## tarea2026070

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---

### Mission and scope
- Mission dates and location: November 3 – November 7 2025, Bishkek.
- Requestor: Minister of Finance.
- Mission leader and team: led by Mr. Rodrigo Cerda; team comprised Mr. Nick Carroll (FAD) and Ms. Mengfei Gu (FAD).
- Principal counterparts met: Minister of Finance Mr. Almaz Baketayev; Deputy Ministers Ms. Zhibek Duisheeva and Mr. Nurbek Akjolov; Ministry of Finance technical teams; Ministry of Economy and Commerce; Ministry of Education; Ministry of Health and the Mandatory Health Insurance Fund; Ministry of Labour and the Social Fund; World Bank; EU delegation to the Kyrgyz Republic.
- Funding: European Union under the Public Financial Management Partnership Program (EU PFM PP).
- Coordination support: IMF Resident Representative Mr. Farid Talishli; local economist Ms. Erkeaim Shambetova; Department of Staffing and Wage Analysis (Mr. Nuradil Karypbaev and team).

### Purpose
- Assess issues in public compensation management with a focus on reviewing and updating government pay.
- Evaluate wage levels and dispersion across key public occupations; recruitment, retention, and motivation challenges; gaps in wage structures and headcount; benchmark against international comparators.
- Provide a basis for identifying fiscal space and formulating policy options for targeted and sustainable wage adjustments to improve government employment effectiveness and efficiency.

### Background and analytical approach
- Builds on a January 2025 scoping report and draws primarily on available payroll data and staff professional judgment.
- Noted data limitations:
  - Payroll data reported by position rather than by individual (requiring adjustments for staff with multiple positions).
  - Inconsistent inclusion of social security contributions across payroll reports.
  - Reliance on assumptions for 2024–2026 estimates regarding relationships between aggregate and sector payroll data, reform impacts on sectoral salaries, and natural growth in government employment.
  - Lack of internationally comparable data; different comparators used across the report.
- Fiscal context: public debt reduced to about 36.6 percent of GDP by end-2024; medium-term focus on improving efficiency of public spending rather than debt alone; large pipeline of infrastructure and development projects increases gross financing needs and underscores need for prioritization.

### Key findings
- Public compensation level and volatility:
  - "Government compensation of employees accountsfor 9.5 percent of GDP."
  - The wage bill historically fluctuated between "8 percent and 10.5 percent" in recent years.
  - In Background, government spending on the wage bill has fluctuated between "8.3 percent and 10.4 percent".
  - Large, intermittent increases in wages and salaries create risks to inflation and macroeconomic stability; stop-and-go wage policy can amplify macroeconomic volatility.
- Recent major pay adjustments (selected):
  - 2024: decree increased health sector remuneration, including "50 percent raise for doctors and 25 percent for nurses".
  - 2025: pay equalization of "7-25 percent for the lowest paid employees" across government that compressed wages between medium and high earners.
  - 2026: "63 percentincrease in remuneration for the social sector, followed later by a 26 percent increase for the central apparatus."
- Sectoral imbalances and pay relativities:
  - Following 2024 reforms, doctors began earning approximately "1.3-1.5 times" more than administrative personnel; this remains below typical comparator country ratios of "2.5-5".
  - General Public Administration salaries are roughly "25 percent higher than the national average wage".
  - Long-term decline in doctors per capita and similar trends for nurses associated with low relative pay for medical professionals.
- Implementation and reform design:
  - A more gradual implementation of the 2026 wage adjustment would ease the need for difficult employment and prioritization decisions; modelling shows a phased approach can close medical professionals’ gaps while preserving fiscal space.
  - Medium-term pressures: increasing numbers of medical professionals and teachers will add to budget pressures unless offsets are found.
  - Potential fiscal space options include consolidating positions in public administration and non-teaching staff, and moderating salary growth within public administration.
  - Establish a regular mechanism for reviewing government wages and salaries and remove the provision allowing health-sector vacancy funds to be reallocated to existing staff.

### Sectoral compensation adjustments and priorities
- Health and education prioritized with substantial salary increases to attract and retain qualified professionals.
- Teachers and healthcare workers received large pay raises compared to previous years.
- Disparities persist across sectors; some continue to lag behind in compensation levels.
- IMF’s 2023 Article IV Mission underscores importance of maintaining competitive salaries in priority sectors.

### Overall government compensation spending and composition (2025)
- General government compensation spending was estimated at 9.5 percent of GDP in 2025.
- Composition of compensation spending:
  - Basic salaries: approximately 73 percent of the total.
  - Allowances and additional payments: about 27 percent.
  - Remainder directed to pensions and related obligations.
- Revenue-collecting agencies have the authority to grant supplementary allowances and payments beyond standard provisions.

