. - Broader PPS policy targets: - Target adequate contributions from the workforce. - Tight control over pension eligibility. - Control of overhead costs. - Annual pension increases no higher than inflation. - Supportive socio-economic environment (real GDP projected to increase faster than headcount in formal employment) helps contain PPS challenges; the wage bill of the formal sector halves over 40 years as the economy grows through more capital-intensive sectors. *Sources; Country Authorities and IMF staff calculations.* ### References ### References ### Bibliographic references - Brollo, F., Dabla-Norris, M.E., de Mooij, M.R., Garcia-Macia, M.D., Hanappi, T., Liu, M.L. and Nguyen, A.D., 2024. Broadening the Gains from Generative AI: The Role of Fiscal Policies. IMF Staff Discussion Note SDN2024/002, International Monetary Fund, Washington, DC. - Cazzaniga, M., Jaumotte, M.F., Li, L., Melina, M.G., Panton, A.J., Pizzinelli, C., Rockall, E.J. and Tavares, M.M.M., 2024. Gen-AI: Artificial Intelligence and the Future of Work. IMF Staff Discussion Note SDN2024/001, International Monetary Fund, Washington, DC. - Gmyrek, P., Berg, J., Kamiński, K., Konopczyński, F., Ładna, A., Nafradi, B., Rosłaniec, K. and Troszyński, M., 2025. Generative AI and Jobs: A Refined Global Index of Occupational Exposure (No. 140). ILO Working Paper. - ILO, 2025. “How Might Generative AI Impact Different Occupations?” - IMF’s Spending Efficiency Database. 2025. In the Fiscal Monitor Report: “Spending Smarter: How Efficient and Well-Allocated Public Spending Can Boost Economic Growth”. - Microsoft AI Economy Institute, 2026. Global AI Adoption in 2025: A Widening Digital Divide. - Muratkhanov, A. and Talishi, F. 2026. Informal Economy in the Kyrgyz Republic. IMF Selected Issues Papers. SIP/2026/XX - Rao, N., Muratkhanov, A. and Haider, N., 2025. Potential Output in the Kyrgyz Republic. IMF Selected Issues Paper. SIP/2025/081. ### Money Laundering/Terrorist Financing (ML/TF) risks and country context - Kyrgyz Republic faces material cross-border ML/TF risks due to geographic location and jurisdictional vulnerabilities. - 2025 National Risk Assessment (NRA) identified fraud, tax evasion, and corruption as the highest-threat predicate offenses for ML, followed by drug trafficking, customs offenses, and organized crime. - High-risk cross-border typologies identified: - placement and withdrawal of cash from bank accounts; - "transit" wire transfers between accounts of legal persons; - complex layering schemes involving multiple jurisdictions. - Misuse of companies: - more than 65 percent of registered companies conducting no economic activity. - high share of companies with non-resident participation in trade, construction, and consulting. - specific high risks: misuse of offshore companies, corporate nominees, and proxies. ### Virtual Asset Service Providers (VASPs): regulatory and supervisory framework - Key statistics for VASPs in 2025: - Transactions via VASPs increased from USD 2.5 bln. in 2023 to 31.3 bln. in 2025. - VASP transactions reached approximately 138 percent of GDP in 2025. - Number of VASPs grew to 188 in 2025. - Transactions via VASPs fell by one-third in 2025 while average transaction value increased four-fold to USD 14 573. - In 2023, the average transaction value reached USD 120 481. - Transactions are concentrated 94 percent in fiat to virtual assets (VAs) and vice versa conversion. - NBKR has not authorized any banks to provide VA services. - 6 issuers of VA are licensed in Kyrgyz Republic, issuing VA valued at more than USD 34 million. - Data caveat: - These data points do not include provision of services by unlicensed foreign VASPs or VA peer-to-peer activity not covered by KR-licensed VASPs. ### Risk assessment and supervisory recommendations for VASPs and banks - Recommended actions: - Conduct an expedited update of the VA/VASP sectoral risk assessment with emphasis on linkages to the banking sector, including: - levels of VASP activity through financial institutions (on- and off-ramping); - volumes of cash transactions; - concentration of VASP business in specific institutions; - risk mitigation measures applied by banks. - Strengthen SFSS risk-based toolkit for VASP supervision informed by the updated sectoral assessment, with deeper focus on cross-border activity and geographic ML/TF risk factors. - NBKR should integrate VA and VASP-related risk factors into AML/CFT supervision of banks and focus on VASPs as higher-risk clients. ### Supervisory resources and institutional arrangements - Current supervisory capacity: - SFSS has 4 staff positions allocated to VASP supervision, with only two staff currently available. - Recommended institutional changes: - Address the imbalance between supervisory resources and number of supervised entities urgently. - Establish a formal supervisory strategy with a minimum engagement model feasible given resource constraints. - Institutional fragmentation: - Recent amendments removed licensing, policy development, regulatory, and sanctioning functions related to VASPs from SFSS, leaving SFSS with only supervision mandate. - Separation of supervision from market entry and enforcement functions poses challenges to supervisory effectiveness and the ability to deny licenses or impose sanctions. - Licensing and fitness-and-propriety: - Extension of licensing requirements to beneficial owners of VASPs in 2025 addresses a technical compliance gap with FATF Standards. - Supervisory priority: review fitness and propriety of senior management and beneficial owners of existing VASP license holders. - Use broader information sources (including foreign supervisors) and apply an appropriate burden of proof where reasonable doubts about honesty and integrity should lead to rejection. - Withdrawal of 26 licenses over the last three years and no rejected applications on AML/CFT grounds indicate scope for more robust scrutiny. ### Cross-border payment flows and monitoring - Cross-border financial flows have quadrupled since 2022, including with higher risk countries as identified in the NRA. - Recommendation: national monitoring of payments macro-trends to detect and mitigate cross-border risks, with coordinated policy and operational responses. ### Trade in controlled goods: monitoring and enforcement - Trade developments and risks: - Rapid growth in cross-border trade since 2022 with substantial transit and re-export activity. - Balance-of-payments errors and omissions of 17 percent of GDP in the first three quarters