## _072110 ## Source details **Canonical URL:** [_072110](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2010/_072110.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2010/_072110.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2010/_072110.pdf.json) --- ### Context and immediate impacts - Prior to April and June 2010 events, GDP projected to rise by 4½ percent in 2010; after events: - Economy projected to shrink by 3½ percent in 2010. - Output per head in 2010 will fall from the pre-crisis projection of $943 to $826. - Displacement: around 375,000, of whom 75,000 are still displaced. - Immediate effects: weakening private sector confidence; contraction of liquidity in banking system; massive stress on public finances; damage to physical infrastructure (including destruction by arson of housing in the south); vulnerability of critical public services (notably energy and transport) with potential severe winter energy shortages. ### Macroeconomic projections and key indicators - Pre-crisis † / Post-crisis headline comparisons (selected): - Growth in GDP (percent): 4.6 → -3.5 - Non-gold real GDP growth (percent): 4.3 → -4.6 - GDP per head (US dollar): 943 → 826 - Inflation (percent; end of period): 13.0 → 6.6 - Fiscal balance (percent of GDP): -8.1 → -14.9 - FDI ($ million): 248 → 144 - External current account (percent of GDP) ††: -15.2 → -6.6 - Budget support needed ($ million): 175 → 335 - Selected 2007–11 indicators (selected rows preserved exactly): - Nominal GDP (in billions of soms): 141.9 (2007), 188.0 (2008), 196.4 (2009), 205.7 (2010 Prel.), 234.4 (2011 Proj.) - Real GDP (growth in percent): 8.5 (2007 Act.), 8.4 (2008 Act.), 2.3 (2009 Prel.), -3.5 (2010 Proj.), 7.1 (2011 Proj.) - GDP per capita (in U.S. dollars): 726 (2007), 968 (2008), 853 (2009), 826 (2010), 883 (2011) - Consumer prices (12-month percent change, eop): 20.1 (2007), 20.1 (2008), 0.0 (2009), 6.6 (2010), 8.0 (2011) - Current account balance (percent of GDP): -0.2 (2007), -8.1 (2008), 4.0 (2009), -6.6 (2010), -9.0 (2011) - Gross International reserves (million USD): 1,194 (2007), 1,222 (2008), 1,584 (2009), 1,785 (2010), 2,034 (2011) - External public debt outstanding (in percent of GDP): 54.6 (2007), 41.2 (2008), 50.8 (2009), 59.6 (2010), 67.1 (2011) ### Fiscal impact, financing needs and disbursement profile - JEA total external financing need: $1 billion over a 30-month period. - Budget financing gap estimated at $335 million in 2010. - Social sector needs estimated at $334 million, of which $96 million corresponds to the UN Flash Appeal. - Infrastructure support estimated at $350 million. - Banking sector capitalization listed as $76 million (ANNEX I). - Near-term donor requirements: - In the next six months, donor support of $671 million is required: $335 million for the budget and $336 million for other programs (including the Flash Appeal). - Medium-term donor requirements (excluding 2011 budget support that depends on elected government): - Requirements for 2011: $227 million. - Requirements for 2012: $102 million. - ANNEX I disbursement profile (US dollars, millions): - Total projected disbursement: 2010: 671; 2011: 227; 2012: 102; Total: 1000 - Budget support: 2010: 335; Total: 335 - Social reconciliation and recovery (total 334): 2010: 214; 2011: 95; 2012: 25; Total: 334 - Infrastructure (total 350): 2010: 164; 2011: 120; 2012: 66; Total: 350 - Agriculture (total 35): 2010: 17; 2011: 9; 2012: 9; Total: 35 - LESS: Amounts already identified as budget expenditures: -101 (2010) ; Total: -101 - Private sector related needs (total 20): 2010: 20; Total: 20 ### Social and humanitarian priorities - Immediate humanitarian priorities: - Shelter before winter (temporary, winterized shelter solutions adjacent to or within destroyed housing units must be implemented rapidly). - Durable housing; food; security; livelihoods-restoration; social services programs; support for vulnerable groups and those affected by earlier natural disasters. - Flash Appeal (UN): - Revised Flash Appeal requested $96.4 million (revised from initial $71.1 million) to meet needs of around 1.2 million people living in affected areas. - Flash Appeal cluster-based costs (selected): Shelter $29.8 million; Food security and agriculture $31.7 million; Early recovery/community restoration $10.7 million; Education $5.2 million; Health $5.6 million; Protection $4.4–$11.1 million; Water and sanitation $3.5 million; Coordination/Logistics $3.3 million. - Funding status one month after launch: initial appeal funded with $12.9 million; outside the Flash Appeal almost $32 million recorded. - IDP and housing specifics: - June violence estimated to have displaced 375,000 people; more than 90 per cent now believed to have returned. - Estimated homes damaged or completely destroyed: 1,813 - 3,450. - Budget Requirement to meet housing needs (CHAPTER V): $105 million (summary) / Housing needs detailed in Introduction: Budget Requirement to meet IDP housing needs: 45,000,000 USD (see housing sections—both figures appear in source text in different contexts). - Social compensation illustrative totals (CHAPTER V): Total Annual Cost (million USD): 51.2 (2010); 12.4 (2011); 12.4 (2012). Possible 2010 Budget Requirement to meet social compensation needs: $52 million. Possible annual recurring Budget Requirement: $12 million. - Summary CHAPTER V budgetary requirements (as presented): Housing needs: $105 million; Possible 2010 Social compensation needs: $52 million; Reconciliation (community recovery/local area development): $25 million; Re-integration and livelihoods: $45 million; Peace and tolerance building: $3 million; Youth inclusion: $5.1 million; Security, stability and justice: $8.0 million. ### Cross-cutting principles and program design - Core cross-cutting principles (Box 3): Equity; National Inclusion; Vulnerability Targeting; Transparency; Ownership; Peace Dividend; Social Analysis; Phasing; Coordination; Exit Strategy. - Program design considerations: - Participatory community involvement, freedom of choice for affected populations, protection of security and human rights, oversight, grievance mechanisms, monitoring arrangements, and phased interventions (immediate, short-, medium-, long-term). - Emphasis on impartiality and needs-based programming to avoid perceptions of favoritism. ### Housing and buildings damage, recovery approach - Buildings and structures damage estimates (CHAPTER VI / ANNEX VIII): - Direct damage to building structures estimated at approximately $144 million. - JEA team total (including contents and ensuing economic losses) totals $241 million. - Table 19 (US$ million, USD calculated at 46 KGS/USD): - Total – Buildings and Structures: Building 144.33; Content 89.10; Economic 7.82; Total 241.25 - Damage by category (US$ million): - Public buildings: Total 90.38 - Private commercial: Total 39.86 - Private residential: Total 111.01 - Recommended residential recovery approach: - Owner-managed, technically assisted program delivering material packages to construct preliminary winterized (2-room) houses or repair original homes. - Cash-for-food or in-kind food allowance during construction period; cash allowances to hire specialized artisans; oversight and technical assistance to ensure seismic-appropriate construction quality. - Constraints: funding and materials logistics; community consultation and equity concerns; seismic design and builder training. - Budget references: - CHAPTER VI notes: Total estimate of damage reconstruction under the public space is $130 million including public buildings and private buildings-commercial. - CHAPTER V summary: Housing needs: $105 million (and detailed housing budget lines elsewhere show $45 million for immediate IDP housing in the Introduction tables — source contains multiple housing figures in different program contexts). ### Energy sector critical needs and reforms - Energy sector winter 2010/11 critical financing needs (CHAPTER VI / 60.3 percent section): - Purchase of mazut, coal and other fuels: about $50 million. - Essential repairs for Bishkek and Osh district heating plants: $30 million. - Essential repairs for district heating systems for 23 other urban centres: $25 million. - Critical repairs for Toktogul and Bishkek thermal plants, purchases of cables, switches and other distribution works: $69 million. - Restoration of the gas distribution network in Osh and related expenditures: $6 million. - Total energy sector critical financing requirement: $180 million (CHAPTER VI). JEA energy total shown in tables: Total – Energy: 2010: 120.49; 2011: 37.00; 2012: 22.00; Total: 179.49 (JEA estimates). - Sectoral vulnerabilities and policy: - Heavy reliance on Toktogul and Naryn cascade reservoirs; seasonal mismatch (hydro summer surplus, winter peak); high distribution losses amounting to one-third of generation; tariffs below cost recovery; sector collects less than 30 percent of needed revenues to recover costs and invest. - Interim government reversed January 2010 tariff increases, generating a consolidated cash deficit for 2010 estimated at about KGS 2.5 billion (US$55.6 million) to be compensated by the state budget. - Priority reforms and actions: - High-level regional dialogue on summer exports linked to irrigation water flows. - Efficiency improvements (decreased losses, better collections), a well-defined tariff trajectory, transparency measures (Energy Transparency Initiative), nationwide metering rollout, annual independent audits and tariff hearings with civil society participation. ### Transport and local government infrastructure needs - Transport: - Overall estimated financing need for road sector: $30 million (CHAPTER VI / Transport). - Municipal road rehabilitation and rolling stock replacement estimate: $10 million. - Table 11 Critical Transport and Communication Investments ($ million): Total – Transport and Communication: 2010 5.00; 2011 17.00; 2012 8.00; Total 30.00. - Road network and modal shares: Over 90 percent of passengers and more than 50 percent of freight move by road. - Local government infrastructure: - Aggregate need from April/June events for infrastructure development and service delivery: $350 million (CHAPTER VI). - Immediate urban/public transport rolling stock replacement and expansion approx. $10 million in Bishkek and Osh. - ANNEX VII local government critical investments table: Urban transport total = 10.00 (2010–2011), Total – Local Government Infrastructure: 10.00. ### Financial sector stability and bank resolution (AUB) - Financial sector vulnerabilities and indicators: - Non-performing loan ratio rose from 8 percent before April to 11 percent by end-May and expected to deteriorate further. - Selected financial indicators (percent, dates preserved exactly) — examples: - Capital adequacy: 31-Dec-08: 32.6% ; 31-May-10: 27.3% - Asset quality (Nonperforming loans/total loans): 31-Dec-08: 5.3% ; 31-May-10: 11.2% - Profitability (Return on equity): 31-May-10: -52.7% - Loans and deposits (Loans/deposits): 31-May-10: 106.6% - Asia Universal Bank (AUB) specifics: - AUB largest with over 20 percent of system deposits; NBKR introduced temporary administration and AUB was nationalized. - Regulatory capital required for AUB is in the order of KGS 3½ billion ($76 million; 1.7 percent of GDP). - Resolution options under consideration: bankruptcy/liquidation; rehabilitation and sale; restructuring (good bank/bad bank); sale to a foreign buyer. - Fiscal costs to resolve the bank likely inevitable; authorities may need help with external audit, management and legal teams, and recapitalization costs. - Microfinance sector implications (ANNEX on MFOs): - MFOs combined loan portfolio KGS 7.9 billion at end-2009; MFO lending as percent of GDP: 2009: 4 percent of GDP. - MFO borrowers end-2009: 306,391; average MFO loan 2009: KGS 26,070; average lending interest rates: 34.5 percent. - June events: consolidated classified loans in affected regions reached 15.2 percent; consolidated classified loans countrywide rose to 5.9 percent (June) from 1.6 percent (end-May) for four largest MFOs. - MFOs estimate losses from June events approx. USD 3 million worst-case for four largest MFOs. ### Public financial management, fiduciary safeguards and procurement issues - PFM status: - A decade of reforms produced improved MOF and Central Treasury capacity, cash flow forecasting, unified chart of accounts, and strengthened reporting. - Remaining weaknesses: strategic planning shortcomings; inconsistent budget outcomes; frequent re-allocation of resources; weak links between sector strategies and MTBF; lack of transparency; underdeveloped internal audit. - Internal audit units: 12 out of planned 14 established; capacity needs improvement. - Procurement and oversight issues: - State Procurement Agency abolished in October 2009; procurement supervision not assigned; procurement training declines. - Budget entities solely responsible for procurement with limited oversight; Chamber of Accounts conducts random external audits once every two years. - MOF procurement unit small (five staff) and intends to start publishing contract award information; a new public procurement law drafted to re-establish oversight. - Fiduciary judgement: - JEA judges conditions are appropriate for donor financing of the recovery and reconstruction program with current PFM tools and safeguards, subject to continuation of reforms and strengthening of PFM systems by the next elected government. ### Financing instruments and coordination - Donor financing instruments noted: - Budget support (direct transfers into government treasury account). - Donor reimbursement to government for specific relief and reconstruction expenditures. - Support for financial sector (technical assistance, debt/equity, guarantees). - Project financing for infrastructure, energy, urban services, agriculture, and private sector recovery. - Coordination and monitoring: - Comprehensive monitoring system: monitoring results, tracking aid, and assessing impact. - Quarterly coordination meetings with donor community to present progress using aid tracking and results monitoring mechanisms. - Recommend household-level monitoring and citizen score cards; align monitoring with Country Development Strategy (CDS) results framework. ### Agriculture: impact and financing needs - Agricultural GDP headline impacts: - Agricultural GDP expected to decline by approximately 19 percent in 2010. - Crop production estimated to decline by about 32 percent in 2010; crop production contributes about 59 percent to agricultural output in 2008. - Planting and yields: - Total planted area declined by 2% in 2010 compared to 2009. - Spring wheat area declined by 15%. - Yield reductions assumed between 1% and 10% for late-planted spring crops; additional yield impacts from reduced fertilizer availability (assumed up to 5% decline). - Short-, medium-, long-term financing needs (Table 6 summary preserved exactly): - Total: 72,230,000 (US$) - Short Term: 2,230,000 - Medium Term: 35,000,000 - Long Term: 35,000,000 - Short-term measures examples and costs: - Fuel subsidy for agricultural diesel (example): funding a 3 KGS per liter subsidy for 26,800 MT requires US$1.8 million. - Emergency de-silting and mud-channel cleaning: total cost KGS 19,267,020.00 (US$430,000 approx. as noted). - WUA rehabilitation for 78,000 ha: estimated US$17,236,340 (cost per hectare $220). ### Business environment, private sector, and tourism impacts - Private investment projected to amount to 14.8 percent of GDP in 2010, or five percentage points below pre-April projections. - Tourism: - Tourism accounted for 5 percent of GDP in 2009. - Anecdotal evidence: 80 percent of tourist bookings for summer 2010 canceled; tourism export receipts in 2009 about $445 million; tourism receipts for 2010 may fall as much as 60 percent. - Foregone profits estimated for tourism sector around $20 million (with broader economic losses likely higher). - Trade disruptions: - Border closures with Kazakhstan and Uzbekistan disrupted supply chains and trade (noted persistent closure of Uzbekistan border in source). - Trading activities represented around 16 percent of GDP in 2009; traders and trading-sector borrowers faced liquidity and repayment difficulties. ### Key policy recommendations and risk mitigation (synthesised from chapters and boxes) - Finance and fiscal policy: - Secure decisive and sufficient external financing for 2010 budget and reconstruction program (noted external financing need $335 million in 2010). - Continue prudent fiscal management and protect essential public spending (wages, social assistance, pensions, utilities, medication and food procurement). - Two donor support modalities: (i) transfers to the budget; (ii) financing of specific budgetary expenditures against evidence of execution. - Energy and service security: - Prioritize winter 2010/11 energy supplies: fund mazut/coal/fuels ($50 million estimate), repairs to CHPs and district heating. - Implement medium-term tariff trajectory with social protection measures and transparency initiatives. - Engage neighbors on regional power and water arrangements. - Social reconciliation and recovery: - Implement coherent, impartial, equity-focused recovery addressing housing, livelihoods, social protection and reconciliation. - Adopt community-led reconstruction approaches and rapid “peace dividend” projects to restore trust. - Protect vulnerable groups, restore identity/property documentation, provide cash transfers, labor-intensive public works and psychosocial services. - Security, rule of law and governance: - Combine dialogue with law enforcement measures; mobilize international security trainers/advisors where domestic capacity is stretched. - Strengthen prosecution of human rights violations; task independent ombudsman/agency to receive complaints; pursue security sector professionalization. - Implement constitutional, institutional and PFM reforms to disperse power and bolster accountability. - Financial sector: - Support resolution of systemically important bank (AUB) with technical assistance and transparent options weighing fiscal costs and systemic implications. - Support microfinance liquidity solutions (NBKR swaps or bank intermediated swaps) to stabilize KGS liquidity and preserve MFO funding lines. - Donor coordination and safeguards: - Use existing PFM systems for donor financing while strengthening procurement oversight, internal audit and external audit capacity. - Track and report off-budget donor funds; align donor assistance with government program and mainstream early recovery activities into development planning. - Monitor and manage risks: - Principal risks: continued instability in the south; banking sector weaknesses; border closures and regional trade disruptions; energy grid reliability; erosion of reform momentum. - Recommended mitigation: timely donor support, strengthened governance/oversight, targeted social programs, and concerted regional diplomacy. *Source: Chapter I–IX, Annexes, Boxes and team estimates in the Joint Economic Assessment (JEA) contained in content unit _072110.