### Employment shares and sectoral remuneration (2025 estimates)
- Education workforce:
  - Represents 55 percent of the public sector's workforce.
  - Accounts for 45 percent of total compensation spending.
- Health workforce:
  - Comprises 22 percent of government employment.
  - Accounts for 19 percent of compensation.
- Other Public Administration:
  - Employment in Other Public Administration totals 63100 people.
  - Annual remuneration -- including social contributions -- amounting to 666,200 SOMS per year.
  - Share: 23 percent of employment and 25 percent of remuneration.
- Note: 2025 figures are IMF staff estimates derived through reconciliation of payroll, budget, and statistical sources and do not represent official Ministry of Finance administrative statistics.

### Comparative position and relative remuneration (pre- and post-reform)
- Public compensation about 9.5 percent of GDP—above regional averages.
- IMF estimates of employment in general government: 7.5 percent of the working-age population (2025 estimate).
- National Statistical Committee: public administration employment represented approximately 3.9 percent of the working-age population in 2024.
- Pre-reform (2023) relative wage levels:
  - Health sector wages averaged 72 percent of the overall wage level.
  - Education sector wages stood at 84 percent of average.
  - Public administration wages were 26 percent above average.
- Doctors and nurses prior to 2024 reforms:
  - Doctors’ earnings were about 1.3 times higher than clerical occupations prior to the 2024 adjustments.
  - International peers: doctors typically earn three to four times more than clerical positions.
- Public administration salaries in 2023: 1.3 times the average wage.
- Primary school teachers:
  - Kyrgyz teachers earned 1.4 times that of office clerks; median in sample was 1.5 times; 25th percentile ratio was 1.2.

### Impact of 2024–26 reforms on health-sector pay (exact figures)
- Average wages in the health sector rose from 1.4 times GDP per capita in 2023 to 2.3 times GDP per capita in 2026.
- Assuming clerical pay grows in line with GDP per capita, the ratio of doctors’ salaries to clerks’ wages would increase from 1.35 in 2023 to approximately 2 in 2027.

### Wage dispersion, compression, and implications
- Wage dispersion measure (P90/P10):
  - Health sector: P90/P10 = 3.6.
  - Education sector: P90/P10 = 2.0.
  - Ministry of Finance alternative data for education: P90/P10 = 4.7.
- Peer ranges cited:
  - Health sector ratios range from 3 to 7 elsewhere.
  - Education sector ratios range from 2 to 5 in peer countries.
- Interpretation: elevated wage bill driven primarily by size and composition of public employment—particularly large number of non-teaching staff in education—rather than by elevated wage levels.

### Employment composition and efficiency
- Nearly half of all government employees work in the education sector (compared to a median of about 30 percent in benchmarked countries).
- Non-teaching workforce in education accounts for 36 percent of total employment in education.
- Health sector accounts for about 25 percent of government employees (below median of 33 percent and mean of 35 percent in comparator countries).
- Employees outside health and education account for 22 percent of government employment (typical share in benchmarked countries is 31 percent).
- Many teachers work fewer than 30 hours per week; full-time equivalent employment may be lower than headcount.
- Long-term trends: number of doctors and nurses per 10,000 population has been declining.
- Sectoral efficiency: spending efficiency relatively high in health but low in education; education outcomes historically lag despite not particularly high teacher-student ratios.

### Key reform conclusions and design principles
- Three broad conclusions:
  - Wages and employment in the health sector remain low, signaling need for targeted interventions.
  - Relative wage levels in education are comparable to peers, yet employment in this sector is high.
  - Other government employees exhibit relatively low employment levels but receive high wages per person.
- Reform design triangle (tests a package must pass):
  - Adequacy and fairness.
  - Efficiency.
  - Affordability.
- Operationalization callouts:
  - Reforms should support HR objectives to recruit, retain, and motivate.
  - Reforms should be benchmarked against private-sector comparators.
  - Affordability links back to the broader macro-fiscal anchor.

### Modelling approach for reform options
- Simplified wage bill projection and simulation framework aligned with GFSM 2014; includes wages, employer social security contributions, and social fund transfers.
- Encompasses both republican and local government (general government wage bill).
- Projections rely on aggregate government compensation expenditures by sector due to absence of individual-level data.
- Sector-specific wages per employee and employment modeled separately.