of 2025, partially reflecting increase in re-export activity. - Risks: misrepresentation of goods or routing, unauthorized re-export, diversion of controlled goods, smuggling, and corruption vulnerabilities. - Resource constraints and enforcement: - Division of export control and licensing of the Ministry of Economy increased staffing to 6 persons, which is not commensurate with growth in trade. - Licensing framework exists and National Control List updated, but limited resources constrain effective monitoring. - Recommended enforcement actions: - Strengthen post-clearance monitoring targeting highest-risk transactions, leveraging risk-based approaches including: - reviews of import and re-export transactions involving high-risk controlled goods; - scrutiny of trading companies with minimal domestic footprint (e.g., no taxes or fees paid); - checks on customs declarations not matching declared licensing purposes; - focus on entities with non-resident beneficial owners or complex offshore structures. ### Digitalization and inter-agency information exchange - Priorities: - Accelerate implementation of 2030 digitalization strategy, prioritizing controlled goods monitoring. - Develop digital systems for automatic exchange and cross-referencing of data between customs databases and licensing records. - Cross-referencing should include: - tax filings (to identify shell companies with no operations); - FIU reporting (to detect trading companies with suspicious payment patterns); - beneficial ownership registry (to understand control structures). - Promptly operationalize the recently established Beneficial Ownership Registry. ### Potential financial integrity risk events and macroeconomic transmission channels - Key transmission channels and potential macro-critical consequences: - Real sector: trade disruptions, reversal of re-export trade, disruption of trade settlement and trade finance (delays, enhanced scrutiny, refusals to process payments or provide financing). - External sector: decline in capital and other inflows; international investors, multilateral and financial institutions de-risking and restricting exposures to Kyrgyz Republic. - Banking sector: withdrawal of non-resident and high-risk deposits leading to liquidity impact and pressure on correspondent banking network (increased costs, delays, or loss of access to FX services and cross-border payments). - Examples of triggering scenarios: - systemic cross-ML with involvement of politically exposed persons or entities linked to high-risk jurisdictions; - misuse of KR-registered companies to obscure beneficial ownership of illicit or sanctioned assets; - processing of payments linked to sanctioned entities; - violation of license conditions, such as re-export of controlled goods; - TF networks misusing the financial institutions or VASPs in KR. ### Modeled financial integrity shock: assumptions and illustrative macro impact - Assumed shock components: - a quarter reduction in imports meant for re-exports; - a one-third decrease in FDI inflows; - a 15 percent decrease in private transfers, mostly remittances, into Kyrgyz Republic. - Illustrative baseline-to-shock comparison (partial excerpt): - Baseline GDP growth in 2026: 6.1 percent. - Modeling indicates: lower GDP growth, larger fiscal deficit, and weaker external position under the assumed shock. *International Monetary Fund — Kyrgyz Republic (Annex VII excerpt).* ### 4.9 percent following the AML shock); (ii) a higher budget deficit (from 3.8 percent to 4.6 percent); ### 1kgzea2026001 - 4.9 percent following the AML shock); (ii) a higher budget deficit (from 3.8 percent to 4.6 percent); ### Financial integrity (AML) shock: macro impacts and scenarios - Under the AML (Financial Integrity) shock model: - GDP growth impact: "4.9 percent following the AML shock" (context: cited phrase in source). - Budget deficit increases from "3.8 percent" to "4.6 percent". - Reserves fall from "3.2 months of prospective imports in 2031 in the baseline" to "1.8 months in the AML shock model". - Scenario charting timeframe (illustrative series shown): - Years: "2026 2027 2028 2029 2030 2031" - Two scenario labels presented: "Baseline" and "Financial Integrity Shock" ### Capital flows and correspondent banking risks - Empirical evidence cited: - IMF Working Paper WP/21/153 finds statistically significant declines in capital inflows following grey-listing: - "FDI: -3.0% of GDP" - "Portfolio inflows: -2.9% of GDP" - "Other investment inflows: -3.6% of GDP" - Correspondent banking and concentration risk: - Kyrgyz Republic banks maintain correspondent banking relationships with "37 countries". - There is "only one direct USD correspondent bank". - Many banks rely on the same foreign indirect providers, creating a concentration risk where "one correspondent's decision could have system-wide impact." ### Reserves, tax revenues, and fiscal implications - Reserves metric (explicit): - Baseline reserves: "3.2 months of prospective imports in 2031" - AML shock reserves: "1.8 months" - Tax revenues table heading present: "Tax Revenues (In Billion of Soms)" (data table content not reproduced in source extract). ### Debt sustainability assessment (DSA) — key findings - Staff assessment summary: - "Staff assess the Kyrgyz Republic’s public debt as sustainable with moderate risks of external and overall debt distress." - Under the most extreme standard stress test (standard shock to exports), breaches occur for three out of four external debt ratios. - PV of total public debt to GDP breaches its benchmark under the most extreme standard shock (growth). - Baseline projections: - PV of public debt rises from "34.3 percent of GDP in 2025" to "38.1 percent by 2036", remaining below its benchmark. - Under the baseline, "none of the external debt ratios breach their thresholds." - Risk ratings and context: - "Risk of external debt distress: Moderate" - "Overall risk of debt distress: Moderate" - "Granularity in the risk rating: Some space to absorb shocks" - "Application of judgment: No" - Debt carrying capacity upgrade: CI score "3.15" (noting the CI is above the "3.05" lower bound for the strong classification in the last three vintages). ### Policy implications and recommended priorities - Measures highlighted to create fiscal space and contain debt vulnerabilities: - "Improving tax collection" - "Sustaining efforts to reduce the wage bill and energy subsidies" - "Strengthening debt management" - "Seeking concessional financing" - "Improving public investment