* ### Chapter I: Background to the Report ................................................................................... ### Chapter I: Background to the Report ### Context and immediate impacts - Prior to the events of April and June 2010, the Kyrgyz economy was on a recovery path from the global economic crisis, with GDP projected to rise by 4½ percent in 2010. - The events caused: - weakening of private sector confidence; - contraction of liquidity in the banking system; - massive stress on public finances; - damage to physical infrastructure, including destruction by arson of housing in the south; - displacement of around 375,000, of whom 75,000 are still displaced. - The economy is projected to shrink by 3½ percent in 2010. - Output per head in 2010 will fall from the pre-crisis projection of $943 to $826. - Critical public services and sectors (notably energy and transport) remain vulnerable to breakdown, with potential for severe winter energy shortages. ### Social and humanitarian priorities - The post-crisis social burden includes urgent needs for: - shelter before the onset of winter (temporary, winterized shelter solutions adjacent to or within destroyed housing units must be implemented rapidly); - durable housing; - food, security, livelihoods-restoration; - social services programs; - support for vulnerable groups affected by earlier natural disasters for reasons of equity and social peace. - A coherent, integrated approach to housing and livelihoods solutions must be based on: - freedom of choice by affected populations; - protection of their security and human rights; - placement at the centre of the reconciliation effort. ### Physical damage and sectoral concerns - Public buildings and private commercial enterprises were damaged or destroyed, affecting provision of government services. - Severe disruptions occurred in agricultural and retail distribution and in supply chains for production. - Critical sectors such as energy remain vulnerable due to destruction and disrepair, posing risks to winter energy security and overall stability. - Security in energy and essential public services is identified as a major public policy concern. ### Government response and role of international support - The government launched a post-crisis recovery program, relaxing the fiscal stance as a counter-cyclical response, systematically assessing damage and recovery needs, and applying for international support. - An international humanitarian effort is meeting the immediate social burden; funding the UN Flash Appeal is noted as important. - The authorities have progressed with improving management and fiduciary systems; the JEA notes that lack of accountability and poor management of public assets is being firmly addressed with impressive steps already implemented. - The JEA finds the government’s implementation capacity adequate but emphasizes that sustained international technical support in design, implementation, monitoring and financial management will be vitally required. ### External financing requirements and timetable - The JEA finds that the total external financing need amounts to $1 billion over a 30-month period (Annex I on Financing Requirements). - A budget financing gap is estimated at $335 million in 2010. - Social sector needs are estimated at $334 million, of which $96 million corresponds to the UN Flash Appeal. - Infrastructure support is estimated at $350 million. - Support for agriculture and security-related needs as well as for private sector (tourism) makes up the balance. - Near-term donor requirements: - In the next six months, donor support of $671 million is required -- $335 for the budget and $336 million for other programs (including the Flash Appeal). - Medium-term donor requirements (excluding budget support amounts for 2011 that depend on an elected government’s budget): - Requirements for 2011 are estimated at $227 million. - Requirements for 2012 are estimated at $102 million. - Notes on specificity: - The budget support need for 2011 will be identified early in the year based on the 2011 budget to be prepared by an elected government. Current estimates based on the plans of the present government show that the requirement could be of the order of $225 million. - The Flash Appeal is being finalized, so the amounts presented in this Report could slightly change. ### Strategic priorities and rationale for donor engagement - The JEA identifies three major areas for external support: - Essential public expenditures and services: emergency expenditure needs must be addressed while maintaining other spending in line with authorities’ regular plans. - Social needs: resettlement and integration of internally displaced persons and other affected populations impose an unsustainable burden on fiscal resources; donor support for housing, livelihoods, social protection and other social programs is important to economic and social recovery. - Critical investments: financing reconstruction of destroyed private commercial and public buildings and critical needs in energy and transport will contribute to reconciliation, peace, and provide a bridge until private sector investment resumes. - Emphasis that financing these critical investments will enhance economic security by strengthening energy and transport infrastructure. *Source: Chapter I: Background to the Report (Joint Economic Assessment).* ### CHAPTER I: BACKGROUND TO THE REPORT ### CHAPTER I: BACKGROUND TO THE REPORT ### Overview of events - In early April 2010, anti-government political demonstrations took place in various cities of the Kyrgyz Republic against authoritarian tendencies of the president and centralization of power within the presidency. - Protests culminated in riots in Bishkek and several other cities on April 7-8, violent crackdown by the government, removal of the president from office, and formation of an interim government headed by a coalition of opposition political and civic leaders. - A letter dated April 24, 2010 from the head of the interim government requested a mission to conduct an expert evaluation of the financial and budgetary needs arising from the events of April; the government welcomed a joint team of international financial institutions and donors to carry out an assessment. ### Humanitarian impact and displacement - Official reports: over 300 persons have lost their lives; the president stated that the toll exceeds 2000. - Over 2500 have been injured. - Large scale destruction of public and private property, especially housing. - Refugees and internally displaced: - An estimated 75,000 refugees fled to neighboring Uzbekistan. - A further 300,000 were estimated to be internally displaced within the southern oblasts of the Kyrgyz Republic. - Return of refugees occurred within about ten days and most internally displaced returned to their homes by mid-July. - The number of remaining internally displaced persons is now estimated at 75,000. - Conditions in the south remain dismal and highly volatile with continuation of low intensity ethnic conflict, sporadic security coverage and deep scars left by the violence. ### Key messages and priorities emerging from the events - Need to promote social and political stability and security as a foundation for economic and social recovery. - Focus on equity is essential to avoid perceptions of unequal attention to particular ethnic groups, regions or types of beneficiaries, which could aggravate inter-group tensions and fuel future violence. - Interventions need to be part of a broader nationwide reconciliation, recovery and development effort. - Strengthening the legitimacy of the state and reestablishing an impartial security regime capable of protecting all citizens are critical. ### Purpose, scope, and methodology of the JEA - The Joint Economic Assessment: Reconciliation, Recovery and Reconstruction (JEA) responds to the government request and provides an assessment of the impact of the events of April and June. - The JEA: - Discusses economic and social effects. - Assesses implications for the budget and principal sectors of the economy. - Presents an estimate of support that could be obtained from external sources for social reconciliation, reconstruction and economic recovery. - Preparation and data sources: - Prepared for and in close collaboration with the government of the Kyrgyz Republic. - Based on information and data from the authorities, in particular the official Commission for the Assessment of Damages in the South and the official Directorate on Reconstruction and Development of Osh and Jalal-Abad. - The mission undertook field visits to the south and conducted surveys. - A table in Annex I outlines the financing requirements for reconciliation, recovery and reconstruction based on the joint mission’s work. ### Institutional and international participation - The economic assessment was carried out with joint leadership of the Asian Development Bank, the International Monetary Fund, and the World Bank. - Participation included the Eurasian Development Bank, the European Bank for Reconstruction and Development, the European Commission, the International Finance Corporation, and the United Nations. - Contributions were also drawn from the Swiss and United States development agencies and several NGO partners, including ACTED. ### Political background and constitutional developments - Since independence in 1991, the Kyrgyz Republic advanced toward a liberal market economy and international integration but struggled to embed lasting democracy and civic freedom. - Elections: - OSCE missions criticized the electoral process over the past decade. - Elections for parliament in 2007 and for the president in 2009 were found to be deficient. - Concentration of power by the president reduced consultation, accountability, and checks and balances. - Following the April resignation of the president, a provisional government assumed power, dissolved parliament, and disbanded the constitutional court. - Provisional Government Decree No.1 concentrated the functions of the parliament, president and government with the provisional government. - Constitutional changes: - A new constitution shifting the balance from a presidential to a parliamentary system was drafted with public consultations and nation-wide debate. - The constitution was approved in a nation-wide referendum on June 27, with an overall turnout of 72 percent and an affirmative vote of 91 percent; the turnout in the south of the country was 65 percent. - The referendum vested the powers of the presidency with the current interim president until the next presidential election in autumn 2011. - International observers characterized the conduct of the referendum as substantially fair and proper, noting conditions of large displacement in the south. - Under the new constitution, parliamentary elections will be held in October 2010 and a fully empowered government would be formed thereafter, with the powers of the president greatly reduced. - Terminology note: Throughout the document, the terms interim government and provisional government are used interchangeably. Following the referendum of June 27, the government refers to itself as a caretaker government. For simplicity, this document maintains the use of the terms “interim” and “provisional”. ### Organization of the report (structure and chapter focus) - The JEA: - Examines overall impact of the political and social events of this year. - Assesses measures necessary and financing needs for early reconstruction and recovery based on losses and damages and impacts on confidence and private sector activity. - Outlines a strategy for recovery and priority actions and investments based on that strategy. - Presents sector-specific assessments and needs in annexes. - Annex I contains a comprehensive table of financing needs for the recovery program presented to donors. - Chapter breakdown: - Chapter II discusses economic and social impact and the resulting budget financing gap to protect core economic and social needs, including essential public services and security. - Chapter III presents the impact of violent clashes in the south, assesses humanitarian and social needs to support internally displaced persons and others affected, and integrates the flash appeal of the UN system. - Chapter IV outlines the reconciliation, recovery and reconstruction strategy pursued by the authorities and underlies estimates for external financing need. - Subsequent chapters present sector-specific impact and resulting needs. - Chapter IX contains an assessment of fiduciary safeguards and developments in public finance management and discusses financing options open to external partners, coordination, implementation and reporting arrangements to ensure integrity of the recovery program. ### Acknowledgement - The JEA team expresses warm gratitude to the Kyrgyz interim government for partnership in this work. - Key government participants mentioned: - Head of the interim government: Ms. Otunbaeva. - Ministers: Mr. Sariev (finance, till July 14) and Mr. Umetaliev (economic regulation). - Engagement from the cabinet of ministers, the National Bank, and government agencies. - Discussions with Mr. Atambaev (deputy head of the interim government), Mr. Satybaldiev (Vice Prime Minister and head of the State Directorate for the Reconstruction and Development of Osh and Jalalabad). - A concluding discussion with the just-appointed First Vice Prime Minister, Mr. Muraliev, provided valuable insights. - The close participation of the authorities added greatly to the quality and relevance of this report. *Source: CHAPTER I: BACKGROUND TO THE REPORT* ### CHAPTER II: ECONOMIC AND SOCIAL IMPACT ### CHAPTER II: ECONOMIC AND SOCIAL IMPACT ### Summary - Political disturbances in Bishkek (April 2010) and ethnic conflict in southern Kyrgyzstan (June 2010) are significant shocks causing: - Sharp contraction in the economy and more uncertain prospects than before the crisis. - Generalized weakening of confidence, particularly affecting investment, including foreign direct investment. - Severe stress on public finances, trouble at a major bank, social disruption, and physical damage to be addressed. - Key projected impacts (Pre-crisis † / Post-crisis): - Growth in GDP (percent): 4.6 → -3.5 - Non-gold real GDP growth (percent): 4.3 → -4.6 - GDP per head (US dollar): 943 → 826 - Inflation (percent; end of period): 13.0 → 6.6 - Fiscal balance (percent of GDP): -8.1 → -14.9 - FDI ($ million): 248 → 144 - External current account (percent of GDP) ††: -15.2 → -6.6 - Budget support needed ($ million): 175 → 335 - Reconstruction and development needs extend into next year; fiscal balance would require external financing of $335 million in 2010 and $225 million in 2011. Additional non-governmental support is critical. *Source: JEA team calculations. † Projections prepared in March 2010. †† Pre-crisis projection includes planned imports related to new energy sector projects which were to be financed by external borrowing.* ### The Economic Impact - Near-term output and sectoral effects: - Real GDP contraction in 2010: -3.5 percent (4½ percent contraction in non-gold terms: -4.6 percent). - Agricultural activity expected to decline by 12 percent in 2010; the south accounts for one-quarter of national output. - Large corporates (except Kumtor) have postponed investment plans; investor confidence weakened. - Positive: higher-than-normal water reservoir levels should ease winter energy shortages. - Recent pre-crisis momentum: - January-March 2010 growth: more than 16 percent (year-on-year) after 2009 slowdown to 2.3 percent. - Exports grew 50 percent in the first quarter (year-on-year); remittances grew 31 percent in the first quarter (year-on-year). - Key summary economic indicators (selected, 2007–11): - Nominal GDP (in billions of soms): 141.9 (2007), 188.0 (2008), 196.4 (2009), 205.7 (2010 Prel.), 234.4 (2011 Proj.) - Real GDP (growth in percent): 8.5 (2007 Act.), 8.4 (2008 Act.), 2.3 (2009 Prel.), -3.5 (2010 Proj.), 7.1 (2011 Proj.) - GDP per capita (in U.S. dollars): 726 (2007), 968 (2008), 853 (2009), 826 (2010), 883 (2011) - Consumer prices (12-month percent change, eop): 20.1 (2007), 20.1 (2008), 0.0 (2009), 6.6 (2010), 8.0 (2011) - Current account balance (percent of GDP): -0.2 (2007), -8.1 (2008), 4.0 (2009), -6.6 (2010), -9.0 (2011) - Gross International reserves (million USD): 1,194 (2007), 1,222 (2008), 1,584 (2009), 1,785 (2010), 2,034 (2011) - Gross reserves (months of next year imports, eop): 3.0 (2007), 4.0 (2008), 4.5 (2009), 4.2 (2010), 4.4 (2011) - External public debt outstanding (in percent of GDP): 54.6 (2007), 41.2 (2008), 50.8 (2009), 59.6 (2010), 67.1 (2011) - Inflation drivers and risks: - Inflation expected to reach 6.6 percent by end-2010 (down from earlier end-2010 estimate of 13 percent due to lower growth and reversal of electricity tariffs). - Imposition of oil export duty by Russia in April 2010 could raise oil products prices by about 30 percent and add to headline inflation. - External sector and reserves: - Current account expected to swing to a deficit of 6.6 percent of GDP in 2010 from a 4 percent surplus in 2009. - Worker remittances showing near 30 percent increase in January-May (year-on-year), moderating the current account deterioration. - Import cover of international reserves projected to drop from 4.5 months (2009) to 4.2 months (2010); if external financing gap not filled, cover could drop to 3½ months. - Fiscal and revenue dynamics: - Tax revenues expected to suffer moderately relative to GDP; institutional capacity in State Tax and Customs Services largely preserved. - Decision to annul VAT and retail tax on energy payments will put downward pressure on revenues. - Some exceptional non-tax revenues (cash confiscated from those linked to previous regime) could provide relief, subject to legal settlement. - Spending pressures (2010 revised budget major crisis-related expenditures, KGS Million and % of GDP): - Rehabilitation costs in the south (private housing and public infrastructure): 4,600.0 KGS Million, 2.2% of GDP - Commercial bank recapitalization/losses: 3,500.0 KGS Million, 1.7% of GDP - Increase in pensions including for electricity tariff compensation: 1,724.0 KGS Million, 0.8% of GDP - Rehabilitation of government offices damaged during April events: 518.0 KGS Million, 0.3% of GDP - Social infrastructure projects throughout the country: 1,230.0 KGS Million, 0.6% of GDP - TOTAL crisis-related measures: 14,423.9 KGS Million, 7.0% of GDP - Capital spending and PIP issues: - About $100 million (2.2 percent of GDP) expected to be spent on domestically financed infrastructure, housing and other items in 2010. - Additional demand on budgetary resources of $350 million expected in 2011-12. - Revised 2010 PIP reduced by KGS 1.13 billion as