### Reform scenarios (overview and fiscal impacts)
- Baseline assumptions:
  - Scheduled wage increases for education, health, and public administration start in April 2026, with the full-year impact realized in 2027.
  - Nominal wages assumed unchanged during 2028–29, followed by a cumulative five-year CPI-based adjustment in 2030.
  - The five-year cumulative CPI growth is about 22 percent.
  - Headcount in education projected to grow in line with population trends; other sectors constant.
- Baseline projections:
  - Baseline wage bill (percent of GDP): 2026 10.8, 2027 10.9, 2028 9.9, 2029 9.9, 2030 10.1
  - Under the baseline, the wage bill is projected to rise to 10.8 percent of GDP in 2026 and to 10.9 percent of GDP in 2027.
- Scenario summaries and impacts (relative to baseline, percent of GDP):
  - Scenario 1 (S1): 2026 package with CPI wage adjustments starting in 2028
    - 2026 0.0, 2027 0.0, 2028 0.5, 2029 0.9, 2030 0.5
    - By 2030 the wage bill declines to 9.6 percent of GDP (Baseline 10.1 percent of GDP in 2030 minus S1 effect 0.5 percent of GDP = 9.6).
  - Scenario 2 (S2): Reallocation of the 2026 package with gradual adjustment
    - 2026 -1.7, 2027 -2.0, 2028 -1.3, 2029 -0.6, 2030 1.4
    - Steadier decline and stabilization of the wage bill at 8.6 percent of GDP by 2030, generating savings of 1.4 percent of GDP compared to the baseline.
    - Under S2, doctors’ and nurses’ relative wages can reach Tajikistan’s level by 2028 and gradually move toward Kazakhstan’s level thereafter.
  - Scenario 3 (S3): 2026 package with savings options (freeze public administration wages)
    - 2026 0.0, 2027 -0.1, 2028 -0.2, 2029 -0.3, 2030 -0.9
    - Yields savings of 0.9 percent of GDP in 2030; overall employment falls by about 13,000 positions over 2026–30, primarily via reallocations from non-teaching education staff and public administration.
  - Scenario 4 (S4): Gradual wage adjustment with priority for health employment
    - 2026 -1.6, 2027 -2.0, 2028 -1.2, 2029 -0.4, 2030 -1.2
    - Mirrors S2 but prioritizes health-sector employment growth; enables hiring approximately 6,600 additional health workers over the forecast horizon and produces savings of 1.2 percent of GDP in 2030 relative to baseline.

### Comparative impacts summary (scenario impacts relative to baseline, percent of GDP)
- S1: 2026 0.0, 2027 0.0, 2028 0.5, 2029 0.9, 2030 0.5
- S2: 2026 -1.7, 2027 -2.0, 2028 -1.3, 2029 -0.6, 2030 1.4
- S3: 2026 0.0, 2027 -0.1, 2028 -0.2, 2029 -0.3, 2030 -0.9
- S4: 2026 -1.6, 2027 -2.0, 2028 -1.2, 2029 -0.4, 2030 -1.2

### Key policy implications and trade-offs
- Front-loaded wage increases (baseline) raise spending early and constrain later fiscal flexibility, increasing upward pressure on public debt dynamics.
- Gradual wage-adjustment approaches (S2, S4) are more fiscally sustainable and help close pay gaps for medical professionals while reducing need for sharp adjustments elsewhere.
- Scenario 3 provides a cost-saving option by freezing nominal wages in general public administration and managing headcount, enabling savings while allowing targeted redeployment.
- Trade-offs are inevitable: achieving a sustainable wage bill will require difficult fiscal choices between wage increases and other spending priorities.

### Implementation recommendations and institutional measures
- Use the standard annual budgetary review mechanism for wage and employment adjustments, involving the Ministry of Finance and sectoral agencies.
- Establish a regular mechanism for reviewing government wages:
  - Department of Staffing and Wage Analysis should prepare an annual report on compensation policies aligned with fiscal sustainability and labor market trends.
  - Draw on Household survey data from the National Statistics Committee, the Centralized Accounting System, and international evidence.
  - IMF can provide training on headcount and payroll analysis if needed.
- Avoid automatic indexation to CPI due to fiscal and inflation risks; prefer regular updates guided by fiscal space and labor-market benchmarking.
- Prefer base salaries for transparency and equity; streamline allowances and use them selectively and transparently.
- Sectoral priorities:
  - Health: shift care to lower-cost settings (primary health care), reduce high out-of-pocket costs, sustain regional service delivery as capacity expands.
  - Education: rationalize non-teaching workforce, strengthen teaching quality and school leadership, leverage the upcoming 2025 PISA assessment.
- Eliminate frequent temporary bonuses in the Ministry of Health’s budget execution and adopt safeguards to prevent misuse and long-term fiscal pressure.
- Conduct periodic reviews of employment levels across sectors to align government employment composition with priorities.

### Methodological notes and macroeconomic assumptions
- Reconciliation and data issues:
  - Payroll data report positions rather than unique employees; average wage estimates differ across sources; some payroll sources include employer social-security contributions while others do not.
  - 2024–2026 estimates based on: (1) the 2023 starting point; (2) relationship between aggregate and sectoral payroll data; (3) impact of the 2024–26 reforms on sectoral salaries; and (4) expected natural growth in education employment.
- Simplified projection framework:
  - Projections computed separately for education, health, and public administration.
  - Model applies policy assumptions to the accounted wage bill (wages and salaries + employer contributions, 79 percent share) and assumes the unaccounted wage bill (14 percent share) and social fund transfer grow proportionally with the accounted wage bill.
  - Projections use macroeconomic indicators and IMF WEO and IMF staff estimates.