management" ### IMF relations, financing, and projected payments - Membership and quota snapshots: - Quota: "177.60" (SDR million) representing "100.00" percent of quota. - Fund Holdings of Currency (Exchange Rate): "177.24" (SDR million) representing "99.80" percent. - Reserve Tranche Position: "0.49" (SDR million) representing "0.27" percent. - SDR Department: - Net Cumulative Allocation: "254.96" (SDR million) representing "100.00" - Holdings: "215.73" (SDR million) representing "84.62" - Outstanding purchases and loans (SDR million; percent of quota): - "RCF Loans 50.32 28.33" - "ECF Arrangements 10.47 5.89" - Latest financial arrangements (selected entries): - ECF April 8, 2015 – April 7, 2018: Amount Approved "66.60" (SDR million); Amount Drawn "57.08" (SDR million) - ECF June 20, 2011 – July 7, 2014: Amount Approved "66.60" (SDR million); Amount Drawn "66.60" (SDR million) - ESF December 10, 2008 – June 9, 2010: Amount Approved "66.60" (SDR million); Amount Drawn "33.30" (SDR million) - Outright loans (selected): - RFI May 08, 2020 – May 11, 2020: Amount Approved "59.20" (SDR million); Amount Drawn "59.20" (SDR million) - RCF May 08, 2020 – May 12, 2020: Amount Approved "29.60" (SDR million); Amount Drawn "29.60" (SDR million) - RCF Mar 26, 2020 – Mar 30, 2020: Amount Approved "29.60" (SDR million); Amount Drawn "29.60" (SDR million) - Projected payments to the Fund (SDR million; forthcoming): - Principal: 2026 "15.54", 2027 "15.65", 2028 "11.84", 2029 "11.84", 2030 "5.92" - Charges/Interest: 2026 "0.80", 2027 "1.09", 2028 "1.09", 2029 "1.09", 2030 "1.09" - Total: 2026 "16.34", 2027 "16.73", 2028 "12.93", 2029 "12.93", 2030 "7.01" ### Safeguards, legal framework, and exchange rate classification - Safeguards assessment and NBKR law: - A safeguards update assessment completed on January 13, 2021, found shortcomings in the NBKR legal framework and recommended amendments to the NBKR law. - Parliament amended the NBKR law in 2022 but "did not fully address the 2020 Safeguards Assessment recommendations." - Amendments envisaged "proper recapitalization and profit distribution mechanisms" but did not introduce a majority of non-executive Board members or provisions to wind down non-core central bank operations. - Laws in the last four years suspended NBKR profit distribution provisions permitting transfers of NBKR’s profit to the budget even though NBKR capital fell below the statutory floor. - Exchange rate arrangement: - De jure arrangement: "floating arrangement." - De facto classification: "crawl-like" (unchanged since "October 21, 2022"). - During 2025, "the flexibility of the exchange rate against the U.S. dollar was limited." - The NBKR publishes a daily official exchange rate determined as the daily weighted average of transactions through the Automated Trading System (ATS) for the reporting period from "3:00 pm of the previous trading day to 3:00 pm of the current trading day." ### Technical assistance and capacity development (selected) - Timeframe covered: "(January 2014 – March 2026)". - Recurrent program areas and mission types include: - Tax administration and tax policy missions (multiple dates; requestors include "Ministry of Finance", "State Tax Service", "State Customs Service", "Ministry of Economy and Commerce"). - Public Finance Management, Treasury and Accounting Reform, Fiscal Rules, Public Investment Management Assessment. - Monetary policy, inflation targeting, banking supervision, IFRS 9 training, cyber security, central bank operations, and CBDC scoping. - AML/CFT legal drafting, supervision, and follow-up missions (multiple dates through "September 2025"). - External Sector Statistics, Monetary and Financial Statistics, National Accounts, Government Finance Statistics missions through "March 23-27, 2026". - Recent missions include "Public Investment Management Assessment February 18-March 3, 2026" and "Financial Programming and Policy Workshop January 26-30, 2026". *Source: https://www.imf.org/-/media/files/publications/cr/2026/english/1kgzea2026001.pdf* ### 1. Public and Publicly Guaranteed (PPG) debt covers state government debt (both ### 1. Public and Publicly Guaranteed (PPG) debt covers state government debt (both ### Coverage, contingent liabilities, and recent changes - PPG debt covers central and local government, state guarantees, and the debt of the central bank to the IMF. - All public sector debt is currently issued by the central government; planned Eurobond issuances by two state-owned banks would introduce publicly guaranteed debt as a new component of public sector liabilities. - The part of the 2021 SDR allocation that has been drawn down is counted toward public debt. - Local governments have no external debt and insignificant domestic debt. The social security fund has no debt. - State-owned enterprises (SOEs) mostly borrow from the government and, by law, do not incur external debt. SOEs’ short-term domestic borrowing from the banking sector is limited and they do not have long-term domestic debt. - The government has no outstanding external debt guarantees. - As of October 2025, there is no significant PPG debt for new companies created as Public-Private Partnerships. - Given energy sector liabilities equivalent to around 15 percent of GDP in 2022 and the 2024 conversion into depreciated equity of energy SOE debt, a contingent liability shock of 13 percent of GDP is applied: - 8 percent of GDP are potential expenditures not included in the baseline (operational risk from structural cash shortfalls of loss-making energy sector SOEs). - 5 percent of GDP is the default value representing the average cost to the government during a financial crisis. - The Budget Code has prevented the state from guaranteeing debt of SOEs and other public entities since 2007, except when stipulated by obligations of memberships in international and inter-governmental organizations. Changes introduced in 2024 could allow the Government to issue guarantees under certain conditions. - A Guarantee Fund supporting domestic commercial bank lending to local SOEs has less than 0.2 percent of GDP in outstanding guarantees. ### Public debt stock, composition, and holders (recent developments) - Public debt rose to 39.4 percent of GDP in 2025 from 36.2 percent of GDP in 2024, driven by a rise in domestic debt. - External debt declined from 24.9 percent of GDP to 23.6 percent of GDP between 2024 and 2025, mainly reflecting strong nominal GDP growth and a broadly stable exchange rate. - Domestic debt increased from 11.3 