donors re-estimated disbursements; average project costs expected to increase by 40 percent (Ministry of Transport and Communication estimates). - Delays of approximately 1-2 months in implementation of some existing projects; potential delay of $65 million Bishkek-Torugart road project. ### Fiscal Financing, Monetary Policy, and Immediate Needs - Fiscal gap and external support: - 2010 fiscal deficit (primary, excluding grants) expected to worsen to 17½ percent (from about 10 percent projected earlier and 8.2 percent observed in 2009). - External financing budget gap: $335 million in 2010, with greatest need in Q4 2010. About $105 million identified so far from various donors. - If remaining external financing need of about $230 million were filled, recourse to domestic sources would be manageable; authorities would utilize about $187 million from own resources (about 4 percent of GDP). - Two modalities for external support: (i) transfers to the budget; or (ii) financing of specific budgetary expenditures against evidence of execution. - Monetary and exchange rate approach: - Central bank plans to mop up excess liquidity through domestic sterilization to neutralize inflationary effects of fiscal expansion. - Credit to private sector contracted until Q3 2009, rebounded briefly, then declined again after the crisis; credit demand expected to remain sluggish. - Exchange market pressures likely to mount with political and security uncertainty and fiscal expansion. ### Macroeconomic Risks and Issues (2010–2011) - Principal risks to the macroeconomic and fiscal outlook: - Political uncertainties during transition to an elected government and maintenance of security and law and order, particularly in the south. - Vulnerability of agriculture to continued lack of access to local markets; implications for supply and inflation. - Investor confidence deterioration due to events in the south. - Banking sector uncertainties and potential systemic problems affecting intermediation and payment systems; further recapitalization needs could be substantial. - Outlook for 2011: - Economy expected to recover strongly: 7 percent growth in 2011. - Recovery drivers: normalization of security environment, reconstruction activity, improved investor confidence, full resumption of trade and services, resurgence in agriculture, and higher remittance flows from partner countries. - Fiscal challenges remain: substantial upfront adjustment in 2011 needed to revert fiscal deficit to sustainable levels amid high capital expenditures for reconstruction. - Authorities expect part of consolidation to come from policy and administrative revenue measures and use of own saved resources. - Downside risks for 2011: - Continued adverse security environment and political uncertainty after October elections. - Persisting uncertainties in the banking system, potentially affecting depositor confidence. - Breakdown in intra-regional energy sharing agreements could make energy constraints binding and constrain growth. - Russia-Kazakhstan-Belarus customs union could erode Kyrgyz competitive advantage in shuttle trade; Russian export duty on oil products likely to adversely affect Kyrgyz re-exports. ### Poverty and the Social Impact - Broad social context: - Multiple persistent stress points contributed to violence: poor governance, ineffective administrative and security systems, continuing poverty and widening socio-economic disparities. - Southern-specific factors: competition over productive resources (agricultural land, irrigation water, pasture, commercial property), harsh border regimes, role as transit area for drug smuggling, widespread unemployment and under-employment (especially of youth), neglect of children of migrants, and a deteriorating education system. - Poverty dynamics and anticipated effects: - Strong growth during 2003-08 reduced overall poverty from 64 percent to 32 percent and extreme poverty from 28 percent to 6 percent; progress likely slowed in 2009. - Significant deterioration in poverty in 2010 is all but certain given the projected economic contraction. - Reversal of energy tariff increases (April 2010) will bolster household incomes, especially urban poor; effect muted for rural poor not on district heating systems. - Temporary poverty increases expected from border closures (e.g., six-week Kazakhstan border closure) and disruptions to farming (delays in input supplies during sowing, interruptions in credit). - Sectors with highest job losses: construction and tourism (labor-intensive); tourism severely affected in Issykul region. - Rapid reconstruction could generate jobs and dampen poverty-worsening effects. - Structural and long-term considerations: - Reconstruction and compensation alone will not fully reverse poverty or underlying structural causes. - Programming needed to address structural poverty and “new” poverty from recent events. - Vulnerabilities highlighted include families affected by recent natural disasters and pervasive youth unemployment—both require targeted livelihood recovery support. ### Impact of the June Events - Displacement and access to services: - Internal displacement caused disconnection of needy from formal government assistance networks. - Many displaced lost identity documents; as of mid-July, Government issuing temporary identification documents valid until end-2010 for use by local social offices, schools and healthcare institutions (not valid for banking transactions). - Displaced populations may be unaware of eligibility or may mistrust government and fail to register, potentially producing temporary increases in poverty not reflected in official statistics. - Immediate human and social consequences: - Returnees often unable to resume normal life: damaged houses, widespread looting, pervasive fear, reported cases of sexual and gender-based violence. - Violence and reprisals eroded inter-ethnic relationships and trust. - Livelihood destruction: - Affected households experienced varied shocks: fleeing home areas and inability to work; business destruction; loss of access to fields and markets; inability of workers and traders to travel to jobs. - Safety concerns prevented many from leaving homes or accessing inputs (tradable goods, irrigation water). - Some have no livelihood due to destroyed shops or market stalls. - Policy implications: - Support needed to restore or re-access livelihoods and address economic disparities that contributed to the events. - Livelihood recovery must consider broader vulnerabilities beyond directly affected areas. *Source: IMF staff chapter text.* ### Box 1: Consultations with IDPs in Osh City ### Box 1: Consultations with IDPs in Osh City ### Psychosocial and security impacts - Consultations with returned refugees and IDPs in Osh highlighted: - pervasive bewilderment regarding the reasons for the violence that had left whole families and communities destitute; - feelings of abandonment due to lack of information from and presence of authorities; - intense fear and insecurity.10 - Common sentiments reported during consultations: - It is not our neighbors who did this - I want to live here in my home or I will die - We are afraid to leave our compounds - How can the government truly not know what is happening to us here - We no longer trust anyone in government to protect us - Kyrgyz respondents felt the young had been manipulated by rumors and disinformation, with fears of revenge attacks and concern for Kyrgyz policemen who had disappeared during the violence. - Many Kyrgyz expressed reluctance to travel to work or markets through Uzbek neighborhoods; multi-ethnic apartment complexes reportedly avoided the violence in June. ### Discrimination, harassment, and access to services - Returnees reported persistent and ongoing discrimination and harassment from authorities including the security forces since the end of outright conflict.11 - Specific reported actions against Uzbek men and communities: - continuing detainment of young Uzbek men; - confiscation of identity documentation (e.g passports) by the police; - refusal by banks to provide services such as withdrawals from personal bank accounts of remittances from relatives working abroad. - Note on interim identity documentation: the interim identity documentation issued to some IDP returnees explicitly states that it is not valid for banking transactions, posing a major challenge for the design of cash-transfer implementation arrangements for Uzbek IDPs/returnees. ### Humanitarian scale and key statistics from the June events - On June 10, deadly violence began in the city of Osh (pre-crisis population: 258,000). - The death toll is likely 2000, with over 2,500 people injured. - Humanitarian consequences are acute and pressing for 1.1 million people (over a fifth of Kyrgyzstan’s population). - An estimated 375,000 people fled the conflict in Osh and Jalalabad, about 75,000 of whom sought refuge in neighboring Uzbekistan. - Most refugees began returning in late June; most were back before the referendum on an interim constitution held on June 27, 2010. - Recent reports indicate most displaced have returned to their homes, with many of the rest staying with host families. - The areas affected are home to around 765,000 people who were not displaced; thus, 56percent of the population in the two Oblasts lives in conflict affected areas. - Anecdotal evidence: 80 percent of tourist bookings for the summer of 2010 have been cancelled. - Tourism accounted for 5 percent of GDP in 2009. ### Economic and poverty impacts - The impact on poverty in the southern oblasts—Osh, Jalalabad, and Batken—may be particularly severe such that both the depth and the extent of poverty increases. - Losses include death of breadwinners or childcare providers and loss of livelihoods where businesses or places of employment were destroyed or dependence on agriculture was disrupted. - Destruction of businesses, refugee outflows, and internal displacement destroyed jobs in small service enterprises and agriculture. - High informality in affected sectors means most victims are unlikely to be eligible for temporary unemployment benefits because they have not contributed to the Employment Fund. - Short-term coping strategies by households risk undermining long-term welfare, including: - accumulation of unsustainable debt; - sale of productive assets; - foregone investment in human capital (interrupted education or postponed health treatment). - Economic hardship may intensify resentments and hinder reconciliation; involvement in criminal activities may become an attractive option for groups unable to provide for basic needs. ### Social safety net system weaknesses and priorities - The existing social safety net system was considered too inflexible and not powerful enough to respond to the April and May-June crises. - Risk exists of reversing recent reforms of in-kind categorical benefits due to lack of resources to build a responsive system that addresses short- and longer-term poverty and links the needy to labor markets. - Strengthening administration and inter-agency coordination of safety nets is seen as important to ensure responsiveness across temporary shelters, income support, and non-disruptive service provision. - Both immediate and longer-term interventions are required to avoid harmful household coping strategies and to support recovery and reconciliation. ### Flash Appeal: objectives and identified needs - The UN Flash Appeal launched on June 18 requested $71.1 million for immediate emergency assistance and was revised on July 19 to $96.4 million to meet the needs of around 1.2 million people living in affected areas.12 - Strategic objectives of the revised Flash Appeal: - Provide humanitarian assistance to those in need taking into account the need for winter preparedness; - Continue to advocate for the protection of civilians and the respect for human rights with special programmatic focus on vulnerable groups; - Support essential health and social services, and help communities in rebuilding livelihoods, local economy, and trust among the affected communities; - Capitalize on the strong international humanitarian presence to enhance response capacity and preparedness to respond to potential humanitarian needs. - The revised Flash Appeal identifies the lack of protection of internally displaced, returnees, and other vulnerable groups as the overarching humanitarian concern; continuing threats, intimidation, arbitrary arrests, and lack of legal protection undermine shelter, food, water and sanitation, health care and education responses. - Cluster-based costs/needs in the Flash Appeal (basis for programmatic revision): - Early recovery/community restoration ($10.7 million) - Education ($5.2 million) - Food security and agriculture ($31.7 million) - Health ($5.6 million) - Protection (ranging from $4.4 to $11.1 million depending on priority levels) - Shelter ($29.8 million) - Water and sanitation ($3.5 million) - Coordination Support services, telecommunications, and logistics ($3.3 million) - Funding status one month after the initial Flash Appeal launch: initial appeal funded with $12.9 million; outside the Flash Appeal, almost $32 million in funding recorded in the Financial Tracking System. (Flash Appeal, p. 5) ### Coordination between humanitarian and recovery planning - The Joint Economic Assessment (JEA) and the Flash Appeal have been coordinated to ensure a continuum from humanitarian response to development, with the Flash Appeal focused on immediate humanitarian needs and the JEA examining recovery needs, macro-economic impact, and infrastructure damages and losses. - The JEA sets the basis for mainstreaming early recovery activities, determines sectoral requirements and priorities from early to full recovery, and links to long-term development objectives; it has broader coverage including other vulnerable groups.13 ### Government recovery strategy and priorities - Government response included establishment of a Commission for the Assessment of Damages and a Directorate on Reconstruction and Development of Osh and Jalal-Abad to carry out a detailed damage assessment and report to the Commission. - Over-arching need: help the Kyrgyz Republic attain stability and social cohesion as the foundation for economic growth and social development. - Key elements of the recovery strategy: - a combination of external financing for the budget and some counter-cyclical fiscal policy, implying a relaxation of the original fiscal deficit targets to finance additional current expenditures related to the events; - external support for essential reconstruction and rehabilitation to be undertaken largely by the public sector to substitute for private demand shortfalls and safeguard production and employment; - external support for key priorities in the revival of private sector growth and financial support for the banking sector. - Authorities defined a category of protected public expenditures—wages and salaries, social assistance, pensions, utilities, and procurement of medication and food—which were accorded priority and paid in full; non-protected items (capital repairs, purchases of equipment and machinery) were temporarily discontinued. ### Immediate and medium-term interventions for IDPs and vulnerable groups - With most refugees and internally displaced returned, the situation evolved from exclusively humanitarian to one requiring early and longer-term recovery interventions. - Immediate activities to be initiated (before onset of winter / by end of October where specified): - improvement of the overall security situation addressing fears of both Uzbek and Kyrgyz with sensitivity; - provision of shelter by the end of October (i.e., before the onset of winter) along with restoration of water, electricity, and gas services; - restoration of identity and property documentation; - support for enhancement of the capacity of the Directorate for Rebuilding and Reconstruction of Osh and Jalalabad. - Short-term activities to begin in remainder of 2010 and continue into medium and longer term: - support recovery of businesses and agriculture; - rehabilitate basic and vocational education; - provide cash transfers for vulnerable groups; - generate employment through labor-intensive public works; - initiate inter-community reconciliation; - establish psycho-social support for victims of violence.15 *Source: Box 1: Consultations with IDPs in Osh City (excerpts).* ### Box 3: Cross-Cutting Principles for Effective Recovery Activities ### Box 3: Cross-Cutting Principles for Effective Recovery Activities ### Cross-cutting principles for recovery and reconciliation - Equity: Recovery and reconciliation must focus on equity and avoid a perception of unequal attention being given to particular ethnic groups or regions or types of beneficiaries. - National Inclusion: Recovery and reconciliation must be national-level goals to which citizens throughout the country commit and in which they participate. State legitimacy cannot be achieved without including the whole nation in building peace and stability. - Vulnerability Targeting: Reducing vulnerability, and not entitlement, should be the focus of the national response. Patterns of marginalization and exclusion should be analyzed, and all vulnerable populations—whether IDPs, youth, households displaced by past natural disasters, female-headed households etc.