- Macroeconomic assumptions (2026–2030) — all values preserved exactly as presented:
  - Nominal GDP (Soms, Million, IMF staff estimates): 2026 2,025,782; 2027 2,260,467; 2028 2,499,225; 2029 2,764,865; 2030 3,057,731
  - Inflation % (IMF staff estimates): 2026 6.9; 2027 5.5; 2028 5.0; 2029 5.0; 2030 5.0
  - Population growth % (IMF WEO): 2026 2.0; 2027 2.1; 2028 2.1; 2029 2.0; 2030 2.1
  - Nominal GDP growth % (IMF staff estimates): 2026 12.5; 2027 11.6; 2028 10.6; 2029 10.6; 2030 10.6
  - Nominal GDP per capita growth % (IMF staff estimates): 2026 10.3; 2027 9.3; 2028 8.3; 2029 8.5; 2030 8.3

*Source: IMF Technical Assistance mission Preface and Executive Summary (IMF Technical Assistance Report).*

### Preface ................................................................................................................

### Preface

### Mission and scope
- Mission dates and location: November 3 – November 7 2025, Bishkek.
- Requestor: Minister of Finance.
- Mission leader and team: led by Mr. Rodrigo Cerda; team comprised Mr. Nick Carroll (FAD) and Ms. Mengfei Gu (FAD).
- Principal counterparts met: Minister of Finance Mr. Almaz Baketayev; Deputy Ministers Ms. Zhibek Duisheeva and Mr. Nurbek Akjolov; Ministry of Finance technical teams; Ministry of Economy and Commerce; Ministry of Education; Ministry of Health and the Mandatory Health Insurance Fund; Ministry of Labour and the Social Fund; World Bank; EU delegation to the Kyrgyz Republic.
- Funding: European Union under the Public Financial Management Partnership Program (EU PFM PP).
- Coordination support: IMF Resident Representative Mr. Farid Talishli; local economist Ms. Erkeaim Shambetova; Department of Staffing and Wage Analysis (Mr. Nuradil Karypbaev and team).

### Purpose
- Assess issues in public compensation management with a focus on reviewing and updating government pay.
- Evaluate wage levels and dispersion across key public occupations; recruitment, retention, and motivation challenges; gaps in wage structures and headcount; benchmark against international comparators.
- Provide a basis for identifying fiscal space and formulating policy options for targeted and sustainable wage adjustments to improve government employment effectiveness and efficiency.

### Background and analytical approach
- This report builds on a January 2025 scoping report on public compensation in the Kyrgyz Republic and draws primarily on available payroll data and staff professional judgment.
- Noted data limitations:
  - Payroll data reported by position rather than by individual (requiring adjustments for staff with multiple positions).
  - Inconsistent inclusion of social security contributions across payroll reports.
  - Reliance on assumptions for 2024–2026 estimates regarding relationships between aggregate and sector payroll data, reform impacts on sectoral salaries, and natural growth in government employment.
  - Lack of internationally comparable data; different comparators used across the report.
- Fiscal context: public debt reduced to about 36.6 percent of GDP by end-2024; medium-term focus on improving efficiency of public spending rather than debt alone; large pipeline of infrastructure and development projects increases gross financing needs and underscores need for prioritization.

### Key findings
- Public compensation level and volatility:
  - "Government compensation of employees accountsfor 9.5 percent of GDP."
  - The wage bill has historically fluctuated between "8 percent and 10.5 percent" in recent years due to long periods of fixed nominal wages followed by substantial adjustments.
  - In Background, government spending on the wage bill has fluctuated between "8.3 percent and 10.4 percent".
  - Large, intermittent increases in wages and salaries create risks to inflation and macroeconomic stability; stop-and-go wage policy can amplify macroeconomic volatility.

- Recent major pay adjustments (selected):
  - 2024: decree increased health sector remuneration, including "50 percent raise for doctors and 25 percent for nurses".
  - 2025: pay equalization of "7-25 percent for the lowest paid employees" across government that compressed wages between medium and high earners.
  - 2026: "63 percentincrease in remuneration for the social sector, followed later by a 26 percent increase for the central apparatus."

- Sectoral imbalances:
  - Prior to 2024 reforms, doctors' base salaries were broadly at the same level as administrative and managerial personnel.
  - Following 2024 wage reforms, doctors began earning approximately "1.3-1.5 times" more than administrative personnel; this remains below typical comparator country ratios of "2.5-5".
  - General Public Administration salaries are roughly "25 percent higher than the national average wage", exceeding levels in some benchmark countries.
  - The 2026 Wage Bill reform substantially narrows the gap for medical professionals but imposes a substantial one-time fiscal cost and limits scope for further adjustments.
  - Long-term decline in doctors per capita and similar trends for nurses have been associated with low relative pay for medical professionals.