percent of GDP to 15.8 percent of GDP, largely driven by new lending to Government from Eldik Bank. - Domestic public debt is held predominantly by commercial banks and the social security fund. ### External debt currency and creditor composition - External debt is predominantly denominated in US dollars and SDRs; these two currencies account for around 85 percent of nominal external debt at end-2025. The euro accounts for less than 5 percent. - China is the largest creditor at end-2025, accounting for 28.1 percent of total external debt (down from 36.5 percent at end-2024). - The International Development Association (IDA–World Bank) accounts for over 17 percent of total external debt. - The Asian Development Bank (ADB) accounts for over 16 percent of total external debt. - The IMF is owed 3.8 percent of the total external debt (down from over 7 percent in 2024). - Large creditors in the “Other” category include Japan, the Islamic Development Bank, other bilateral lenders, and the Eurasian Development Bank. ### Macroeconomic outlook, growth, inflation, and fiscal projections - Growth: - Real GDP growth was 11.1 percent in 2025. - Growth is projected at 6.1 percent in 2026, 5.8 percent in 2027, 6.1 percent in 2028, 5.4 percent in 2029, 5.2 percent in 2030-32, 5.1 percent in 2033-36, and 5.3 percent in 2037-46 (Text Table 3, Current DSA). - The estimated potential output growth is around 5.3 percent. - Inflation: - Projected at 12.5 percent in 2026, 10.5 percent in 2027, and moderating to 6.5 percent by 2031. - Fiscal balances and revenues/expenditures (Current DSA, percent of GDP, selected years): - Overall fiscal balance: -3.8 (2026), -3.5 (2027), -3.6 (2028), -3.1 (2029), -2.7 (2030-32), -2.7 (2033-36), -2.7 (2037-46). - Revenues and grants: 33.4 (2026), 31.4 (2027), 31.2 (2028), 31.1 (2029), 30.7 (2030-32), 30.1 (2033-36), 29.1 (2037-46). - Public expenditure: 37.2 (2026), 35.0 (2027), 34.8 (2028), 34.2 (2029), 33.3 (2030-32), 32.8 (2033-36), 31.8 (2037-46). - Net acquisition of financial assets, Gen. Gov.: 2.3 (2026), -0.3 (2027), 0.0 (2028), -0.1 (2029), 0.5 (2030-32), 0.3 (2033-36), 0.4 (2037-46). - Net incurrence of liabilities, Gen. Gov.: 6.2 (2026), 3.2 (2027), 3.5 (2028), 3.0 (2029), 3.1 (2030-32), 3.0 (2033-36), 3.1 (2037-46). - Recent fiscal performance and drivers: - Overall budget balance recorded surpluses at about 1.6 (2023), 2.0 (2024), and 2.6 (2025) percent of GDP. - Strong tax collection in 2025, with a compositional shift away from VAT on imports toward corporate income tax and taxes on international trade, partly driven by the introduction of the simplified taxation regime. - Non-tax revenues were supported by proceeds from liquidation of seized assets and profit transfers from the NBKR. - Expenditure pressures from wage increases and higher-than-budgeted transfers to the Stabilization Fund. - Capitalization of SOEs (banking and energy) increased net acquisition of financial assets and financing needs. - Fiscal balance projected to shift into a deficit of -3.8 percent of GDP in 2026 due to: a large salary increase for education and health workers; increased spending on major infrastructure projects outside the PIP (notably Kambarata-1 HPP and the China–Kyrgyzstan–Uzbekistan railway); continued on-lending to loss-making energy SOEs (classified below the line); and planned capital injections into other SOEs and Eldik Bank expected to add about 2.3 percent of GDP to financing needs. - Gold accounts for around 2.5 percent of revenue. - Over the medium term, claims on resources (including net acquisition of financial assets) are projected to decline gradually as state-owned banks borrow directly from markets, helping to anchor net financing needs below 3 and ½ percent of GDP despite rising interest payments. ### External sector, reserves, and current account - Current account: - Estimated current account deficit of 24.4 percent of GDP in 2025, partly offset by BoP errors and omissions of 17.2 percent of GDP (unrecorded re-exports). - Accounting for re-exports, the current account deficit would be 7.5 percent of GDP in 2025 and 7.3 percent of GDP in 2026. - Exports of locally-produced gold account for over 40 percent of all exports. - Current account deficit projected to decrease to 5.3 percent by 2031 and remain around 5 percent by 2046. - Reserves: - Gross international reserves projected to decline from 6.0 months of imports to 3.2 months in 2031, and hover around 3.0 months by 2046. - Reserves in months of prospective imports (Current DSA): 6.0 (2026), 5.4 (2027), 5.0 (2028), 4.5 (2029), 3.2 (2030-32), 2.3 (2033-36), 3.1 (2037-46). ### Major infrastructure projects and financing assumptions - Kambarata-1 HPP: - Total cost estimated at US$4.5 billion, incurred between 2026-36. - Financing and implementation are joint among Kyrgyz Republic, Uzbekistan, and Kazakhstan; Kyrgyz Republic share is 34 percent, Uzbekistan 33 percent, Kazakhstan 33 percent. - The projected fiscal balance in this DSA accounts only for Kyrgyz Republic’s share of expected project costs. - China–Kyrgyzstan–Uzbekistan (CKU) railway: - Estimated cost US$4.7 billion, expected to be built during 2026-32. - Implemented under TOT (construction-operation-transfer) model via a joint project company with shares: 51% China Railway, 24.5% Kyrgyz side (SE NC Kyrgyz Temir Zholu), 24.5% Uzbek side (Uzbekistan Railways). - Financing proportions: 50% equity, 50% borrowed funds (loans from Chinese financial institutions); the borrower will be the Joint Project Company (JSC). - The projected fiscal balance in this DSA accounts only for Kyrgyz Republic’s share of expected project costs. - Financing assumptions and planned borrowings: - New external borrowing assumed as a mix of concessional and non-concessional financing. - IDA loan disbursements expected at US$133.4 million in 2026 and to increase gradually to around US$180 million in 2030. - ADB projected to provide US$50 million as budget support and US$55 million for projects in 2026, plus US$50 million and US$70 million respectively in 2027; ADB projected to lend about US$590 million between 2028-31 (including support for the Kambarata-1 HPP). - A Eurobond issuance of US$700 million took place in 2025. - One large state-owned bank expected to issue US$500 million in 2026, another state-owned bank US$300 million in 2027; a further issuance of US$200 million is assumed in 2028 (authorities’ plan to raise US$1.7 billion in total). - A syndicated loan of US$333 million on commercial terms (estimated at around 