—should benefit from the recovery effort. - Transparency: Prioritize clear and regular communication with beneficiaries and the nation at large. Information sharing should include details of available support programs, eligibility and prioritization criteria, levels and duration of available support. Build feedback mechanisms (e.g., grievance mechanisms) into recovery activities. - Ownership: Active participation of affected communities and local leaders in design and implementation strengthens program effectiveness and community resilience and helps regain a sense of identity and worth. - Peace Dividend: Identify quick wins that establish hope and trust, increase confidence in the state, and demonstrate a peace dividend to conflict-affected populations. - Social Analysis: Develop a good understanding of community dynamics through solid social analysis to adequately develop, target, monitor and adapt programming. - Phasing: Adopt simplicity and realism to identify true priorities; recognize the need for immediate, short-term, medium-term and longer-term approaches to avoid front-loading the post-crisis period. - Coordination: Ensure close coordination among beneficiary groups, implementing agencies, oversight bodies and the state at all stages. Invest in capacity building so relevant state agencies can lead coordination and collect data on recovery results. - Exit Strategy: Define the exit strategy from the outset to avoid creating dependencies and market distortions. Use ongoing communications so beneficiaries know where to turn after recovery programming ends and build sufficient capacity in agencies that will assume ongoing activities and monitoring. ### Core activities and program design considerations - Coordinate core early recovery activities between the government, the UN, NGOs, and other actors. - Establish robust monitoring arrangements to track reconstruction and recovery investments and ensure transparency through involvement of local communities. - Accelerate preparation and design projects with built-in flexibility to respond to changing circumstances and opportunities. - Build on best practice regarding procurement and financial management arrangements in post-conflict situations where timely delivery is urgent and implementing agencies may have limited experience. ### Impartiality and humanitarian principles - Early recovery and medium- to longer-term assistance must be governed by impartiality, needs-based programming, and humanitarian principles. - Avoid perceptions of favoring one ethnic group (the Uzbeks) over others who also face hardship and who may previously have been subjected to disasters and displacement without receiving assistance. - Integrate current crisis assistance into a broader recovery and development effort that includes those affected by past natural disasters (e.g., Kyrgyzstan’s recent earthquakes and floods; flash floods in early June 2010 affected over 70 villages). ### Strengthening governance — key reforms and actions - Constitutional change: Move to a cabinet system headed by a prime minister answerable to parliament with attenuated presidential powers to disperse executive power and bolster accountability. - Institutional capacity building: Strengthen parliament, government, cabinet committees, and civil service analytical and policy capacities; donors to play a major role. Strengthen local governance, particularly ahead of local elections planned for 2011. - Public financial management reforms: Implement improvements in the Treasury system within the ministry of finance and extend budget coverage to include all investment spending. - Abolish centralizing bodies: Abolition of the Central Agency for Development, Investments and Innovations to revert powers to ministries and restore debate and accountability. - Manage public investments transparently: Liquidate the Development Fund and deposit holdings in the central bank. The Development Fund held investments amounting to $100 million and liquid assets of $191 million out of the proceeds of a $300 million concessional credit from the Russian Federation to the state. Part of the liquid assets will provide temporary bridging finance to the budget prior to donor funds and will be safeguarded for high quality investment projects over the medium term. - Reverse irregular privatizations: Reversal of privatizations of two electricity distribution companies and the telecommunications company carried out at end-2009, with negotiations and agreements progressing. - Fortify State Property Commission: Strengthen the role of the State Property Commission and draft revisions to the law of privatization and supporting regulations; no transactions will take place before these are in effect. ### Risks to the strategy - Internal risks: - Continuation or intensification of social strife in the south, driven by historic and ethnic-based tensions among Kyrgyz, Tajik and Uzbek communities, political divisions, criminal activity linked to illicit drug transport, and struggles over rent-seeking. - Damage to economic activity, higher reconstruction and recovery needs, political instability, and reduced efficiency in absorbing donor support. - External risks: - Border closures with Kazakhstan and Uzbekistan (the border with Uzbekistan continues to be closed or open on occasion but with severe limitations) that disrupt production, trade and impoverish border communities. - Disruptions to the common electricity grid linking the three countries. - Economic risks: - Weaker economic growth than projected leading to greater fiscal pressures and threats to essential social expenditures. - A protracted resolution of the large recently nationalized bank or weakened confidence in the banking sector. - Governance risks: - Weak central government control over the south and hollowed national institutions after years of centralized presidential rule. - The run-up to elections may distract political attention and tempt use of public resources for electoral purposes. ### Mitigating risks and policy recommendations - Finance and fiscal policy: - Secure decisive and sufficient external financing of the budget for 2010 and of the reconstruction and recovery program. - Continue prudent fiscal management; the authorities have identified clear public spending priorities and protected the essential. - Rapid provision of assessed budget support would create conditions for social peace. - Security and regional confidence-building: - Combine dialogue with law enforcement measures; international security intervention may be necessary if domestic capacity is stretched. - Neighbors can build confidence by announcing willingness to open or keep borders open and ensure reliable electricity transmission. - Social reconciliation and recovery: - Implement a comprehensive, well-integrated approach to promoting social reconciliation and recovery based on the cross-cutting principles above, handled with sensitivity and skill over years. - Political and governance trajectory: - Continue the post-events political process: rapid drafting of a constitution to entrench democratic accountability and disperse political power, scheduling parliamentary elections in October 2010 and presidential elections a year later (with greatly reduced powers). - Match broad-based international political goodwill with significant international economic support. - Use recent governance and budget process reforms to help ensure funds are spent for their intended purposes. *Source: Box 3, "_072110 - Box 3: Cross-Cutting Principles for Effective Recovery Activities"_* ### CHAPTER V: CRITICAL PRIORITIES IN SOCIAL RECONCILIATION AND RECOVERY ### CHAPTER V: CRITICAL PRIORITIES IN SOCIAL RECONCILIATION AND RECOVERY ### Overview and Objectives - The chapter focuses on two main priorities for reconciliation and recovery: support for the reintegration of IDPs and other vulnerable and conflict-affected populations; and socioeconomic reintegration and peace-building. - Assistance must not favor any one ethnic group and should address needs of all vulnerable populations in affected areas. - The recovery effort is an opportunity for the state to demonstrate equitable service delivery, foster reconciliation, build legitimacy, and support stability for sustained economic growth. ### Support for the reintegration of IDPs and other vulnerable and conflict-affected populations Housing Needs - June violence estimated to have displaced 375,000 people, more than 90 per cent of whom are now believed to have returned to their home areas. - Estimated homes damaged or completely destroyed: 1,813 - 3,450. - Within Uzbek neighborhoods: - Average household compound comprises two families (with an average of 7.5 persons per family). - An estimated 92 per cent of affected dwellings consist of this type of structure. - An estimated 72 per cent of affected one-story houses are completely destroyed with another 19 per cent severely damaged. - Close to a quarter of the completely destroyed houses do no longer have access to water. - Around 72 per cent of the assessed houses no longer have access to electricity. - Current living conditions for IDPs: tents inside compounds, with friends, or in streets and public spaces. - Community preference: building materials (not cash) to enable resident-managed repair and reconstruction; desire for inclusive participation of all ethnic groups in reconstruction. - Resident-managed repair and reconstruction approach components: - Supply of a package of construction materials to construct a preliminary winterized (2-room) house or repair original home depending on level of destruction. - Cash-for-food or in-kind food allowance during construction period. - Cash allowances to hire specialized artisans. - Oversight and technical assistance to ensure construction quality and use of appropriate technologies (e.g., earthquake-secure measures). - Reconstruction for IDPs to be complemented by parallel investments for populations affected by recent natural disasters (earthquakes, mudslides). Local damage assessments and figures - Jalalabad completed assessment: 450 destroyed or damaged homes. - Osh estimates as of July 11, 2010: - UNOSAT damage assessment: around 2,500 destroyed/damaged houses. - Government assessment: 1,363 destroyed/damaged houses. - Ongoing assessment by ACTED and Save the Children for UNHCR suggests damaged homes could be about 20 per cent higher than the UNOSAT estimate; final figures available by July 18, 2010. - Note: ACTED/Save the Children assessment methodology includes visits inside household compounds and could result in an overall figure that could increase to 3,000 affected homes. - Infrastructure impacts at-a-glance (Osh & Jalalabad): - Homes damaged or completely destroyed: 1,813 - 3,450 - Destroyed/damaged businesses: 248 - Damaged public buildings: 79 Budget - Budget Requirement to meet housing needs: $105 million Social compensation needs - Costs depend on number of casualties and method of compensation; illustrative scenario based on compensation levels envisaged for victims of the April events and preliminary casualty estimates. - Table of possible social compensation needs (in USD at 2010 prices): One-off costs (2010) - Killed: Annual cost per person 21,820; Total, in million USD 43.6 - Injured: Annual cost per injured 720; Total, in million USD 1.4 Ongoing costs (2010 half-year; 2011; 2012) - Surviving family members of those killed: 6000; Annual cost per person 1833; Total in million USD (half year 2010) 5.5; 2011 11; 2012 11 - Injured: 2000; Annual cost per injured 720; Total in million USD (half year 2010) 0.7; 2011 1.4; 2012 1.4 - Total Annual Cost (million USD): 51.2 (2010) ; 12.4 (2011) ; 12.4 (2012) - Source: JEA estimates Policy considerations and complications - Compensation important for humanitarian reasons and reconciliation; must be even-handed and ethnicity-blind to preserve sustainability of social protection system. - Recommended approach: a one-off donor-supported surge in compensation payouts followed by targeted assistance based on actual need for income support rather than categorical benefits. - Additional complications: - Legal basis for claims by refugees, wounded, and heirs from June events may differ from post-April legislation. - Lost/destroyed birth and death certificates and identity documents may constrain claims processing. - Compensation system may need to address ongoing deaths, disappearances and injuries perceived as equally meritorious. Budget - Possible 2010 Budget Requirement to meet social compensation needs: $52 million - Possible annual recurring Budget Requirement to meet social compensation needs: $12 million Reconciliation through participatory community recovery and local area development - Coherent approach should build reconciliation and trust in communities directly affected (Osh and Jalalabad Oblasts and Bishkek) and between communities nationally and between citizens and central state. - Recommended activities: - Community projects: reconstruction and rehabilitation of social infrastructure. - Events: cultural, sporting, learning activities that promote social cohesion. - Medical and psychosocial support services, including for victims of sexual and gender-based violence and torture. - Awareness-raising on civil rights and responsibilities. - Legal aid and strengthening community-level dispute resolution mechanisms. - Support to resolve title, property and access disputes. - Formal tracking of community dynamics and social acceptance to monitor reconciliation between displaced and host/return communities. - Community rehabilitation priorities (decided by communities based on local needs) may include: - Renovations of schools, health points and community centers. - Renovation or rehabilitation of potable water systems. - Renovation or upgrading of apartment buildings and associated urban facilities. - Rehabilitation of village or feeder roads and communal agriculture and erosion control activities in rural areas. - Total Budget Requirement to meet reconciliation need: $25 million ### SocioEconomic Reintegration and Peace-Building Livelihood Recovery - June events decimated livelihoods in directly affected areas. - Commission for Assessment of Damages estimates loss of employment for around 4,000 persons (mostly in service and trade). - Market and economic disruption: farmers and traders cannot move to sell produce or buy inputs; people afraid to leave homes; restricted access to jobs, markets, and inputs. - Immediate-term priorities: - Re-establish safe access to employment sites and means of production for those whose livelihoods remain intact but are inaccessible due to insecurity. - Develop temporary employment opportunities: cash for work initiatives and labor-intensive public works for households whose livelihoods were lost or damaged, and for other economically vulnerable populations. - Short- to medium-term priorities: - Employment creation and targeted livelihood support for IDPs and other vulnerable and lowest-income populations (including natural-disaster victims, female-headed households, families relying on others for accommodation, youth) in affected and marginalized regions. - Multi-dimensional support: local economic development grants, active labor market programs, and self-employment assistance. - Longer-term priorities: - Investments to improve relevance of educational system to labor market to reduce educational drop-out rates, youth joblessness and youth idleness, contributing to enhanced security and local economic development. - Total requirement for re-integration and livelihoods: $45 million Peace and Tolerance Building - Persistent tensions and insecurity; high risk of future violence, particularly with upcoming parliamentary elections. - Short- and long-term priority: establish culture of peace and tolerance in at-risk environments nationwide. - Recommended activities: - Immediate peace and tolerance training for local opinion-shapers (teachers, journalists, religious leaders, local officials, magistrates). - Human rights and protection training for security forces. - Public media campaigns on peace-building. - Community-level trainings on conflict management and conflict resolution. - Development of peace and tolerance curricula for schools. - Grants for arts and cultural activities promoting peace messages. - Forums for inter-ethnic dialogue and cooperation. - Total requirement for peace and tolerance building: $3 million Youth Inclusion - Youth are among the most poor, vulnerable and marginalized; many young people were involved in April–June events. - Sustainable peace requires explicit targeting of youth needs. - Government action: creation of a new Ministry of Youth Issues in July 2010 to support youth livelihoods, life skills, decision-making and governance. - Recommended short- and medium-term activities: - Life skills development. - Employment support. - Development of youth-friendly spaces and recreational opportunities in rural and marginalized communities. - Legal education and support services for youth and youth employers, including training on labor and migrant rights. - Capacity-building support for youth organizations and youth-run services. - Total requirement for youth inclusion: $5.1 million Building Confidence in Security, Stability and Justice - Events eroded citizen confidence in state’s ability to uphold security and maintain monopoly on violence. - Public disappointment most acute with defense and security forces; perceptions range from ineffective and biased to complicit or instigators. - Immediate-term actions: - Mobilize experienced international security trainers and advisors under a respected agency to guide process and ensure civilian protection and human security. - Presence of neutral actors to reassure citizenry of government commitment to human rights instruments and to prevent culture of impunity. - Priority areas with international technical assistance: - Prosecuting and punishing those guilty of human rights violations or torture, including sexual and gender-based violence. - Tasking the ombudsman or an independent agency to receive citizen reports of crimes committed during April–June events. - Supporting investigation of human rights abuses during the events. - Medium-term actions: - Training the security sector in civilian protection, professional ethics, human rights and due process; overall professionalization of national security forces. - Capacity-building for ministries of defense, internal affairs and justice. - Government encouraged to commit to a civil service representative of the nation’s ethnic diversity; may require adoption of specific quotas (analogous to past quotas for women in parliament). - Consider wider security sector reform to address technical skills, institutional capacities, coordination and civilian oversight. - Risk if not addressed: continued instability, institutional vacuum, growth of organized crime, extremist movements and violent elements. - Total requirement for security, stability and justice: $ 8.0 million - Note: These activities could be funded directly by donors through financial and in-kind contributions to the government or considered within a larger security sector reform project. ### Summary of Budgetary Requirements (as presented) - Housing needs: $105 million - Possible 2010 Social compensation needs: $52 million - Possible annual recurring social compensation needs: $12 million - Reconciliation (community recovery/local area development): $25 million - Re-integration and livelihoods: $45 million - Peace and tolerance building: $3 million - Youth inclusion: $5.1 million - Security, stability and justice: $ 8.0 million *Source: CHAPTER V: CRITICAL PRIORITIES IN SOCIAL RECONCILIATION AND RECOVERY* ### CHAPTER VI: CRITICAL PRIORITIES IN INFRASTRUCTURE ### CHAPTER VI: CRITICAL PRIORITIES IN INFRASTRUCTURE ### Energy - January 2010 tariff changes: - electricity tariffs raised by 56 per cent for industrial consumers and 114 per cent for household consumers. - increases of 186 and 110 per cent were put into effect for hot water and district heating in urban areas. - introduction of VAT and the retail tax on energy projected to raise budget revenues by $15 million in 2010. - Interim government actions and effects: - Rolled back the rise in household electricity tariffs (fully) and the rise in industrial tariffs (substantially) after April events. - Government stated future tariff policy to be determined by the elected government; interim government emphasizes gradual increases, full consultation, and