- Implementation and reform design:
  - A more gradual implementation of the 2026 wage adjustment would ease the need for difficult employment and prioritization decisions; modelling shows a phased approach can close medical professionals’ gaps while preserving fiscal space.
  - Medium-term pressures: increasing numbers of medical professionals and teachers will add to budget pressures unless offsets are found.
  - Potential fiscal space options include consolidating positions in public administration and non-teaching staff, and moderating salary growth within public administration.
  - A regular mechanism for reviewing government wages and salaries should be established with periodic updates on indicators such as inflation, fiscal space, and job-specific labor market conditions.
  - Remove the provision allowing funds for health sector vacancies to be reallocated to existing staff, as it incentivizes leaving positions unfilled and is inconsistent with sound Public Financial Management practices.

### Table of Recommendations (Issues and corresponding recommendations)
- Issue 1: Large, infrequent wage and salary adjustments do not allow for salaries to keep track with the cost of living and undermine macroeconomic stability.
  - Recommendation: Introduce a regular and more frequent adjustment on government wages and salaries drawing on the international experience (including potentially targeted adjustments).

- Issue 2: The large one-off increase in salaries in 2026 is expensive and imposes a large economic shock that can feed inflation.
  - Recommendation: Gradually implement the 2026 proposal for increases in salaries and wages over 2026-30.

- Issue 3: The typical level of pay dispersion within occupations in the Kyrgyz Republic appears low relative to peers and may not support performance and talent management.
  - Recommendation: Undertake benchmarking and assessment of the relative wages and salaries of government employees within and across occupations. In coordination with the World Bank, consider whether some targeted pay-scale changes are needed over time to address labor market needs.

- Issue 4: Low salaries of medical professionals have resulted in challenges with recruitment and retention and have resulted in a range of non-transparent payment practices.
  - Recommendation: Maintain the relative wages and salaries of doctors and nurses in the 2024-26 proposals. Review doctors per capita relative to domestic needs and peer countries and gradually increase the number of medical professionals over 2026-30.

- Issue 5: Reallocating spending on vacancies to existing staff incentivizes the non-filling of positions and is not consistent with good practice.
  - Recommendation: With the increase in wages in the health sector, remove the provision that spending on vacancies can be reallocated to existing staff in the health sector.

- Issue 6: General Public Administration salaries relative to average wages are high.
  - Recommendation: Subject to labor market conditions for specific positions, moderate growth in the wages of employees in general public administration over time.

- Issue 7: Spending on educational wages and salaries are high and educational outcomes are weak.
  - Recommendation: Identify concrete measures to rationalize the non-teaching workforce, including options for consolidating roles where staffing levels are currently excessive. Using the 2026 wave of PISA, identify good global practice models of teaching, governance and leadership that could be applied to the Kyrgyz Republic.

- Issue 8: A lack of a centralized database limits ability to improve transparency, comparisons, and monitoring.
  - Recommendation: Establish a centralized, comprehensive database covering wages, salaries and allowances for all government employees.

*Source: IMF Technical Assistance mission Preface and Executive Summary (IMF Technical Assistance Report).*

### 8.          The adjustments in public compensation have varied significantly across different sectors.

### 8.          The adjustments in public compensation have varied significantly across different sectors.

### Sectoral compensation adjustments and priorities
- Health and education have been prioritized with substantial salary increases aimed at attracting and retaining qualified professionals.
- Teachers and healthcare workers received large pay raises compared to previous years.
- Disparities persist: some sectors continue to lag behind in compensation levels, raising concerns about equity and fairness within the broader public service.
- The IMF’s 2023 Article IV Mission underscores the importance of maintaining competitive salaries in these priority sectors to enhance service delivery and sustain workforce quality.

### Overall government compensation spending and composition (2025)
- General government compensation spending was estimated at 9.5 percent of GDP in 2025.
- Composition of compensation spending:
  - Basic salaries: approximately 73 percent of the total.
  - Allowances and additional payments: about 27 percent.
  - Remainder directed to pensions and related obligations.
- Revenue-collecting agencies have the authority to grant supplementary allowances and payments beyond standard provisions.

### Employment shares and sectoral remuneration (2025 estimates)
- Education workforce:
  - Represents 55 percent of the public sector's workforce.
  - Accounts for 45 percent of total compensation spending.
- Health workforce:
  - Comprises 22 percent of government employment.
  - Accounts for 19 percent of compensation.
- Other Public Administration:
  - Employment: 63,100 people (reported as "Employment in Other Public Administration totals 63100 people").
  - Annual remuneration -- including social contributions -- amounting to 666,200 SOMS per year.
  - Share: 23 percent of employment and 25 percent of remuneration (in the public sector context).
- Note on Table 1: 2025 figures are IMF staff estimates derived through reconciliation of payroll, budget, and statistical sources and do not represent official Ministry of Finance administrative statistics.

### Comparative position of the Kyrgyz Republic
- Public compensation amounts to about 9.5 percent of GDP—above regional averages.
- IMF estimates of employment in general government: 7.5 percent of the working-age population (2025 estimate).
- National Statistical Committee: public administration employment represented approximately 3.9 percent of the working-age population in 2024 (different measure with narrower coverage).