12 percent), to be mobilized in 2026 with IDA/MIGA guarantee support, is included in the baseline. - About US$1.2 billion in financing from China is projected over the next four years to support the railway project. - Government projected to secure on average an additional US$50 million per year in external loans over the medium term. - These borrowings on less-than-concessional terms are expected to reduce the average concessionality of external debt over time. - As external financing gradually declines, domestic debt is projected to replace external debt; the Eurobond slated for amortization in 2030 is part of this dynamic. - The share of net domestic borrowing in total financing (excluding external amortization) is projected to increase from around 57 percent in 2031 to about 65 percent by 2046. - Domestic borrowing rates are assumed at 9–16 percent for maturities of 1 to 7 years in 2026, declining gradually to 9–13 percent by 2031 as domestic financial markets deepen. - PIP Disbursements (millions of US$) (Current DSA): 362.2 (2026), 447.9 (2027), 582.4 (2028), 574.7 (2029), 609.3 (2030-32), 566.6 (2033-36), 701.7 (2037-46). ### Baseline projections, realism checks, and debt dynamics - The forecast error of the change in the ratio of public debt-to-GDP over the past five years has been significant. - Total public debt in 2031 is expected to increase modestly to 41.3 percent of GDP in nominal terms, but only to 37.8 percent of GDP in PV terms—owing mainly to mostly concessional external borrowing. - The gradual decline in the total public debt-to-GDP ratio beyond 2031 is explained by a narrowing of the general government deficit. - The 3-year fiscal adjustment shows a deterioration of the primary balance due to worsening tax revenue and normalization of nontax revenue. - The growth projection for 2026 is below growth paths suggested by different fiscal multipliers; projected fiscal expansion for 2026 reflects expected declines in trade-related tax revenue, normalization of nontax revenue, and new infrastructure spending. - Medium- and long-term growth projected close to potential (~5.3 percent), consistent with the path for public investment. ### Country classification and stress tests - The Kyrgyz Republic’s Composite Indicator (CI) index is 3.15 for its most recent vintage, above the 3.05 threshold for strong debt-carrying capacity. - Strong debt-carrying capacity classification yields the following external debt burden thresholds: - 240 percent of the PV of PPG external debt-to-exports ratio. - 55 percent of the PV of PPG external debt-to-GDP. - 21 percent of the PPG external debt service-to-exports. - 23 percent of the PPG external debt service-to-revenue. - The total public debt benchmark is 70 percent of the PV of total public debt-to-GDP ratio. - The CI score was calculated using IMF WEO vintage of October 2025 and the World Bank’s 2024 CPIA vintage. *Source: IMF staff report content (Kyrgyz Republic Debt Sustainability Analysis excerpts).* ### 9. All four external debt ratios remain below their respective thresholds under the ### 1kgzea2026001 - 9. All four external debt ratios remain below their respective thresholds under the ### External debt baseline and projections - External Public and Publicly Guaranteed (PPG) debt was 23.6 percent of GDP at end-2025. - Private external debt was estimated at 20.9 percent of GDP at end-2025. - Private external debt is expected to decline to around 19.9 percent of GDP starting in 2026 as net external private borrowing is projected to grow less than nominal GDP. - The PV of PPG external debt decreased to 18.5 percent of GDP in 2025 (from 21.8 percent in the previous DSA, based on a lower nominal GDP). - PV of PPG external debt is projected to decrease to 15.2 percent of GDP by end-2036 (well below the 55 percent threshold), driven by decreasing external borrowing over the next ten years, and the amortization of Eurobonds between 2030 and 2033. - The high residual up to 2025 is attributable to the high errors and omissions in the BOP, which are not projected onward. ### External debt stress-test outcomes - Under the most extreme standard stress test (exports), three out of four external debt indicators breach their respective thresholds, with breaches occurring in the medium term. - The PV of external debt-to-GDP ratio remains above its threshold during 2028–30 before declining. - The debt service-to-exports ratio breaches its threshold in 2030–31 and again in 2033. - The debt service-to-revenue ratio breaches in 2030. - Breaches reflect: - Higher external borrowing to finance infrastructure projects. - Less concessional borrowing terms associated with Eurobond issuances. - Historically high volatility of exports. - All indicators under the most extreme standard stress tests begin to improve by 2034 and fall back below their respective thresholds by the end of the projection period (2036). ### Public DSA: levels, dynamics, and projections - Public debt (stock) increased from 36.2 percent of GDP in 2024 to 39.4 percent in 2025, reflecting the Eurobond issuance and high domestic financing needs despite strong nominal GDP growth. - Public debt increases further to 42.3 percent in 2026 due to continued high financing needs and rising interest payments. - Thereafter, public debt stabilizes at around 41 percent of GDP over the medium term and decreases gradually to 39 percent by 2046. - The debt service-to-revenue ratio (including grants) rises: - From 12.3 percent in 2025 - To 23.8 percent in 2031 and 2036 - To around 29 percent by 2046 - Under a growth shock (the most extreme stress test), the PV of debt-to-GDP ratio breaches the benchmark of 70 percent by 2031 and continues upward thereafter. - Under that shock: - The PV of debt-to-revenue ratio would reach over 300 percent by 2036. - The debt service-to-revenue ratio would reach over 53 percent in 2036. - Total public debt remains assessed as sustainable under the baseline because the PV of public debt-to-GDP remains well below 70 percent of GDP by 2036, despite slight increases. ### Domestic debt indicators and liquidity/solvency - Over the medium-term (2026-32), the domestic debt-to-GDP ratio is projected to increase and remain above its historical range and the median of domestic debt-to-GDP ratios across countries using the LIC DSF (17.1 percent), starting in 2031. - The domestic public debt service-to-revenue ratio is projected to increase monotonously as of 2030, but will remain below the median of this ratio for countries using