targeted compensation for the poor. - Reversal impacts: - (i) budget: losses in tax revenues and increases in subsidy expenditures for communal energy services and financing tariff discounts for inhabitants in mountainous areas; - (ii) electricity companies: diminished revenues leading to cutbacks in repairs, maintenance and investments; - (iii) June events: losses in the gas distribution system in Osh. - Sector vulnerabilities: - Heavy dependence on Soviet-era regional power grid involving Kazakhstan, Uzbekistan and Tajikistan; recent bypasses by neighbors raise prospect of southern Kyrgyz Republic being cut off from the grid. - Seasonal mismatch: hydroelectric production high in summer, consumption peaks in winter. - Sector problems: heavy quasi-fiscal deficits, inadequate maintenance and investment, extremely low electricity tariffs (tariffs cover only a small fraction of costs), high distribution losses amounting to one-third of generation. - Planned/ongoing responses: - Immediate construction of a new high voltage substation at Datka and a north-south (Datka-Kemin) transmission line. - Revamping Bishkek thermal heating plant and completing Kambar Ata-II hydro power cascade. - Two-stage tariff increase amounting to a cumulative hike of more than 150 percent; nationwide installation of new meters to cut losses. - Winter 2010/11 critical financing needs (Box 4 estimates): - purchase of mazut, coal and other fuels estimated at about $50 million (no summer export arrangements in 2010). - essential repairs for Bishkek and Osh district heating plants: $30 million. - essential repairs for district heating systems for 23 other urban centres: $25 million. - critical repairs for Toktogul and Bishkek thermal plants, purchases of cables, switches and other distribution works: $69 million. - restoration of the gas distribution network in Osh and related expenditures: $6 million. - Total energy sector critical financing requirement: $180 million. - Priority reforms and actions: - Start high-level dialogue with neighboring and downstream countries to agree on summer exports linked to irrigation water flows and seasonal power movement arrangements. - Improve financial viability of the power sector via efficiency improvements (decreased losses, better collection) and a well-defined tariff trajectory to bring predictable cash flows; fund maintenance and meet investment needs. - Enhance sector transparency and governance, including credible involvement of civil society and implementation of an Energy Transparency Initiative to reduce corruption, improve targeting of social benefits, and accelerate better practices in energy management and regulation. ### Buildings and structures - Damage summary from April and June 2010 events: - Damage to 2,314 residential buildings accounts for about 50 percent of overall building damage estimate. - Damage to several dozen public buildings accounts for 34 percent of the damage estimate. - Damage to over 700 commercial establishments accounts for 16 percent of the damage estimate. - Direct damage and broader losses: - Direct damage to building structures estimated at approximately $144 million. - JEA team estimate (including contents and ensuing economic losses) totals $241 million. - Distribution (Table 8): - Public buildings: Building $49.73 million; Content $37.30 million; Economic $3.36 million; Total $90.38 million. - Private buildings – Commercial: Building $22.52 million; Content $15.77 million; Economic $1.58 million; Total $39.86 million. - Private buildings – Residential: Building $72.08 million; Content $36.04 million; Economic $2.88 million; Total $111.01 million. - Total – Buildings and Structures: Building $144.33 million; Content $89.10 million; Economic $7.82 million; Total $241.25 million. - Total estimate of damage reconstruction under the public space is $130 million including public buildings and private buildings-commercial. - Priority for recovery and reconstruction: - All three aspects (public, private-commercial, private-residential) are high priorities; private residential is the highest priority due to harsh winters and need for thermally robust shelters. - Construction season permits outdoor construction until about late November (~almost four months if beginning early August) — sufficient to construct a permanent ‘core’ house of perhaps 50 or more sqm to serve households through the winter. - Recommended approach for residential recovery: - Streamlined building materials provisioned, technically assisted owner-builder program beginning as quickly as possible to avoid double-building (transitional then permanent). - Constraints to such a program: - (i) Material support: lining up funds, building materials, technical assistance in a timely manner. - (ii) Community support: need for consultation and buy-in to avoid suspicions; build community support quickly but carefully. - (iii) Equity: tune reconstruction to avoid perceptions of unfair gain by victims and mitigate potential jealousy and further violence; building only a core house initially helps. - (iv) Design: accommodate differing housing needs of ethnic Kyrgyz and ethnic Uzbeks; one size does not fit all. - (v) Seismic: high seismic risk requires reconstruction to avoid collapse-prone buildings; achieving adequate seismic resistance requires training of owners and builders (experience cited from post-earthquake reconstructions in other regions). - Social integration: - Reconstruction must be part of an integrated social program addressing physical, psychological and social trauma, livelihoods, gender and economic needs; pressing need given socio-economic roots of April and June events. ### Transport - Direct damage: - Direct damage to transport and communications infrastructure from April/June events has been limited. - No direct damage to regional road infrastructure; reported municipal road damage only in Osh due to movement of defense equipment. - Overall estimate for municipal road rehabilitation and replacement of damaged/destroyed rolling stock: $10 million. - Price and cost pressures: - Sharp increases in prices for construction materials and petroleum products (bitumen, cement, steel, diesel fuel) due to prolonged border closures with Kazakhstan and Uzbekistan and interrupted domestic cement operations. - Recent surges in construction input prices expected to affect medium-term investment estimates; transport sector comprises 60 percent of the country's investment portfolio. - Projected implementation of road projects could lead to about US$20 million increase over 2010-12 PIP due to price increases. - Estimated financing need for the road sector: $30 million. ### Local government infrastructure - April 2010 events: - Caused no damage to water supply and sanitation infrastructure, roads, electricity, and heating infrastructure. - June 2010 events: - Larger impact on civil structures in Osh City and Karasuysky District (Osh Oblast), and Jalal-Abad Town, Bazar-Korgon, Suzaksky, Ala-Bukinsky districts (Jalal-Abad Oblast). - Immediate investments: - Urban/public transport rolling stock replacement and expansion at approximately $10 million in Bishkek and Osh. - Aggregate need: - The total estimated need for infrastructure development and service delivery arising from the April/June 2010 event is $350 million. *Source: JEA estimates and chapter text.* ### CHAPTER VII: THE BUSINESS ENVIRONMENT ### CHAPTER VII: THE BUSINESS ENVIRONMENT ### Impact on private sector confidence and investment - Events of April and the June 27 referendum and June ethnic violence created uncertainty about political and economic prospects and dampened private sector confidence. - Private investment is projected to amount to the equivalent of 14.8 per cent of GDP in 2010, or five percentage points below pre-April projections. - Reported increase in international and domestic perceptions of corruption and expropriation risks has been compounded by uncertainty in the political and election processes and will need to be addressed by the future government alongside ongoing reform programs. ### Sectoral effects and trade disruptions - Tourism accounts for 5 per cent of GDP; tourism reservations are down 80 per cent from last year. - Expectations conveyed that tourism activity may not begin to recover before July-August and election-related activity may keep tourists away until the next year. - Closure of frontiers to trade and movement of persons by Kazakhstan and Uzbekistan (the latter closure persists) has: - Created doubts about future access to trade. - Broken or disrupted supply chains, especially in agriculture and road construction works. - Significantly impacted formal and informal trade in April and May. - Readily observable substantial decline in exports of garments, fruits and vegetables, and dairy products is expected to show up in trade figures once available. - Trading activities represented around 16 percent of GDP in 2009; border closures made it harder for bank borrowers from the trading sector to unload already imported stocks and repay working-capital loans. ### Business environment governance issues and short-term reforms - Longstanding problems: arbitrary behavior of tax authorities, inspections and imposition of regulations not based on predictable, transparent application of the rule of law, and poor progress with reforms relating to corporate governance, management of state owned enterprises and competition policy. - Shortly after the April events, the business community proposed a series of actions to address short-term difficulties; the interim government has been sympathetic and moved them to an advanced stage of the approval process. - Parallel initiatives likely from industry associations and professional bodies as stakeholders renew reform agendas. ### Private sector losses and urgent financing needs - Damage to commercial establishments, business disruptions, and border closures resulted in losses to the private sector, particularly in tourism and retail trade. - Displacement of people, lack of security and restriction to movement (e.g., imposition of curfews) in the south have reduced consumer demand. - Tourism export receipts in 2009 were about $445 million; 20 per cent of which would be tourism-related retail sales. - With significant cancellations in tourist bookings, tourism export receipts for 2010 may fall as much as 60 percent. - Foregone profits that would have been used for reinvestment would be around $20 million. - The private sector, particularly tourism and related retail trade establishments, would benefit from access to project financing and bridging facility from development partners, amounting to around $20 million, to allow maintenance and rehabilitation of establishments and recoup foregone revenue in 2011 when more economic stability is achieved. - Note: Economic losses incurred by the tourism sector, such as foregone wages to workers, foregone revenue by suppliers and servicing of existing financial liabilities, if included, are likely to be significantly higher than currently estimated. *Source: CHAPTER VII: THE BUSINESS ENVIRONMENT (content provided)* --- ### CHAPTER VIII: FINANCIAL SECTOR ### Overall system soundness and vulnerabilities - The Kyrgyz financial system remained sound through the 2009 economic crisis; capital adequacy and liquidity of the system were adequate through 2009. - A large source of vulnerability—exposure to banks in Kazakhstan—was reduced somewhat through the acquisition of two Kazakh banks by local banks, and the conversion of one subsidiary to its parent (Unicredit). - April and June events have led to a worsening of loan quality: non-performing loan ratio rose from 8 percent before April to 11 percent by end-May and is expected to deteriorate further following the events in the south. - Deterioration in loan quality is mainly concentrated in the trade and commerce sectors, suggesting a relatively strong impact of border closures. - Business confidence effects of continued political uncertainty suggest that credit growth this year will be weak. ### Financial stability, bank-specific problems, and systemic implications - Most banks appear sufficiently liquid and capitalized, but problems exist at some banks, including Asia Universal Bank (AUB)—the largest, with over 20 percent of system deposits. - The NBKR introduced temporary administration in AUB and 6 other banks (later reduced to four) after AUB saw a significant nonresident deposit outflow. - Five banks are seeing deteriorating financial health and some are undergoing audits; authorities are developing action plans that could involve a change in management and/or capital injections. - AUB’s loan portfolio affected by connected and insider lending; loan quality deteriorated, particularly following events in the south where the bank had significant exposure. - A sizable portion of AUB’s liquid assets placed with asset management companies prior to the crisis may not be recoverable. - Government put AUB under conservatorship in June and subsequently nationalized it. Operations restricted: - (i) deposits from individuals will not be accepted; - (ii) transactions of legal entities restricted to a limited type of transactions, including salary-related payments, social fund payments and AUB loan repayments. - A recent court decision to hand over AUB assets acquired from Kyrgyz Promstroi Bank in 2007 back to original owners complicates the situation; decision under consideration in the courts. ### Fiscal cost estimates and resolution options for AUB - Regulatory capital required for AUB is in the order of KGS 3½ billion ($76 million; 1.7 percent of GDP). - Budgetary costs to resolve the bank will likely be inevitable. - Authorities are considering options for resolving the bank, including: - (i) outright bankruptcy and liquidation; - (ii) rehabilitation and sale; - (iii) restructuring through purchase and assumption—a good bank, bad bank solution; - (iv) sale to a foreign buyer. - In considering options, authorities are cognizant of systemic implications, fiscal costs and need for the system to recover quickly and start providing impetus to growth. - Given technical deficiencies in the country, authorities may need help to defray the cost of an external audit and hiring management and legal teams, in addition to covering the cost of recapitalizing the bank or covering the loss of government deposits. ### Selected financial indicators (percent, unless otherwise indicated) - Capital adequacy (Net total capital/risk-weighted assets): - 31-Dec-08: 32.6% - 30-Jun-09: 27.5% - 30-Sep-09: 29.4% - 31-Dec-09: 33.5% - 31-Mar-10: 31.7% - 30-Apr-10: 35.3% - 31-May-10: 27.3% - Liquidity (Liquidity ratio): - 31-Dec-08: 82.0% - 30-Jun-09: 82.8% - 30-Sep-09: 85.3% - 31-Dec-09: 86.8% - 31-Mar-10: 86.7% - 30-Apr-10: 90.8% - 31-May-10: 85.1% - Excess reserves/total reserves: - 31-Dec-08: 30.4% - 30-Jun-09: 25.7% - 30-Sep-09: 25.3% - 31-Dec-09: 33.2% - 31-Mar-10: 15.8% - 30-Apr-10: 39.7% - 31-May-10: 45.2% - Asset quality (Nonperforming loans/total loans): - 31-Dec-08: 5.3% - 30-Jun-09: 8.7% - 30-Sep-09: 9.2% - 31-Dec-09: 8.2% - 31-Mar-10: 7.9% - 30-Apr-10: 9.4% - 31-May-10: 11.2% - Loan-loss provisioning/nonperforming loans: - 31-Dec-08: 55.9% - 30-Jun-09: 52.8% - 30-Sep-09: 56.5% - 31-Dec-09: 58.4% - 31-Mar-10: 57.5% - 30-Apr-10: 53.0% - 31-May-10: 51.3% - Profitability (Return on equity): - 31-Dec-08: 20.7% - 30-Jun-09: 13.2% - 30-Sep-09: 13.2% - 31-Dec-09: 13.6% - 31-Mar-10: 12.5% - 30-Apr-10: 10.3% - 31-May-10: -52.7% - Profitability (Return on assets): - 31-Dec-08: 3.8% - 30-Jun-09: 2.5% - 30-Sep-09: 2.4% - 31-Dec-09: 2.5% - 31-Mar-10: 2.4% - 30-Apr-10: 2.0% - 31-May-10: -10.3% - Loans and deposits (Loans/deposits): - 31-Dec-08: 110.2% - 30-Jun-09: 97.2% - 30-Sep-09: 86.5% - 31-Dec-09: 75.7% - 31-Mar-10: 70.8% - 30-Apr-10: 108.5% - 31-May-10: 106.6% - Loans/total assets: - 31-Dec-08: 46.6% - 30-Jun-09: 39.0% - 30-Sep-09: 36.2% - 31-Dec-09: 36.9% - 31-Mar-10: 36.4% - 30-Apr-10: 45.2% - 31-May-10: 46.7% - Foreign currency exposure (Share of foreign currency deposits in total deposits): - 31-Dec-08: 63.6% - 30-Jun-09: 67.6% - 30-Sep-09: 70.4% - 31-Dec-09: 68.3% - 31-Mar-10: 68.5% - 30-Apr-10: 54.0% - 31-May-10: 54.5% - Share of foreign currency loans in total loans: - 31-Dec-08: 64.7% - 30-Jun-09: 64.0% - 30-Sep-09: 63.3% - 31-Dec-09: 62.3% - 31-Mar-10: 59.1% - 30-Apr-10: 59.1% - 31-May-10: 58.2% *Source: National Bank of the Kyrgyz Republic (Table 9: Kyrgyz Republic: Selected Financial Indicators)* ### CHAPTER IX: FIDUCIARY SAFEGUARDS, FINANCING MECHANISMS ### CHAPTER IX: FIDUCIARY SAFEGUARDS, FINANCING MECHANISMS AND INSTITUTIONAL ARRANGEMENTS ### Public financial management - A decade long reform effort on the PFM system has resulted in: - gradual formation of a professional technical team in the MOF and Central Treasury; - establishment of a reasonably strong aggregate fiscal discipline in budget execution; - fiscal consolidation and bringing extra-budgetary funds into the budget; - introduction of cash flow forecasting and implementing a balanced budget; - elements of accountability in the use of public funds and considerable improvement in reporting via a new budget classification and a unified chart of accounts. - Remaining PFM weaknesses relate to shortcomings in strategic planning and result in: - inconsistent outcomes of budget policy with a huge variation in the quality of public service provision across the country; - frequent re-allocation of resources within the originally approved budget and hence low predictability of funds for spending units; - weak links between sector strategies, the Medium Term Budget Framework (MTBF), and the annual budget; - lack of transparency, with poor public access to key budget information; - poor system of internal checks and balances with the exception of selective spending entities. - The internal audit system: - is at an early stage and cannot provide credible assurance of the legality, effectiveness, and efficiency of the use of public funds. - PFM reform effort status: - reform efforts continue with heavy donor involvement and supervision and clear strong ownership by the current government; - the PFM system proved to be sound against disruptions caused by the April and June events and ensured functioning of essential budget organizations; - MOF and Central Treasury actions included timely back-up of treasury information at the central data processing centre prior to violence against treasury premises and protective measures for budget execution records in locations near heightened ethnic and political tension; - MOF and Central Treasury adhered to strict aggregate budget discipline in budget execution, except in June when expenditure pressures undermined the concept of balanced budget. - JEA judgement and requirements: - the JEA judges that conditions are appropriate for donor financing of the recovery and reconstruction program with the PFM tools and safeguards currently in place; - a