### Relative remuneration across sectors (pre- and post-reform)
- Pre-reform (2023) relative wage levels:
  - Health sector wages averaged 72 percent of the overall wage level.
  - Education sector wages stood at 84 percent of average.
  - Public administration wages were 26 percent above average.
- Doctors and nurses prior to 2024 reforms:
  - Doctors’ earnings were about 1.3 times higher than clerical occupations prior to the 2024 adjustments.
  - International peers: doctors typically earn three to four times more than clerical positions.
- Public administration salaries in 2023:
  - In the Kyrgyz Republic were 1.3 times the average wage.
- Primary school teachers:
  - Kyrgyz teachers earned 1.4 times that of office clerks; median in sample was 1.5 times; 25th percentile ratio was 1.2.

### Impact of 2024–26 reforms on health-sector pay (exact figures)
- Average wages in the health sector rose from 1.4 times GDP per capita in 2023 to 2.3 times GDP per capita in 2026.
- Assuming clerical pay grows in line with GDP per capita, the ratio of doctors’ salaries to clerks’ wages would increase from 1.35 in 2023 to approximately 2 in 2027.

### Wage dispersion, compression, and implications
- Wage dispersion concept: gap between the 90th percentile and 10th percentile (compression ratio). Typical OECD ranges: 1:3.5 to 1:10.
- Kyrgyz Republic wage compression:
  - Health sector: P90/P10 = 3.6 (90th-percentile wages are 3.6 times the 10th-percentile wage).
  - Education sector: P90/P10 = 2.0 (90th-percentile wage is twice the 10th-percentile wage).
  - Peer country ranges cited:
    - Health sector ratios range from 3 to 7 elsewhere.
    - Education sector ratios range from 2 to 5 in peer countries.
  - Ministry of Finance alternative data for education yields a P90/P10 ratio of 4.7 (90th-percentile wage is 4.7 times the 10th-percentile wage), highlighting measurement differences across sources.
- Interpretation:
  - Elevated wage bill appears driven primarily by the size and composition of public employment—particularly the large number of non-teaching staff in education—rather than by elevated wage levels.
  - Optimal dispersion should balance recruitment, retention, and equity.

### Employment composition and efficiency
- Distribution of government employees:
  - Nearly half of all government employees work in the education sector—one of the highest shares among benchmarked countries (compared to a median of about 30 percent).
  - Non-teaching workforce in education accounts for 36 percent of total employment in education.
  - Health sector accounts for about 25 percent of government employees (below median of 33 percent and mean of 35 percent in comparator countries).
  - Employees outside health and education account for 22 percent of government employment (typical share in benchmarked countries is 31 percent).
- Teacher-student ratio:
  - Number of teachers per student is not particularly high compared to other countries.
  - Many teachers in the Kyrgyz Republic work fewer than 30 hours per week; full-time equivalent employment may be lower than headcount.
- Long-term trends: number of doctors and nurses per 10,000 population has been declining.
- Sectoral efficiency:
  - Overall spending efficiency appears relatively high in health but low in education.
  - Education outcomes historically lag despite not particularly high teacher-student ratios.
  - Health sector: Healthy Life Expectancy (HALE) is comparatively high relative to the number of doctors per capita.

### Key reform conclusions and design principles
- Three broad conclusions:
  - Wages and employment in the health sector remain low, signaling need for targeted interventions.
  - Relative wage levels in education are comparable to peers, yet employment in this sector is high.
  - Other government employees exhibit relatively low employment levels but receive high wages per person.
- Reform design triangle: any wage-bill/compensation reform package should pass three simultaneous tests:
  - Adequacy and fairness: wages set high enough—and distributed fairly enough—to recruit and retain staff.
  - Efficiency: wages and employment appropriately sized, avoiding labor market distortions.
  - Affordability: package fits within budget constraints and remains robust to shocks.
- Operationalization callouts:
  - Reforms should support HR objectives to recruit, retain, and motivate.
  - Reforms should be benchmarked against private-sector comparators to avoid misalignment.
  - Affordability links back to the broader macro-fiscal anchor (fiscal sustainability).

### Modelling approach for reform options
- A simplified wage bill projection and simulation framework was developed to provide general directions and size of impact for potential reforms.
- Framework features:
  - Aligns with Government Finance Statistics Manual 2014 (GFSM 2014) and includes wages, employer social security contributions, and social fund transfers.
  - Encompasses both republican and local government (general government wage bill).
  - Due to absence of individual-level data, projections rely on aggregate government compensation expenditures by sector from treasury execution and Ministry of Finance data.
  - Sector-specific wages per employee and employment are modeled separately to support analysis of sectoral policy reforms.