LIC DSF (21.7 percent) over the entire forecast period. ### Domestic debt management recommendations (priority measures) - Revise the Debt Management Strategy in line with the standards of the MTDS framework, including planned implementation through an Annual Borrowing Plan and Issuance Calendar. - Improve collaboration between the NBKR and the Ministry of Finance to strengthen liquidity management and forecasting. - Set medium term targets for average Term-to-Maturity to design a better mix of domestic securities. - Define debt management objectives within the Budget Code and the medium-term horizon of the cost and risk parameters. - Develop and publish short-term yield curve based on NBKR notes and T-Bill auctions. - Lift interest rate caps and yield change limits, and allow full market price discovery in auctions. - Implement a benchmark bond policy. - Issue 3-month and 6-month T-Bills at market rate. - Strengthen technical and institutional capacity of Public Debt Management Department. - Exercise caution in managing exposure to external borrowing, including planned Eurobond issuance by state-owned banks, which would add to publicly guaranteed debt. ### Risk rating, vulnerabilities, and downside scenarios - The mechanical risk rating suggested by the baseline and the stress tests supports staff’s assessment of external debt as being at moderate risk of debt distress. - The breach of a threshold by three out of four external debt ratios under the exports stress test leads to a “moderate” risk rating of external debt distress. - External debt is still assessed as sustainable because there are no breaches under the baseline and indicators are projected to decline after 2030. - The risk of overall public debt distress remains “moderate.” - This reflects the “moderate” external risk plus the breach by the PV of debt-to-GDP ratio of its 70 percent benchmark before 2036 under a growth stress test. - The upward trajectory is driven by growing domestic borrowing at relatively high interest rates, rising interest payments, and refinancing challenges related to the bullet Eurobond repayment in 2030. - Debt management weaknesses further justify the moderate rating. - Risks to the ratings assessment are significant and include: - Tightening of Western sanctions on Russia leading to depreciation of the ruble and the som, and lower remittances. - Higher oil prices amid conflict in the Middle East. - Potential easing of sanctions on Russia, which could have mixed effects. - Higher commodity prices, prolonged conflict in the Middle East, extreme weather events, and cyber threats. ### Fiscal implications and recommended fiscal measures to build buffers - The DSA implies a debt stabilizing primary balance of less than one percent of GDP in the medium term. - The breach of the PV of Debt-to-GDP benchmark under a growth stress test by 2031 indicates the need for fiscal buffers. - Policy options to create fiscal buffers include: - Improving revenue mobilization, including streamlining tax exemptions and strengthening tax administration. - Reducing the wage bill and energy subsidies. - Improving targeting of social benefits. - Improving public investment management. - Seeking more concessional financing. - Strengthening debt management. - Reducing the state footprint in the economy to achieve faster growth, lower contingent liabilities, and stronger donor engagement. *Sources: Kyrgyz authorities; and IMF and World Bank staff estimates and projections.* ### 19. The authorities broadly agreed with the views of Bank and Fund staff. They noted the ### 19. The authorities broadly agreed with the views of Bank and Fund staff. They noted the ### Authorities' views and policy stance - The authorities broadly agreed with Bank and Fund staff views. - They noted the additional space afforded by higher long-term growth, which helps dampen debt accumulation and keeps it well below their nominal debt ceiling of 70 percent of GDP. - They recognized risks associated with new borrowing on commercial terms and emphasized the importance of carefully sequencing external debt repayments to avoid liquidity pressures on the treasury and risks to external reserves. - They reiterated their commitment to prudent fiscal and debt policies, supported by continued improvements in tax administration. - They noted that Eurobond issuances by state-owned banks do not involve explicit guarantees. ### External Debt Sustainability Framework — Baseline scenario (selected figures and dynamics) - External debt (nominal): - 2023: 54.0 - 2024: 46.9 - 2025: 44.6 - 2026: 46.6 - 2027: 47.3 - 2028: 48.2 - 2029: 47.7 - 2030: 44.5 - 2031: 42.2 - 2036: 37.9 - 2046: 33.1 - Historical average: 67.6 - Projections average: 43.0 - Of which: public and publicly guaranteed (PPG): - 2023: 31.1 - 2024: 24.9 - 2025: 23.6 - 2026: 26.6 - 2027: 27.4 - 2028: 28.2 - 2029: 27.8 - 2030: 24.6 - 2031: 22.3 - 2036: 18.0 - 2046: 13.2 - Historical average: 41.4 - Projections average: 23.0 - Change in external debt: - 2023: -7.8 - 2024: -7.2 - 2025: -2.3 - 2026: 2.0 - 2027: 0.7 - 2028: 0.9 - 2029: -0.4 - 2030: -3.2 - 2031: -2.3 - 2036: -0.5 - 2046: -1.4 - Identified net debt-creating flows: - 2023: 31.9 - 2024: 12.4 - 2025: 13.7 - 2026: 3.9 - 2027: 4.0 - 2028: 2.3 - 2029: 1.5 - 2030: 0.6 - 2031: 0.5 - 2036: 0.6 - 2046: 1.1 - Historical average: 8.6 - Projections average: 1.7 - Non-interest current account deficit: - 2023: 44.5 - 2024: 22.3 - 2025: 24.1 - 2026: 6.8 - 2027: 6.1 - 2028: 5.1 - 2029: 4.4 - 2030: 4.1 - 2031: 4.1 - 2036: 4.2 - 2046: 4.1 - Historical average: 17.3 - Projections average: 4.8 - Endogenous debt dynamics (contribution): - 2023: -11.6 - 2024: -8.5 - 2025: -8.9 - 2026: -1.9 - 2027: -1.5 - 2028: -1.5 - 2029: -1.1 - 2030: -1.1 - 2031: -1.0 - 2036: -1.1 - 2046: -1.0 - Residual: - 2023: -39.6 - 2024: -19.6 - 2025: -16.0 - 2026: -1.9 - 2027: -3.2 - 2028: -1.5 - 2029: -1.9 - 2030: -3.8 - 2031: -2.8 - 2036: -1.2 - 2046: -2.5 - Historical average: -14.1 - Projections average: -2.3 - Sustainability indicators (selected): - PV of PPG external debt-to-GDP ratio (projections range shown): - 2026: 18.5 - 2027: 21.1 - 2028: 22.3 - 2029: 23.5 - 2030: 23.4 - 2031: 20.4 - 2036: 15.2 - 2046: 11.6 - PV of PPG external debt-to-exports ratio (selected): - 2026: 57.8 - 2027: 44.3 - 2028: 47.5 - 2029: 49.7 - 2030: 49.6 - 2031: 43.3 - 2036: 31.5 - 2046: 22.8 - PPG debt service-to-exports ratio (selected): - 2023: 5.1 - 2024: 3.4 - 2025: 6.7 - 2026: 4.4 - 2027: 5.0 - 2028: 5.1 - 2029: 5.6 - 2030: 10.6 - 2031: 9.2 - 2036: 4.0 - 