demonstrated continuation of reforms and strengthening of PFM systems will be required from the next elected government. ### Financing safeguards — fiduciary aspects - Accounting, recording and reporting: - Kyrgyzstan has reasonably strong systems of accounting, recording and reporting. - Computerization of treasury functions enables regional treasuries to agree expenditure details with local transit banks daily before submitting details to the central treasury which then agrees the total with the National Bank. - The 2007 introduction of a GFS 2001 compliant chart of accounts improved information available on a quarterly basis. - National accounting and reporting standards for the public sector are not fully developed yet; recent resolutions, if fully implemented, would improve accounting and reporting. - Strengthened public sector accounting and reporting would allow development partners to rely on such systems for implementation of investment projects. - Internal audit: - normative and methodological basis for internal audit introduction has been established, but much needs to be done to develop reliable internal control systems; - 12 units out of a planned 14 in ministries and central agencies have been established; - auditor capacity needs improvement and the importance attached to their work by managers is insufficient; - MOF plans activities to improve capacity and further develop systems of internal control for the public administration. - External audit: - public sector auditing is performed by the Chamber of Accounts (CoA), the equivalent of supreme audit institution (SAI); - capacity limitations mean audit of both ADB and World Bank-financed projects continue to be performed by private sector audit firms periodically assessed against International Standards on Audit (ISA); - ongoing capacity strengthening of the Chamber of Accounts, supported by the Bank and PFM Multi-Donor Trust Fund (MDTF), should improve performance in the medium to long term; - the recently approved law on internal audit and planned capacity development under the PFM MDTF should help develop internal audit institutional and professional capacity. - Public procurement: - procurement law revisions aligned with international standards introduced procurement principles and defined the mandate of the State Procurement Agency; - the independent State Procurement Agency was abolished in October 2009; a Department on Public Procurement Methodology was established under MOF while procurement supervision was not assigned to any organization; - National Procurement Training Center was taken over by private ownership and procurement training has been decreasing; - budget entities became solely responsible for procurement without regular oversight from other government bodies; - Chamber of Accounts conducts random external audits once every two years; - the change undermines checks and balances in public procurement and creates a responsibility gap, heightening corruption risks. - MOF procurement unit intentions and constraints: - intends to start publishing contract award information to increase transparency; - process for redressing tender violations remains unclear; - MOF public procurement unit includes only five staff focused on methodology, with limited capacity to review tender commission minutes promptly and with acceptable quality; - the unit drafted a new public procurement law to re-establish procurement oversight; approval and subsequent capacity and institution building will take substantial time. - Treasury is developing a database of contracts, but an institutional gap remains in monitoring adherence to procurement rules; - Government noted the procurement supervision function was reportedly a source of administrative corruption; - provisional government will need to establish procurement oversight, dispute resolution, and complaint handling mechanisms as a priority. ### Financing options - Donor financing instruments consistent with the Paris Declaration: - budget support (direct donor transfers into government treasury account) to fill fiscal gap from revenue shortfall and expenditure increases due to April and June events; can finance economic and social consequences and create fiscal space for rehabilitation and maintenance activities; - donor reimbursement to government for specific relief and reconstruction expenditure incurred under government procurement system, reimbursement of particular activities of government relief and reconstruction agencies, and financing individual contracts for reconstruction based on national procurement rules; - support for the financial sector in the form of technical assistance, capacity building, and participation through debt or equity instruments and guarantees to the AUB bank to bolster investor and consumer confidence; - project financing for infrastructure damage and loss, energy sector needs, sustaining basic urban service delivery and maintenance of core infrastructure including roadways, agriculture, and private sector growth needs. - Note on humanitarian/social sector immediate support: - for provision of humanitarian aid and immediate social sector support, expertise and capacity of UN agencies and NGOs would be vital where government capacities require further strengthening. ### Coordination and monitoring arrangements - Comprehensive monitoring system built around three components: monitoring results, tracking aid, and assessing impact. - Monitoring results: - use systems already in place and align with the Country Development Strategy (CDS) results monitoring and evaluation process involving civil society and development partners; - CDS framework includes baseline data and expected outcomes focusing largely on macroeconomic performance, governance and business environment, and monitoring targets in agriculture, infrastructure, and energy coherent with recovery efforts; - a nationwide monitoring system was established and operating from February 2008 with public access from April 2008 at http://www.mes.in.kg/. - Tracking aid: - critical to ensure donor funds, especially off-budget funds, are spent on agreed activities and objectives; - comprehensive and transparent reporting on aid is important to ensure alignment with national priorities, facilitate funding allocation, and identify financing gaps; - donor assistance should be consistent with the government’s program and included within it. - Assessing impact: - in addition to project-related impact assessments, periodic household-level monitoring using quantitative and/or qualitative methods is recommended to measure outcomes and impact of the overall post-crisis program; - such tools would provide real-time information to reinforce and/or redirect recovery efforts as needed; - citizen score cards could be adapted for Kyrgyz Republic use. - Coordination arrangements: - government will hold quarterly coordination meetings with the donor community present in Bishkek to present progress using data from aid tracking and results monitoring mechanisms. - Implementation arrangements: - for non-budget support activities, existing implementation arrangements should be used where possible; - partners will work to build and strengthen country capacity through multi donor approaches or “silent partners” approaches where one donor provides resources while implementation leadership is agreed with another donor within an agreed aid framework. ### Capacity development needs - Capacities exist in most public sector entities but are unevenly distributed: - national structures stronger than regional/sub-regional levels; - strengths vary by sector and across regions/sub-regions. - Observed weaknesses: - financial capacity, institutional capacity, skills capacity, and infrastructure capacity vary and may require strengthening depending on sector. ### Donor support for reconstruction and recovery — financing requirement and profile - Overall financing requirement: $1 billion (Annex I). - Financing requirement broken into three main elements: - (i) support for budget, including the recapitalization needs of a major systemically-important bank -- $335 million; - (ii) support for social reconciliation and recovery, including the housing and restoration of livelihoods needs of the internally displaced persons -- $334 million; - (iii) infrastructure needs related to damages and losses of buildings and property and urgent rehabilitation or repair needs in energy and transport -- $350 million. - Other items include agriculture, security related spending, and support for private sector. - Disbursement profile summary: - in the next six months, donor support of $671 million is required: - $335 million for the budget; - $336 million for other programs (including the Flash Appeal). - requirements for the years 2011 and 2012, excluding budget support amounts for those years that can be determined only once an elected government formulates a budget, are estimated at $227 million and $102 million, respectively. - Budget support note: - the budget support requirement for the year 2011 has been tentatively estimated at $225 million on the basis of preliminary plans of the government for the budget for that year; this requirement can be assessed only once an elected government formulates the 2011 budget and takes the decisions on the underlying revenue and expenditure measures and will be put to donors for consideration for financing in early 2011. *Source: CHAPTER IX: FIDUCIARY SAFEGUARDS, FINANCING MECHANISMS AND INSTITUTIONAL ARRANGEMENTS (from the provided content)* ### ANNEX I: KYRGYZ REPUBLIC: FINANCING REQUIREMENTS FOR ### ANNEX I: KYRGYZ REPUBLIC: FINANCING REQUIREMENTS FOR RECONCILIATION, RECOVERY AND RECONSTRUCTION ### Public sector–related needs and summary totals - PUBLIC SECTOR RELATED NEEDS (6+15): 980 (millions of US dollars) - GRAND TOTAL (1+15): 1000 (millions of US dollars) - PRIVATE SECTOR RELATED NEEDS: 20 (millions of US dollars) ### General economy needs (subcomponents) - Budgetary financing gap: 335 - Of the estimated gap of $335 million, $105 million has been identified from the Asian Development Bank, the European Commission, the United Nations (election support) and the World Bank. The remaining financing requirement or donors is $230 million. - banking sector capitalization: 76 - Cost of referendum and general elections: 6 - Additional Security-related expenditures: 6 - Targeted social assistance for newly poor: 4 - Sub-total: general economy need (2+3+4+5): 351 ### Social reconciliation and recovery (detailed) - Social reconciliation and recovery: 334 - humanitarian: 29 - Corresponds to the Flash Appeal of the UN - support for IDPs and vulnerable groups: 238 - housing needs: 105 - livelihoods: 45 - social compensation: 52 - other: 36 - Note: private housing is included under social recovery ### Security and peace-building - Security and peace-building: 11 ### Infrastructure and essential sector–related needs - Sub-total: essential sector-related needs (7+8+9+13-14): 629 - Infrastructure (9): 350 - Buildings and structures (10): 130 - public: 90 - private Commercial: 40 - Energy sector (11): 180 - winter reserve for mazut/fuel/coal: 50 - rehabilitation of gas distribution in Osh: 6 - essential repairs for district heating in Bishkek and Osh: 30 - essential repairs for district heating in 23 cities: 25 - critical repairs for generation and distribution: 69 - Transport (12): 40 - regional: 20 - municipal: 20 - Agriculture (13): 35 - LESS: Amounts already identified as budget expenditures (14): 101 ### Other items - Cost of referendum and general elections: 6 (listed also under general economy needs) - Additional security-related expenditures: 6 (listed also under general economy needs) - Targeted social assistance: 4 (listed also under general economy needs) ### Projected disbursement profile of support (US dollars, millions) — summary by year and total - Total projected disbursement: - 2010: 671 - 2011: 227 - 2012: 102 - Total: 1000 - Budget support: - 2010: 335 - Total: 335 - Social reconciliation and recovery (total 334): - 2010: 214 - 2011: 95 - 2012: 25 - Total: 334 - Housing needs (total 105): 2010: 45; 2011: 40; 2012: 20; Total: 105 - Livelihoods (total 45): 2010: 25; 2011: 15; 2012: 5; Total: 45 - Social compensation (total 52): 2010: 30; 2011: 22; 2012: 0; Total: 52 - Other (total 36): 2010: 18; 2011: 18; 2012: 0; Total: 36 - Flash Appeal: 96 (2010) - Security and peace-building (total 11): - 2010: 6 - 2011: 3 - 2012: 2 - Total: 11 - Infrastructure (total 350): - 2010: 164 - 2011: 120 - 2012: 66 - Total: 350 - Buildings and structures (total 130): 2010: 33; 2011: 61; 2012: 36; Total: 130 - Energy sector (total 180): 2010: 121; 2011: 37; 2012: 22; Total: 180 - Transport (total 40): 2010: 10; 2011: 22; 2012: 8; Total: 40 - Agriculture (total 35): 2010: 17; 2011: 9; 2012: 9; Total: 35 - LESS: Amounts already identified as budget expenditures: -101 (2010) ; Total: -101 - Private sector related needs (total 20): 2010: 20; Total: 20 - Others (Cost of referendum and general elections, additional security-related expenditures, and targeted social assistance): 16 (2010) *Source: ANNEX I: KYRGYZ REPUBLIC: FINANCING REQUIREMENTS FOR RECONCILIATION, RECOVERY AND RECONSTRUCTION* ### Introduction ### _072110 - Introduction ### Context and overview - Southern Kyrgyzstan comprises the three Oblasts of Osh, Jalalabad and Batken and is part of the wider Fergana valley region. - Population of southern Kyrgyzstan: 2.4 million. - Ethnic composition in the three Oblasts: Kyrgyz 68%, Uzbek 26%; remaining groups: Tajiks, Tatars, Uigurs, Turks, Russians, and other nationalities. - Urban/rural split: 78% of the population lives in rural areas. - The violence beginning June 10, 2010, was inter-ethnic in nature; triggers and organizers remain unclear. - The June violence revealed weakness of the state and lack of control over security apparatus and local administration; reestablishment of an impartial security regime is a precondition for stability and recovery. - Recent natural disasters: flash floods in early June 2010 affected over 70 villages and seriously damaged infrastructure. ### Key drivers of conflict - Poor governance characterized by ineffective administrative and security systems. - Poverty and socio-economic disparities. - Competition over natural resources: agricultural land, irrigation water, pasture. - Harsh border regimes that stifle commerce and movement, contributing to corruption. - Southern Kyrgyzstan’s role as a transit area for smuggling of drugs. - Widespread unemployment and under-employment, particularly of youth. - Deteriorating education system not equipping youth to participate meaningfully in society. - These factors create persistent societal stress points that can manifest as inter-ethnic rivalry. ### Humanitarian impact and displacement - Estimates of fatalities: between 179 to 2,000 persons killed. - Displaced persons: 375,000 displaced; 75,000 fled to Uzbekistan; 300,000 became IDPs within Kyrgyzstan. - Refugee return timeline: refugees began returning in late June; most returned before the referendum on June 27, 2010. - Recent reports: more than 90% of the displaced have returned to their homes; remainder staying with host families. - Population in affected areas (not displaced): around 765,000 people. - Share of population in conflict-affected areas in the two Oblasts: 56%. - Cities most affected (population figures): - Osh: population 258,100 - Jalalabad: population 92,100 - Pattern of destruction indicates targeted selective destruction of Uzbek homes/businesses. - Reports from returned IDPs: bewilderment, feelings of abandonment, intense fear and insecurity, persistent discrimination and harassment by authorities (including detainment of young Uzbek men, confiscation of identity documentation, refusal by banks to provide services). - UN/NGO immediate humanitarian relief: WFP provided 300,000 displaced people with two-week rations by early July; UNHCR established a 24-hour protection hotline for Osh and Jalalabad. ### Housing, business, and public infrastructure damage (assessments and figures) - Assessment variances: - UNOSAT found around 2,500 homes affected in Osh. - Government assessment: 1,363 homes affected in Osh. - ACTED and Save the Children assessment for UNHCR found around 20% more damaged homes compared to UNOSAT figures in areas surveyed; assessment could increase to 3,000 affected homes. - Final figures from ACTED/Save the Children assessment were scheduled to be available by July 18, 2010. - For Jalalabad: number of destroyed or damaged homes: 450. - Structural profile of affected Uzbek neighborhoods: - Average household compound: two families; average of 7.5 persons per family. - 92% of affected dwellings are small one-story houses inside joint compound. - Of these: 72% completely destroyed; 19% severely damaged. - Close to a quarter of the completely destroyed houses no longer have access to water. - Around 72% of assessed houses no longer have access to electricity. - Of houses with piped gas before June events, 94% are now without gas supply. - 94% of affected homes had mostly outdoor toilet facilities; damage includes toilets in 58% of these. - Current IDP living conditions: most IDPs living in tents inside compounds, in streets, or in public spaces. - Aggregate category impacts for Osh & Jalalabad (preliminary assessments): - Homes damaged or completely destroyed: 1,813 - 3,450 - Destroyed/damaged businesses: 248 - Damaged public buildings: 79 - Commission estimate: loss of employment for around 4,000 persons (mostly in service and trade). - Market disruptions: farmers cannot move to sell produce or buy inputs; fear prevents people accessing markets, though some commerce has resumed. ### Flash Appeal and coordination - Flash Appeal issued on 18 June 2010 with a budget of USD 71 million to provide life-saving assistance to IDPs and the around 765,000 people living in affected areas. - With refugee returns and improved data, Flash Appeal is being revised under the cluster approach headed by OCHA; Early Recovery to be led by UNDP. - Updated Flash Appeal scheduled to be available by mid July 2010. - Coordination imperative: government, UN Cluster System, NGOs, and other actors; robust monitoring arrangements to ensure transparency and local community involvement; project design must build flexibility and draw on best practice for procurement and financial management in post-conflict settings. ### Early recovery priorities and core activities (short-term needs) - Immediate/short-term priorities to be initiated before winter (end of October): - Improve security situation for Uzbek communities. - Provision of shelter before onset of winter. - Restoration of water, electricity, and gas services. - Restoration of identity and property documentation. - Enhance capacity of Directorate for Rebuilding and Reconstruction of Osh and Jalalabad. - Early recovery activities to continue into medium/longer term: - Support recovery