*IMF Technical Assistance Report — staff calculations and analysis based on data provided by authorities, Government Financial Statistics, National Statistical Committee, and international sources cited within the report.*

### Annex I, the reform scenarios presented in this section should be taken with caution.

### Annex I, the reform scenarios presented in this section should be taken with caution.

### Overview and baseline assumptions
- The baseline scenario assumes no policy changes and reflects the authorities’ current wage adjustment plan.
- Compensation assumptions:
  - Scheduled wage increases for education, health, and public administration start in April 2026, with the full-year impact realized in 2027.
  - Nominal wages are assumed to remain unchanged during 2028–29, followed by a cumulative five-year CPI-based adjustment in 2030.
  - The five-year cumulative CPI growth is about 22 percent.
- Employment assumptions:
  - Headcount in the education sector is projected to grow in line with population trends.
  - Employment in other sectors remains constant (fixed headcount) in the baseline.

### Baseline projections and fiscal context
- Under the baseline, the wage bill is projected to rise to 10.8 percent of GDP in 2026.
- It is expected to increase to 10.9 percent of GDP in 2027 (full-year impact of the 2026 wage adjustment), approaching the 2023 peak of 11.0 percent of GDP.
- The upward trend implies limited room for further wage increases without trade-offs with other spending priorities and increased pressure on the budget and public debt dynamics over the medium term.

### Reform scenarios (summary of design and fiscal impacts relative to baseline)
- Scenario 1 (S1): 2026 package with CPI wage adjustments starting in 2028
  - Implements the authorities’ proposed 2026 wage package; full-year impact in 2027.
  - From 2028, wages grow in line with inflation, averaging 5 percent annually.
  - Employment: education headcount grows with population (averaging 2.1 percent); other sectors constant.
  - Fiscal impacts (relative to baseline, percent of GDP): 2026 0.0, 2027 0.0, 2028 0.5, 2029 0.9, 2030 0.5.
  - By 2030 the wage bill declines to 9.6 percent of GDP (Baseline 10.1 percent of GDP in 2030 minus S1 effect 0.5 percent of GDP = 9.6).
- Scenario 2 (S2): Reallocation of the 2026 package with gradual adjustment
  - Reallocates the 2026 package and smooths wage growth over the projection period instead of front-loading the increase.
  - An additional inflation adjustment of 5 percent is applied in 2030 for the education and health sectors compared to other sectors.
  - Employment policy unchanged from baseline.
  - Fiscal impacts (relative to baseline, percent of GDP): 2026 -1.7, 2027 -2.0, 2028 -1.3, 2029 -0.6, 2030 1.4 (positive values indicate savings).
  - Results in a steadier decline and stabilization of the wage bill at 8.6 percent of GDP by 2030, generating savings of 1.4 percent of GDP compared to the baseline.
  - Under S2, doctors’ and nurses’ relative wages can reach Tajikistan’s level by 2028 and gradually move toward Kazakhstan’s level thereafter.
- Scenario 3 (S3): 2026 package with savings options (freeze public administration wages)
  - Maintains baseline wage adjustments for 2026–29 but freezes wages in public administration; in 2030 CPI adjustments apply only to health and education.
  - Employment fixed at the general government level; allows redeployment within a fixed headcount.
  - This yields savings of 0.9 percent of GDP in 2030.
  - Compared to the baseline, overall employment falls by about 13,000 positions over 2026–30, primarily via reallocations from non-teaching education staff and public administration.
  - Fiscal impacts (relative to baseline, percent of GDP): 2026 0.0, 2027 -0.1, 2028 -0.2, 2029 -0.3, 2030 -0.9.
- Scenario 4 (S4): Gradual wage adjustment with priority for health employment
  - Mirrors S2’s gradual adjustment but prioritizes health-sector employment growth in line with population trends; education also grows with population; public administration headcount fixed.
  - Enables hiring approximately 6,600 additional health workers over the forecast horizon.
  - Produces a wage bill trajectory similar to S2 but at higher cost, delivering savings of 1.2 percent of GDP in 2030 relative to baseline.
  - Fiscal impacts (relative to baseline, percent of GDP): 2026 -1.6, 2027 -2.0, 2028 -1.2, 2029 -0.4, 2030 -1.2.

### Comparative impacts (Table 2 values preserved)
- Baseline wage bill (percent of GDP): 2026 10.8, 2027 10.9, 2028 9.9, 2029 9.9, 2030 10.1
- Scenario impacts (relative to baseline, percent of GDP):
  - S1: 2026 0.0, 2027 0.0, 2028 0.5, 2029 0.9, 2030 0.5
  - S2: 2026 -1.7, 2027 -2.0, 2028 -1.3, 2029 -0.6, 2030 1.4
  - S3: 2026 0.0, 2027 -0.1, 2028 -0.2, 2029 -0.3, 2030 -0.9
  - S4: 2026 -1.6, 2027 -2.0, 2028 -1.2, 2029 -0.4, 2030 -1.2

### Key findings and policy implications
- Front-loaded wage increases (baseline) raise spending early and constrain later fiscal flexibility, increasing upward pressure on public debt dynamics.
- Gradual wage-adjustment approaches (S2, S4) are more fiscally sustainable and help close pay gaps for medical professionals while reducing need for sharp adjustments elsewhere.
- Scenario 3 provides a cost-saving option by freezing nominal wages in general public administration and managing headcount, enabling savings while allowing targeted redeployment.
- Trade-offs are inevitable: achieving a sustainable wage bill will require difficult fiscal choices between wage increases and other spending priorities.