2046: 3.4 - PPG debt service-to-revenue ratio (selected): - 2023: 5.6 - 2024: 4.8 - 2025: 5.7 - 2026: 6.4 - 2027: 7.6 - 2028: 7.8 - 2029: 8.6 - 2030: 16.4 - 2031: 14.3 - 2036: 6.6 - 2046: 6.1 - Gross external financing need (Million of U.S. dollars): - 2023: 7209.5 - 2024: 4821.9 - 2025: 5899.1 - 2026: 2347.4 - 2027: 2565.0 - 2028: 2317.4 - 2029: 2159.2 - 2030: 2831.8 - 2031: 2692.9 - 2036: 2531.2 - 2046: 4825.0 ### Key macroeconomic assumptions (external DSA) - Real GDP growth (in percent): - 2023: 9.0 - 2024: 11.5 - 2025: 11.1 - 2026: 6.1 - 2027: 5.8 - 2028: 6.1 - 2029: 5.4 - 2030: 5.3 - 2031: 5.2 - 2036: 5.2 - 2046: 5.4 - Historical average: 5.6 - Projections average: 5.4 - GDP deflator in US dollar terms (change in percent): - 2023: 14.0 - 2024: 7.3 - 2025: 12.0 - 2026: 7.5 - 2027: 3.6 - 2028: 2.3 - 2029: 2.2 - 2030: 1.6 - 2031: 0.9 - 2036: 0.9 - 2046: 0.9 - Historical average: 7.3 - Projections average: 2.0 - Effective interest rate (percent) 4/: - 2023: 0.9 - 2024: 0.8 - 2025: 0.8 - 2026: 1.2 - 2027: 2.2 - 2028: 2.7 - 2029: 3.0 - 2030: 2.9 - 2031: 2.8 - 2036: 2.2 - 2046: 2.3 - Historical average: 0.9 - Projections average: 2.4 - Growth of exports of G&S (US dollar terms, in percent): - 2023: 52.0 - 2024: 53.2 - 2025: -14.5 - 2026: 70.4 - 2027: 7.7 - 2028: 9.4 - 2029: 7.7 - 2030: 6.8 - 2031: 6.2 - 2036: 7.2 - 2046: 7.5 - Historical average: 13.9 - Projections average: 12.8 - Growth of imports of G&S (US dollar terms, in percent): - 2023: 35.6 - 2024: 4.5 - 2025: 3.0 - 2026: 11.2 - 2027: 7.1 - 2028: 7.8 - 2029: 6.7 - 2030: 7.0 - 2031: 6.4 - 2036: 6.1 - 2046: 6.7 - Historical average: 15.7 - Projections average: 7.1 - Government revenues (excluding grants, in percent of GDP): - 2023: 33.3 - 2024: 33.6 - 2025: 37.5 - 2026: 32.7 - 2027: 30.9 - 2028: 30.8 - 2029: 30.7 - 2030: 30.4 - 2031: 30.3 - 2036: 29.4 - 2046: 28.9 - Historical average: 31.5 - Projections average: 30.5 - Aid flows (in Million of US dollars) 5/: - 2023: 184.3 - 2024: 161.9 - 2025: 209.1 - 2026: 245.7 - 2027: 248.5 - 2028: 251.4 - 2029: 234.9 - 2030: 233.6 - 2031: 183.4 - 2036: 117.5 - 2046: 102.1 ### Public Sector Debt Sustainability Framework — Baseline scenario (selected figures) - Public sector debt (percent of GDP): - 2023: 42.0 - 2024: 36.2 - 2025: 39.4 - 2026: 42.3 - 2027: 41.4 - 2028: 41.2 - 2029: 41.0 - 2030: 41.1 - 2031: 41.3 - 2036: 40.5 - 2046: 39.0 - Historical average: 50.6 - Projections average: 41.1 - Of which: external debt (public sector): - 2023: 31.1 - 2024: 24.9 - 2025: 23.6 - 2026: 26.6 - 2027: 27.4 - 2028: 28.2 - 2029: 27.8 - 2030: 24.6 - 2031: 22.3 - 2036: 18.0 - 2046: 13.2 - Historical average: 41.4 - Projections average: 23.0 - Change in public sector debt: - 2023: -5.0 - 2024: -5.7 - 2025: 3.2 - 2026: 2.9 - 2027: -0.9 - 2028: -0.2 - 2029: -0.2 - 2030: 0.1 - 2031: 0.2 - 2036: 0.1 - Identified debt-creating flows (selected): - Primary deficit (2023 to 2029): -2.6, -3.1, -3.7, 2.8, 1.9, 1.7, 1.0 - Revenue and grants (percent of GDP): - 2023: 34.5 - 2024: 34.5 - 2025: 38.5 - 2026: 33.4 - 2027: 31.4 - 2028: 31.2 - Primary (noninterest) expenditure (percent of GDP): - 2023: 31.8 - 2024: 31.4 - 2025: 34.7 - 2026: 36.1 - 2027: 33.3 - 2028: 33.0 - Automatic debt dynamics (percent of GDP): - 2023: -9.6 - 2024: -6.8 - 2025: -6.8 - 2026: -3.1 - 2027: -2.5 - 2028: -2.1 - Other identified debt-creating flows: - 2023: 2.9 - 2024: 2.9 - 2025: 8.9 - 2026: 2.8 - Residual: - 2023: 4.3 - 2024: 1.3 - 2025: 4.8 - 2026: 0.4 - 2027: -0.4 - 2028: -0.1 - Historical average: 1.6 - Projections average: 0.1 - Sustainability indicators (selected): - PV of public debt-to-GDP ratio (selected): - 2026: 34.3 - 2027: 37.7 - 2028: 37.1 - 2029: 37.2 - 2030: 37.2 - 2036: 37.8 - PV of public debt-to-revenue and grants ratio (selected): - 2026: 89.1 - 2027: 112.9 - 2028: 118.0 - 2029: 119.0 - 2030: 119.3 - 2036: 128.3 - Debt service-to-revenue and grants ratio 3/: - 2023: 12.1 - 2024: 12.8 - 2025: 12.3 - 2026: 8.5 - 2027: 12.9 - 2028: 13.4 - 2029: 13.8 - 2030: 22.9 - 2031: 23.8 - 2036: 23.8 - Gross financing need 4/ (percent of GDP): - 2023: 4.4 - 2024: 4.2 - 2025: 9.9 - 2026: 8.4 - 2027: 6.0 - 2028: 6.2 - 2029: 5.7 - 2030: 8.2 - 2031: 8.1 - 2036: 8.3 ### Stress tests, sensitivity analysis, and risks - Figures and tables present alternative scenarios, bound tests, and tailored stress tests for 2026–36. - Notable stress-test outcomes (summary of thresholds and breaches indicated in tables/figures): - Benchmarks and thresholds include total public debt benchmark of 70 (percent of GDP) and various absolute thresholds for debt service and PV metrics. - Sensitivity analysis panels include shocks to real GDP growth, primary balance, exports, other flows (official/private transfers and FDI), depreciation, combinations, and tailored tests such as combined contingent liabilities and commodity price shocks. - Table 3 and Table 4 present projected paths under alternative scenarios and bound/tailored tests with values for Debt service-to-exports ratio, Debt service-to-revenue ratio, PV of debt-to-exports ratio, PV of debt-to-GDP ratio, PV of Debt-to-Revenue Ratio, and Debt Service-to-Revenue Ratio for 2026–36. ### Drivers of debt dynamics and realism tools - Figures illustrate decomposition of drivers: - Contributions from nominal interest rate, real GDP growth, price and exchange rate changes, current account and FDI, and other debt-creating flows. - Historical and projected 5-year changes in PPG external debt and gross nominal public debt shown. - Realism tools plot contribution of government and private investment, projected fiscal adjustments, and possible real GDP growth paths under different fiscal multipliers. ### Practical implications emphasized by authorities - Maintain prudent fiscal and debt policies. - Improve tax administration to support fiscal prudence. - Carefully sequence external debt repayments to avoid treasury liquidity pressures and reserve risks. - Exercise caution with commercial borrowing due to associated risks. - Note: Eurobond issuances by state-owned banks are reported as not involving explicit guarantees. *Sources: Country authorities; and staff estimates and projections.