of businesses and agriculture. - Rehabilitate basic and vocational education. - Provide cash transfers for vulnerable groups. - Generate employment through labor-intensive public works. - Provide opportunities for youth. - Initiate reconciliation between communities and between communities and the state. - Establish psychosocial support and counseling services to victims of June violence. - Project design elements: participatory planning, community oversight, transparency, procurement and financial management adapted to post-conflict urgency. ### Budgeted components and preliminary costs (Time-line for start-up) - Short to Medium — Recovery and Reconciliation through Infrastructure Delivery: - Housing for IDPs: 45.0 (USD million) - Other infrastructure: 3.0 (USD million) - Reconciliation through participatory community recovery and local area development: 25.2 (USD million) - Short to Medium — Socio-Economic Reintegration and Peace-Building: - Support for livelihood recovery: 45.0 (USD million) - Peace and tolerance building: 3.1 (USD million) - Youth inclusion: 5.1 (USD million) - Security, stability and justice: 8.0 (USD million) ### Recovery and reconciliation through infrastructure delivery — detailed elements - Housing for IDPs: - Estimated total: around 3,000 family homes affected. - Majority of IDPs (>90%) back and want to repair/reconstruct before late October. - IDP preference: construct homes themselves; prefer building materials rather than cash; would hire artisans including Kyrgyz artisans if needed. - Proposed owner-managed approach components: - Supply of package of construction materials enabling either preliminary winterized (2-room) house or repair. - Cash-for-food or in-kind food allowance during construction period. - Cash allowance to hire artisans. - Oversight and technical assistance for construction quality and seismic-appropriate technologies. - Budget Requirement to meet IDP housing needs: 45,000,000 USD - Other infrastructure: - Finance rehabilitation and repair of public infrastructure and equipment (e.g. gas and power supply, public buildings). - Budget Requirement: 3,000,000 USD - Reconciliation through participatory community recovery and local area development: - Focus on rebuilding trust, social capital, and inclusive community planning. - Activities: community projects (renovations/rehabilitation), psychosocial and medical support, awareness-raising on civil rights, legal aid, dispute resolution mechanisms, property/title dispute resolution, tracking community dynamics and social acceptance. - Examples of possible community-decided investments: renovations of schools, health points, community centers, potable water systems, apartment building upgrades, village/feeder roads, communal agriculture and erosion control. - Total Budget Requirement: 25,200,000 USD ### Socio-economic reintegration and peace-building - Support for livelihood recovery: - Immediate priorities: - Re-establish safe access to employment sites and productive means (rule of law and central command/control over security forces required). - Develop temporary employment opportunities (cash-for-work, labor-intensive public works). - Short- to medium-term priorities: - Employment creation/targeted livelihood support for IDPs and other vulnerable groups (female-headed households, youth, etc.). - Multi-dimensional support: local economic development grants; active labor market programs (employment information, counseling, apprenticeships, vocational training, literacy/numeracy); self-employment assistance (access to credit, capacity-building for cooperatives and SMEs, agricultural extension). - Activities must minimize market distortions, maximize beneficiary choice, involve local communities, and build on existing capacities. - Medium- to longer-term priorities: - Improve relevance of education system to labor market through national education reform to reduce youth joblessness and idleness. - Total Budget Requirement to meet Economic Reintegration Support/ Livelihood Recovery Needs: 45,000,000 USD - Livelihoods context (Box: Osh indicative daily incomes, informal): - Day laborer (builder): 400 (Kyrgyz Som) - Day laborer (high skill): 600 (Kyrgyz Som) - Shopkeeper (large shop): 1400 (Kyrgyz Som) - Shopkeeper (small shop): 950 (Kyrgyz Som) - Market vendor (agricultural and food items): 200 (Kyrgyz Som) ### Social reintegration support: peace, youth, and security - Social diversity and poverty snapshots: - Poverty (Percentage of the Population Living Below the Poverty Line, National Statistics Committee. 2009): - Kyrgyz Republic 31.7 - Batken Province 31.5 - Jalal-Abad Province 36.9 - Issyk-Kul Province 46.1 - Naryn Province 44.1 - Osh Province 38.3 - Talas Province 33.0 - Chui Province 21.1 - Bishkek City 13.2 - Human Poverty Index (UNDP Kyrgystan. 2009/2010 National Human Development Report): - Kyrgyz Republic 6.9 - Batken Province 7.9 - Jalal-Abad Province 5.9 - Issyk-Kul Province 7.8 - Naryn Province 8.2 - Osh Province 9.0 - Talas Province 6.8 - Chui Province 8.2 - Bishkek City 5.2 - Peace and Tolerance Building: - Need for immediate and long-term activities to establish a culture of peace and tolerance and reduce risk of renewed violence. - Effective activities include: training for local opinion-shapers, human rights and protection training for security forces, media campaigns, community-level conflict management training, development of peace/tolerance curricula for schools, grants for arts/cultural activities, forums for inter-ethnic dialogue. - Total Budget Requirement: 3,070,000 USD - Youth Inclusion: - Youth (aged 14 to 34 in 2008) account for close to 40% of overall population; two-thirds reside in rural areas. - Agriculture employs 38% of employed youth; jobs often poorly paid and seasonal. - Youth attitudes 2009: 21% felt positive changes, 23% felt dissatisfaction, 31% felt fear of the future, 14% felt apathy. - Recommended youth activities: life skills, employment support (formal/non-formal training, apprenticeships, vocational education), business development, access to micro-credit, youth-friendly spaces, legal education/support, capacity-building for youth organizations. - Total Budget Requirement to meet Youth Inclusion Needs: 5,100,000 USD - Building Confidence in Security, Stability and Justice: - Immediate-term: mobilize experienced international security trainers/advisors (e.g. under OSCE) to guide restoration of civilian protection, rule of law, and human rights compliance. - Strengthen signaling to end perceptions of impunity; enact full legal provisions to regulate defense and security forces and to prosecute human rights violations including sexual and gender-based violence. - Consider establishing an ombudsman independent state agency reporting to President or parliamentary committee, supported by international observers to encourage reporting of crimes. - Medium-term: training of security sector in civilian protection, professional ethics, human rights and due process; professionalization and capacity-building for Ministries of Defense, Internal Affairs and Justice. - Encourage government commitment to build a civil service representative of ethnic diversity, potentially using quotas similar to those for women in parliament. - Total Budget Requirement to build confidence in Security, Stability and Justice: 8.0 million USD (could be funded directly by interested donors or included in larger security sector reform). *Source: _072110 - Introduction* ### ANNEX IV: SOCIAL PROTECTION ### ANNEX IV: SOCIAL PROTECTION ### Introduction - The April-June events led to a considerable death toll and injuries that are unprecedented in Kyrgyzstan’s history as an independent country. - Direct impacts: - Major and lasting disruptions in society and economic activity. - Internal displacement. - Indirect impacts: - Closure of borders, which seriously disrupted trade and labor migration. - Effects on the financial sector, the business climate, and investor confidence. - The inter-ethnic tensions in the south are most likely to depress the growth rate in 2010 and beyond, especially if political tensions do not abate and reconstruction and reconciliation processes take off slowly. - The interim government’s policy actions will play a critical role in containing the damage through direct assistance and indirect channels. ### Background #### Poverty - The Kyrgyz Republic is one of the poorest countries in the CIS, with a per capita income of US$853. - Economic performance: - The country faced a difficult economic situation in 2009 and experienced only 2.3 percent growth, compared to an average of 5 percent over the preceding half decade. - Transmission of the global financial crisis to the Kyrgyz economy: - Exports declined by 14 percent. - Worker remittances declined by 30 percent in *Source: ANNEX IV: SOCIAL PROTECTION* ### 2009. Early information indicates that the recent political upheaval will dampen an economic ### _072110 - 2009. Early information indicates that the recent political upheaval will dampen an economic ### Economic outlook and short-term impact of political upheaval - Growth is expected to be about 2.2 percent per annum for 2010. - Low economic growth makes significant poverty reduction more difficult, especially in the absence of a flexible and widely accessible safety net. - In April and June 2010 political instability and border closures disrupted economic activity; farming was particularly affected (difficulty obtaining affordable fertilizer and credit, sharp increase in fuel prices). - Border closure with Kazakhstan for six weeks and continued closure with Uzbekistan contributed to the disruption. ### Poverty trends and distribution (2003–2010) - Private household consumption per capita increased by 16 percent in real terms during 2003-08. - Average consumption per capita of the poorest 20 percent grew by 11 percent a year during 2003-08. - National Statistical Committee estimates for 2008 (Kyrgyz Integrated Household Survey, KIHS): - Total poverty: 32 percent of the population. - Extreme poverty: 6 percent of the population. - Table 1 (Poor as percentage of total population, 2008, KIHS): - Poverty overall: 31.7 - Poverty urban: 22.6 - Poverty rural: 36.8 - Extreme poverty overall: 6.1 - Extreme poverty urban: 3.2 - Extreme poverty rural: 7.7 - Two-thirds of the poor and the extreme poor live in rural areas. - Poverty incidence by oblast: - Highest: Issykul at 52 percent. - Lowest: Bishkek at 15 percent. - One-quarter of the poor live in Osh; 19 percent live in Jalalabad. - Child poverty: - Proportion of children living below the poverty line: 36 percent. - Highest child poverty incidence: Talas 55 percent, Issykul 53 percent. - Child extreme poverty highest in Issykul 19 percent and Naryn 13 percent; lowest in Bishkek and Chui (between 2 and 3 percent). - Family composition correlation: - 46 percent of children from families with three and more children fall below the poverty line vs 36 percent from smaller families. - 10 percent of children from families with three and more children are below the extreme poverty line vs 4 percent from smaller families. ### 2009–2010 poverty trajectory and key drivers - Poverty estimated to have remained constant in 2009 at 31.7 percent. - Poverty likely to fall in 2010 by a total of 2.3 percentage points to about 29 percent. - Increase in social benefits through MB, MSB, and monetization of categorical benefits led to a decrease in poverty of 1.7 percentage points. - Increase due to pensions and public sector wages led to an additional decline in poverty in 2010 of about 0.5 percent. - Remittances rebounded by 18 percent in the first quarter of 2010 compared to the first three months of 2009; remittance rebound could further decrease poverty. - Potential downside: a supply shock from an export fuel tariff imposed by Russia could revise poverty trends upward. ### 2010 policy changes affecting household incomes (first quarter) - On January 1, 2010 tariff changes: - Electricity tariffs raised by 114 percent. - District heating raised by 110 percent. - Hot water tariffs raised by 320 percent. - Concurrent social compensation increases: - Pensions increased by 24 percent. - Public sector wages increased by KGS 200 per month. - Cash transfer programs: - MB increased by about 18 percent. - MSB increased by about 81 percent. - Government monetized categorical benefits based on entitlements and abolished some recipient categories (e.g., persons living in high altitude areas). ### Social protection spending and budgetary changes (2009–2010) - Spending for social assistance (cumulative MB and MSB) in 2010 increased by 73 percent compared to 2009. - For the first time social assistance reached 1 percent of GDP in 2010. - Table 2: Republican budget spending on social assistance (KGS million) - Social benefits (MB+MSB): - 2009 approved budget: 1,250.0 - 2009 actual budget: 1,365.0 - 2010 approved budget: 2,363.0 (73percent increase) - percent of total expenditure: 2009 approved 2,5; 2009 actual 2,6; 2010 approved 4,0 - percent of GDP: 2009 approved 0,5; 2009 actual 0,6; 2010 approved 1,0 - Privileges: - 2009 approved budget: 639.9 - 2009 actual budget: 829.0 - 2010 approved budget: 1,713.0 (107percent increase) - percent of total expenditure: 2009 approved 1,2; 2009 actual 1,6; 2010 approved 2,9 - percent of GDP: 2009 approved 0,3; 2009 actual 0,4; 2010 approved 0,7 - Total 2010 budget is KGS 19.1 billion; KGS 17.6 billion is projected to be spent on pensions, compared to 12.1 billion in 2009. - Approved 2010 budget envisages a transfer of KGS 5 billion to the pension fund against KGS 2 billion in 2009. - Total expenditures of the social fund projected to increase by 43 percent in 2010. - Social fund expenses, excluding government contribution, are projected to decrease by 7 percent in 2010. ### Social assistance programs: MB, MSB, and monetized privileges - Monthly Benefit (MB): - Means-tested cash benefit for children of poorest families. - MB covers 17 percent of children in the country. - Average MB is 25 percent of the extreme poverty line, at around US$5.6 per month for a child. - GMI (Guaranteed Minimum Income) history and levels: - GMI stood at KGS 200 until recently. - Extreme poverty level set at KGS 960. - October 1, 2009: GMI increased to KGS 240. - January 1, 2010: GMI increased to KGS 282. - Currently average MB paid is KGS 212 plus a KGS 40 flat rate topping-up (financed by European Union funds). - Government plans to increase GMI to KGS 310 retroactively from July 1, 2010; funds foreseen in approved 2010 budget. - Coverage issue: prior to the 2010 law amendment, coverage of extreme poor children by MB was approximately 35 percent. - In April 2010 number of MB beneficiaries stood at 351.000. - 84 percent of MB beneficiaries concentrated in the three southern regions (Jalalabad, Osh, and Batken). - Monthly Social Benefit (MSB): - Cash payment for defined categories unable to work and not entitled to pensions (children with disabilities; disabled from childhood; disabled ineligible for pensions; elderly above retirement age ineligible for pensions; Mother-heroes; children who lost the breadwinner). - As of May 1, 2010 number of MSB recipients was 63,818 persons. - 2009 MSB program expenditures: KGS 535 million (1.2 percent of the state budget). - 2010 MSB budget envisaged to increase by 77 percent (to just below KGS 1 billion in 2010). - Current average monthly amount of MSB is around KGS 1,300; temporary Government drafted a decree increasing it up to KGS 1,500. - MSB calculations detached from GMI and set flat rates for 15 categories (President Decree N 511, of 15 November 2009). - Privileges (monetized compensations): - Number of privileged groups decreased to 25 in 2010; in-kind privileges monetized to monthly lump sum compensations. - Current number of beneficiaries of this compensation system: 52.009. - 2010 total budget of compensations: KGS 1.7 billion (more than double the 2009 budget and 42 percent of the total budget for social assistance). - Monthly monetized privilege amounts vary from 1,000 to 7,000 KGS depending on beneficiary category. - Composition of privilege recipients: almost two-thirds living in mountainous areas; about 20 percent people with disabilities; 10 percent war veterans; others include law enforcement, military, Chernobyl victims. ### Targeting, inclusion/exclusion issues, and administrative barriers - Main persistent problems: - Large exclusion of extreme poor from mainstream social assistance schemes. - Weak purchasing power due to low benefit levels (e.g., average MB KGS 212 + KGS 40 top-up). - Large number of households living below or near the poverty line and high share of informal income complicate targeting. - “Propiska” system restricts lawful residence to where one is registered, excluding most internal migrants from applying for social benefits (as well as maternity, unemployment, healthcare, and education for their children). - Other excluded groups: stateless individuals without proper papers; rural women in Muslim religious marriages without state marriage certificates; persons with disabilities required to obtain multiple documents. - Administrative barriers and coordination issues: - No single agency in charge of coordinating migration, employment, fiscal, social authorities and local governments. - Local-level administrative barriers (different operational procedures and eligibility requirements) likely to discourage applicants. - MB administration and outreach mechanisms are weak; tracking of registered clients resumed only in late June 2010 after operations resumed. - In Osh, only 21 new MB applicants turned up in June, making need estimation difficult. - Migration and internal displacement, lack of verification documents for damaged/destroyed property, and low awareness of eligibility exacerbate exclusion risks. ### Unemployment, labor market, and expected impacts from unrest - Unemployment estimates: - 8.2 percent in 2008 based on the ILO definition. - Alternative survey estimate: 18 percent share of the labor force without jobs. - High informal economy share complicates measurement. - Unemployment benefits: - Individual benefit ranges from KGS 250 to 1.000 per month; average KGS 450 per month as of 2009. - Eligibility requires 3 years’ participation in the formal labor market with at least 12 months of social contributions—disqualifies youth (comprising 60 percent of all registered unemployed). - Only 3.000 unemployed in the Republic receive the benefit (most residents of Bishkek). - Low coverage and low benefit level limit poverty reduction impact and may deter registration. - Expected post-June unrest effects: - Internal displacement likely to bring an unemployment upsurge not reflected in official statistics. - Most affected groups: SMEs, construction, agriculture and tourism sector employees, small farmers. - Disruption in credit supply during sowing season exacerbated farmers’ difficulties. - Thousands fled the