### Implementation recommendations and institutional measures
- Use the standard annual budgetary review mechanism for wage and employment adjustments, involving the Ministry of Finance and sectoral agencies.
- Establish a regular mechanism for reviewing government wages:
  - The Department of Staffing and Wage Analysis in the Ministry of Finance, coordinated with other ministries, should prepare an annual report on compensation policies aligned with fiscal sustainability and labor market trends.
  - Draw on Household survey data from the National Statistics Committee, the Centralized Accounting System, and international evidence.
  - IMF can provide training on headcount and payroll analysis if needed.
- Avoid automatic indexation to CPI due to fiscal and inflation risks; prefer regular updates guided by fiscal space and labor-market benchmarking.
- Consider comprehensive structural pay reviews only infrequently, with careful management of technical, fiscal, and bargaining risks.
- Adopt a Medium-Term Wage Setting Policy with principles and recommendations:
  - Competitive Benchmarking: Strengthen benchmarking mechanisms; regularly compare government pay with private standards.
  - Base Salary Emphasis: Emphasize base salaries for transparency, equity, and consistency.
  - Streamline Allowances: Integrate broad-based payments into base pay where appropriate; use allowances selectively and transparently.
  - Regular Compensation Reviews: Create regular, independent reviews aligned with fiscal sustainability and labor market trends.
- Sectoral priorities:
  - Health: Maintain relatively high spending efficiency while shifting care to lower-cost settings (primary health care), reduce high out-of-pocket costs, and sustain regional service delivery as capacity expands.
  - Education: Complement increases in employment and wages with measures to strengthen teaching quality and school leadership; leverage the upcoming 2025 PISA assessment to adopt international best practices.
- Eliminate frequent temporary bonuses in the Ministry of Health’s budget execution and adopt safeguards (legal, institutional, procedural) to prevent misuse and long-term fiscal pressure.
- Conduct periodic reviews of employment levels across sectors to align government employment composition with priorities.

### Methodological notes and macroeconomic assumptions
- Reconciliation challenges:
  - Payroll data report positions rather than unique employees; adjustments are needed for staff holding multiple positions.
  - Average wage estimates differ across payroll tables, National Statistics Committee figures, and authorities’ discussions.
  - Some payroll sources include employer social-security contributions while others do not.
  - The 2024 average wages calculated dropped significantly using the by-department payroll table.
- Reconciliation approach:
  - Combine headline government compensation spending from treasury execution data, by-sector budget information, and adjusted headcount estimates.
  - Reconciliation begins in 2023 (most reliable departmental payroll tables).
  - For education and health, pair aggregate by-sector payroll data with adjusted staff numbers from ministries to calculate average wages.
  - For public administration, use National Statistics Committee average wage information and back-calculate adjusted headcount.
  - 2024–2026 estimates are based on: (1) the 2023 starting point; (2) relationship between aggregate and sectoral payroll data; (3) impact of the 2024–26 reforms on sectoral salaries; and (4) expected natural growth in education employment.
- Simplified projection framework:
  - Projections computed separately for education, health, and public administration.
  - The model applies policy assumptions to the accounted wage bill (wages and salaries + employer contributions, 79 percent share) and assumes the unaccounted wage bill (14 percent share) and social fund transfer grow proportionally with the accounted wage bill.
  - Projections use macroeconomic indicators and IMF WEO and IMF staff estimates.

- Macroeconomic assumptions (2026–2030) — all values preserved exactly as presented:
  - Nominal GDP (Soms, Million, IMF staff estimates): 2026 2,025,782; 2027 2,260,467; 2028 2,499,225; 2029 2,764,865; 2030 3,057,731
  - Inflation % (IMF staff estimates): 2026 6.9; 2027 5.5; 2028 5.0; 2029 5.0; 2030 5.0
  - Population growth % (IMF WEO): 2026 2.0; 2027 2.1; 2028 2.1; 2029 2.0; 2030 2.1
  - Nominal GDP growth % (IMF staff estimates): 2026 12.5; 2027 11.6; 2028 10.6; 2029 10.6; 2030 10.6
  - Nominal GDP per capita growth % (IMF staff estimates): 2026 10.3; 2027 9.3; 2028 8.3; 2029 8.5; 2030 8.3

*Source: Kyrgyz republic authorities, IMF staff calculations.*

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_Source: https://www.imf.org/-/media/files/publications/tar/2026/english/tarea2026070.pdf_