* ### 2.5 percentage points of GDP in ### 2.5 percentage points of GDP in ### Recent economic developments - Real GDP increased by 11.1 percent in 2025. - Real GDP expanded by 12.4 percent year-on-year over January-April 2026. - Job growth: number of newly created jobs increased by 141 percent in 2024 compared to 2023; annual increase of 4 percent in 2025. - Unemployment declined from 5.3 percent in 2021 to 3.7 percent in 2024. - Average household wages increased by about 36 percent between 2022 and 2024. - Poverty rate declined from 29.8 percent in 2023 to 25.7 percent in 2024. - Inflation: rose from 6.3 percent in 2024 to 9.4 percent in 2025; as of May 15, annual inflation reached 10.9 percent (NBKR target range: 5-7 percent). - Sources of inflationary pressures: food, fuel, services; higher electricity and utility tariffs; rising prices in the hospitality sector associated with fiscalization reforms; strong domestic demand. - Monetary and fiscal sterilization: monetary policy instruments actively sterilized monetary drivers of inflation; domestic foreign exchange market stability mitigated pressures. - External environment: international reserves have increased; remittances continue to serve as a buffer; long-standing border disputes with Tajikistan and Uzbekistan have been resolved. - Financial sector: rapid growth of virtual assets and credit to the economy; commercial banks remain largely profitable, well-capitalized, and resilient; developments warrant close monitoring. - International capital markets: inaugural Eurobond issuance established presence; Eldik Bank issued Eurobonds on international capital markets in April 2026 with proceeds for lending to key economic sectors, financing environmental, social, and governance projects, and developing the green economy. ### Outlook and risks - Policy orientation: National Development Program through 2030 focuses on structural transformation, industrialization, economic diversification beyond the extractive sector, and development of green energy and logistics. - Major projects: Kambarata-1 Hydropower Project (joint with Kazakhstan and Uzbekistan) progressing from preparation toward active implementation; China-Kyrgyzstan-Uzbekistan railway construction progressing. - Elevated priorities: global mountain agenda for sustainable mountain development and resilience of mountain communities. - Main risks: geopolitical tensions; global economic uncertainty; potential impacts from higher energy prices. - Authorities’ assessment: fundamental economic trajectory remains sound, supported by ongoing reforms, major investment projects, and prudent policy management. ### Fiscal policy - Fiscal stance: state budget adopted with a surplus for 2026; government recorded surpluses in the last three years since 2023. - Revenue developments: tax revenues rose sharply driven by higher corporate income tax collections and increased taxes on international trade. - Fiscal outcomes: stronger revenues, higher public wages, interest payments, and capital investment contributed to a decline in public debt. - Stabilization Fund (SF) role: extra-budgetary fund serving savings and stabilization functions to (i) ensure continuity of socio-economic development during global downturns; (ii) mitigate impact of adverse external shocks on the domestic economy and public finances; and (iii) provide resources for deficit financing to address unforeseen expenditures and maintain budget balance in event of revenue shortfalls. - Authorities’ policy priorities: - Finance critical investments in infrastructure and human capital within available resources. - Strengthen revenue administration and broaden the tax base, particularly by formalizing SMEs. - Further digitalize tax and customs administration. - Consider any increase in personal income tax progressivity to be premature; do not envisage pursuing such changes over the medium term. - Strengthen public financial and project management and governance and efficiency of state-owned enterprises. - Carefully assess public pension system to safeguard long-term fiscal sustainability. - Debt management: prioritize concessional lending from international financial institutions for flagship infrastructure projects; cautious about external borrowing on commercial terms and importance of planning external debt maturities. ### Monetary policy and financial sector - Monetary policy objective: price-stability-oriented framework aimed at achieving inflation targets within 5-7 percent in the medium term. - Policy rates and instruments: - NBKR’s key policy rate maintained at 12 percent. - On May 26, the overnight deposit rate increased from 6 to 10 percent. - Effective June 2025, NBKR transitioned to issuing longer-term notes with maturities of three and six months. - A symmetric and narrower interest rate corridor was established. - Expected outcome: sustaining tight monetary conditions to bring inflation down to the 5-7 percent range over the medium term. - Financial stability measures: - NBKR monitoring elevated non-performing loans and rapid credit expansion. - Addressing challenges associated with crypto assets and emerging risks from virtual assets sector; efforts to establish regulatory response and define institutional mandates. - Strengthening effectiveness of AML/CFT frameworks and supervision and governance of Virtual Asset Service Providers. - Response to Western sanctions affecting financial sector: - Two-pronged strategy combining targeted domestic enforcement measures to prevent exposure to secondary sanctions and active diplomatic engagement. - Measures include audits of the banking sector, strengthening oversight of virtual asset activities, suspending operations of firms exposed to sanctions risks, and maintaining diplomatic dialogue. ### Structural reforms - Reform objectives: preserve macroeconomic stability, strengthen resilience, reduce informality, enhance competition, and foster private sector-driven inclusive growth. - Governance: implement the 2025 Anti-Corruption Strategy. - Informality and SMEs: - SMEs account for approximately 50 percent of GDP. - Reforms to implement an improved Investment Law with stronger investor protections, improved arbitration mechanisms, and streamlined licensing and permitting through digitalization and reduced administrative burdens. - Efforts to improve skills matching, labor mobility, and access to finance for SMEs to facilitate transition to the formal sector. - Digital and technological priorities: - Authorities recognize transformative potential of artificial intelligence and plan to harness AI to improve public service delivery and socio-economic development. - Plans to strengthen regulatory framework and continue investing in digital infrastructure. *Statement by Mr. Loszewski and Ms. Kadyrberdieva on Kyrgyz Republic, June 3, 2026.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2026/english/1kgzea2026001.pdf_