South leaving land and property unattended. - Government response options being considered: - Public works. - Establishment of a ‘restoration and development’ fund. - Setting up a system of micro credits for revitalization of SMEs. ### Social services and child protection - Social services largely limited to residential institutions for children, people with disabilities, and the elderly. - Poorly funded home-based social services for orphans, elderly, and people with disabilities. - Government plan to develop rehabilitation centers for the disabled. - 2009 establishment of a Child Protection Department at national level and regional Family and Children Support Departments staffed by 178 specialists; capacity and training remain insufficient. - Community-level services for families and children largely lacking apart from a few donor-supported pilot projects. ### Social insurance and pensions: structure, reforms, and fiscal implications - Pension system features: - Inherited NDB pension system on pay-as-you-go basis with low pensionable age (55 for women and 60 for men). - New pension law adopted in 1997 introduced: - Gradual increase in pension age to 63 for men and 58 for women by 2007. - Abolition of some pension privileges. - Introduction of a three-component pension system: base pension (equal for qualified workers), NDC-based pension supplement, and a new NDB-based supplement to eventually replace the old NDB component. - NDC system links contributions and entitlements but retains pay-as-you-go principle. - 2007 amendments returned pension age effectively to 55/60, increasing number of pensioners and reducing contributors. - Government plan to transfer base pension payments from the Social Fund to the Republican Budget in stages over five years, starting with 20 percent transfer in 2010. - Introduction of a fully funded pillar requires resolution of replacement of pay-as-you-go resources and funding of reliable investment options in Kyrgyzstan’s small and volatile financial market. - Social insurance challenges: - Nearly half of the workforce is in the informal sector and excluded from formal pension schemes, shrinking the contributions base and placing pressure on the Social Fund and consolidated budget. - Poverty alleviation effect: - World Bank data show households with pensioners have 20 percent less risk of becoming poor compared to households without pensioners. ### Sectoral and fiscal impacts of unrest and casualties - April protests in Bishkek: officially 1,688 casualties, of which 86 reported dead. - Interim government decided on one-off lump sum compensations: - 1 million KGS to the families of the dead. - From 10,000 to 100,000 KGS to wounded depending on severity. - As of May 26 the total amount paid one-off was KGS 100 million out of KGS 200 million envisaged; amount added to ASW budget for “Compensations.” - Hospital registration as of May 24: out of 1,622 wounded, only 822 were formally recorded in hospitals. - If all 1,622 wounded are categorized as disabled and become MSB beneficiaries: - Increase in MSB beneficiaries by 2.6 percent. - Additional budget resources required around KGS 15 million during 2010 (June–December 2010). - In 2011, required increase in the MSB budget to include 1,622 victims would be KGS 25 million if current average MSB level maintained. - Pressure exists to grant permanent privileged compensation status (e.g., similar to World War II veterans: monthly payment KGS 7,000). If confirmed, required additional amount in 2010 would be significant (calculations indicative). *Source: 2010 Approved Republican Budget; Kyrgyz Integrated Household Survey 2008; Agency for Social Welfare (Kyrgyz Republic) operational data; World Bank staff preliminary estimations; ASW reports; Ministry of Health updates.* ### 82.7 million, or a 4.7 percent increase of the compensation budget (June-December 2010). The ### 82.7 million, or a 4.7 percent increase of the compensation budget (June-December 2010). The ### Fiscal impact and budgetary needs - Required estimated additional amount for 2011 would be KGS 141.8 million, or an 8 percent increase of the compensation budget. - Planned increase of GMI to 310, and therefore an increase of average level of MB to 240 (212 now), plus the KGS 40 flat-rate food price increase compensation paid to all the beneficiaries would result in additional monthly spending of KGS 5.3 million on MB. - Required additional spending for MB would be KGS 31 million for July-December 2010. - If the underlying assumptions materialize, overall additional spending required in 2010 would be about KGS 130 million, in addition to the KGS 200 million already foreseen in the amended budget for one-off compensation measures. - MOF seems confident it will find the necessary fiscal space to finance in full all protected social expenditure. ### Social protection coverage, targeting, and poverty impacts - Authorities expect some increase in extreme poverty, and therefore up to a 20% increase in the number of MB applicants in autumn. - Given the 7.4 percent of extreme child poverty, every percentage increase in extreme poverty may bring approximately 19.000 new MB beneficiaries into the system. - The exclusion rates noted: - Exclusion of 67 percent of extreme poor from the MB system. - Exclusion of 60 percent of disabled from MSB system. - Analysis shows that an increase of GMI to KGS 350 will increase the number of beneficiaries by 10 percent. - The ASW indicated concern over its ability to fully execute payment obligations in the coming months despite Treasury reports of full and timely payments for January-May 2010. ### Service delivery and payments - January-May 2010 Treasury reports confirmed full and timely payments of all state benefits; ASW reports confirmed the Treasury reports. - Payments of privileges in May 2010 from the Central Treasury were KGS 114.5 million. - KGS 100 million as lump-sum compensation to the victims of the April events was also paid. - Payments of MSB in April 2010 from the Central Treasury were KGS 85.4 million. - Treasury reports provide evidence of payments of MB as well as payment of the KGS 40 topping-up for the month of May. - Ground verification in Sukuluk and Belovodsk confirmed amounts were credited to local treasuries and transferred to post offices and banks for payment. - In several locations in Jalalabad oblast, local branches of banks and post offices were closed for several days causing temporary payment delays. ### January-May 2010 budget execution of MB (KGS thousands) — ASW operational data (Table 3) - Bishkek city: Number of MB beneficiaries 1983; MB 2325,1; KGS 40 topping up 359,5 - Chui oblast: Number of MB beneficiaries 3 190; MB 2 822,5; KGS 40 topping up 601,8 - Talas oblast: Number of MB beneficiaries 14 324; MB 15 771,4; KGS 40 topping up 3 594,8 - Issyk-Kul oblast: Number of MB beneficiaries 12 880; MB 13 816,6; KGS 40 topping up 2 463,7 - Naryn oblast: Number of MB beneficiaries 25 626; MB 36 357,9; KGS 40 topping up 5 015,3 - Batken oblast: Number of MB beneficiaries 47 837; MB 59 394,0; KGS 40 topping up 10 834,3 - Osh oblast: Number of MB beneficiaries 134 097; MB 149 101,0; KGS 40 topping up 25 679,8 - Jalalabad oblast: Number of MB beneficiaries 110 994; MB 104 549,0; KGS 40 topping up 22 920,9 - Total: Number of MB beneficiaries 350 931; MB 384 137,7; KGS 40 topping up 71 470,1 ### Employment, unemployment, migration, and remittances - Employment and unemployment levels expected to have changed little immediately after April events; unemployment effects from shocks typically materialize with a lag. - Ministry of Labor registered no marked impact on unemployment from the April events: number of job-seekers without work was 104,000; 66,000 of whom were registered as unemployed; 3,000 were receiving unemployment benefits (two-thirds in the Bishkek area). - About a third of the registered unemployed were women. - Post-June data collection underway; June unrest expected to have higher impact on unemployment and migration. - According to MOL, there were 350,000 Kyrgyz labor migrants in Russia, and about 60,000 in Kazakhstan. - Kyrgyz diasporas in Russia estimate the number of migrants as over 500,000 and likely to increase to 700,000 and further. - Roughly 80 percent of all labor migrants were from southern Kyrgyzstan. - Remittances recently picked up due to improving activity in the Russian and Kazakh economies and are being supplemented by humanitarian assistance collected through Kyrgyz diasporas. ### Key policy priorities and recommendations - Short-term: keep operational social assistance delivery mechanisms and ensure Central Treasury transfers reach intended beneficiaries. - Near-term swift actions could include: - Further increase of GMI above planned KGS 310. - Waiving temporarily the eligibility barriers related to land possession. - Including the KGS 40 flat-rate payments into GMI (which would raise GMI to KGS 350). - Medium- and long-term priorities: - Improve measurement of poverty and social exclusion and identify major problems in the social assistance system. - Reallocate resources away from compensation/privileges toward transfers with better targeting performance (MB and MSB) and social services. - Continue monetization of privileges; resist reversing recent reforms (rollback of monetization would undo a centerpiece of the late 2009 reform package). - Expand MB in coverage and size (likely requiring direct donor support) as a more efficient approach for poverty alleviation. - Build a comprehensive and sustainable social protection system: put pension provision on social insurance basis, ensure Social Fund sustainability, strengthen community and local services (rehabilitation assistance linking medical, social and employment assistance, counseling, shelters, outreach, information provision). - Interim government intends to retain broadly unchanged employment and unemployment policies for the remainder of the year and is implementing public work schemes with UN and USAID support. - Revamp vocational education to better equip youth; pilot EU-supported program providing three-month training; address inverted pyramid in post-secondary education (70,000 university students vs 33,000 vocational students). *Source: ASW operational data and Treasury reports as presented in the provided content.* ### Introduction ### _072110 - Introduction ### Introduction and scope - Focus: impact of recent developments, including April events and the June riots in southern Kyrgyz Republic, on energy sector performance and decisions on: - (i) electricity and heat tariff roll-backs; - (ii) institutional and management changes in the sector; - (iii) immediate damage of the June clashes; and - (iv) capital and operating investment plans for 2010-11 and onwards. - Interim government decisions will have sizeable impact on energy sector revenues, energy companies, and the state budget, with the possibility of substantial shrinking of operational and investment plans, putting at risk the country’s ability to pass the 2010-11 winter energy needs. ### Background: sector importance and recent performance - Hydropower production accounts for about 80 percent of the total primary energy production; electricity is the dominant energy. - Power sector accounts for around 3.9 percent of GDP and 16 percent of industrial production. - Access to power is quasi-universal; consumption per capita is 2,400 kWh. - 2009 power consumption was 6.95 TWh, of which: - 54 percent for households, - 23 percent for industry, - 9 percent for government and other administration (budget), - 1.5 percent for agriculture, - 12.5 percent for other purposes. - Sector is monopolistic with state involvement; the former vertically integrated JSC Kyrgyzenergo was unbundled in 2001 into one generation company, one transmission company, and four distribution companies. ### Structure of the energy sector (Box1) - Currently the power sector is managed by six joint-stock companies (JSC): - The state generation company JSC “Power Plants,” which accounts for about 99 percent of total generation; - The state transmission company JSC “National Power Grid of Kyrgyzstan,” monopoly on transmission segment except for some large consumers; - Four licensed state distribution companies: JSC “Severelectro,” JSC “Vostokelectro,” JSC “Jalalabadelectro,” and JSC “Oshelectro”; each with exclusive rights in its concession area; - Twenty-seven licensed private wholesalers/small distributors buying about 250 to 300 GWh in 2009 from the generation company and selling to consumers; - Bishkek District heat Distribution Company (BTS) distributes heat and hot water for the city; Osh CHP is responsible for production and distribution of heat and hot water in Osh. ### Privatization chronology and sale terms (highlights) - Mid-2008 government intensified privatization of stakes in six energy companies including Bishkek CHP, BTS, and four power distribution companies. - Sales noted: - Severelectro sold for about US$3 million (winner: Chakan GES), with capital investments of about US$70 million in 10 years; initial starting price was set at US$137 million (first tender declared void). - Vostokelectro sold for about US$1.2 million (winner: Chakan GES), with capital investments of about US$30 million in 10 years; initial starting price was set at US$40.9 million (prior attempts declared void). - Several privatization attempts for Oshelectro and Jalal-Abadelectro were declared void for lack of bids; initial starting prices were set at US$41.9 million and US$26.8 million respectively. - No further attempts made for Bishkek CHP and BTS after initial void tender with initial starting price US$137 million. ### Governance, financial management, and operational weaknesses - 1996 Energy Law and 1997 Electricity Law created State Energy Agency (SEA) as regulator; policy formulation by Department of Energy and Mineral Resources under Prime Minister. - 2008 creation of Ministry of Industry, Energy, and Fuel Resources; November 2009 reorganization led to Ministry of Energy (MOE) and SEA becoming a department within MOE, decreasing predictability of governance. - Financial management weaknesses: - Contractual arrangements are sub-optimal: four distribution companies purchase from generation company under one-year Power Purchase Agreement with prices set by MOE’s Regulatory Department. - Distribution companies act as intermediaries with no responsibility for business development; generation, transmission, and distribution companies not responsible for cash management—cash collected in escrow and divided monthly by MOE’s Regulatory Department percentages; wholesalers collect and retain funds. - Barters and offsets used in settlements. - Reporting issues: late and inconsistent monthly/quarterly reports; differing power exchange numbers between utilities; utilities change reporting after submission. - Technical and commercial losses: - Severe under-maintenance and asset degradation lead to technical losses exceeding industry norms; commercial losses related to legal, institutional, and governance issues. - Additional winter generation to compensate losses comes from Bishkek CHP, which is very inefficient and raises incremental costs well above end-user tariffs. - Lack of adequate meters complicates targeting priorities. ### Generation mix and regional trade potential - More than 90 percent of electricity supply comes from Toktogul and downstream Naryn cascade reservoirs, which together account for 78 percent of total installed power generation capacity—creating vulnerability to hydrology and reservoir management variability, especially in winter. - Underutilized regional trade potential: significant potential for summer surplus export even without major new generation; power imports may be least-cost option for winter peak if arrangements can be found. ### Civil society, transparency, and tariff context - Civil society historically not significantly involved; absence of reliable data, lack of independent audits, and inadequate public participation in tariff hearings. - Tariffs are among the lowest in the Europe and Central Asia region and below cost recovery: - Tariff structure is sub-optimal and lacks sufficient cost-of-service analysis. - Tariffs do not provide incentives for efficient supply management or end-user efficiency. - Sales tariffs between entities do not ensure minimal cash expenses for transmission, distribution, or wholesalers. - Sector collects less than 30 percent of what it needs to recover costs and ensure urgently needed investments (see Table 3 issues and challenges). - Prior to April events, major tariff increase introduced on January 1, 2010 to bring tariffs closer to cost-recovery; a second round foreseen for July 2010 pending evaluation. - Energy subsidies increased substantially in the month before April 2010; numerous privileges, discounts, and subsidies provided without clear targeting. - Forty percent Kyrgyz Republic households receive energy subsidies. ### Table excerpt: Electricity tariffs and consumption categories (as reported) - Consumer Categories; Consumption by categories (share) and Tariff entries (as presented in source): - Households (of which: 1) up to 90 kWh 2) 90-150 kWh 3) 150-400 kWh) Unified 60.6% 0.70 0.01979 1.50 0.03448 0.70 0.01573 - Households with a 3-phase output for heating during heating season 0.70 0.01979 - Households for cooking (Capacity > 6 kW) 0.70 0.01979 - Industry and alike 13.3% 0.96 0.02713 1.50 0.03448 1.33 0.02982 - Agriculture 1.7% 0.96 0.02713 1.50 0.03448 1.33 0.02982 - For heating and hot tap water during heating season (Capacity > 6 kW), excluding population 1.02 0.02883 1.33 0.02982 - Pumping stations and wells 2.1% 0.68 0.01922 1.50 0.03448 0.70 0.01573 - Budgetary Organizations 10.6% 1.00 0.02827 1.50 0.03448 1.33 0.02982 - Other consumers 11.7% 1.02 0.02883 1.50 0.03448 1.33 0.02982 - Exchange Rates: 35.38 43.50 44.50 (Consumption columns: July 2008, January 2010, April 2010) ### Issues and challenges (Table 3 summary) - Financially unsustainable operations: - Below cost-recovery tariffs, inadequate tariff structure, and substantial losses lead to lacklustre financial performance, severe under maintenance, and accumulation of arrears. - Sector collects less than 30 percent of what it needs to recover costs and ensure urgently needed investments. - Lack of transparency, commercialization, and weak governance: - Current contractual arrangements and payment mechanisms impede transparency and accountability. - Power supply shortages in winter: - Base and peak loads are covered by hydro-generation year-round; country lacks winter base power generation to meet demand and significant winter power is not available in the Central Asia market. - Underutilized regional trade potential: - Significant potential for summer surplus export and potential for least-cost winter peak imports with proper arrangements. - Significant investment needs: - Sector needs sizable investments estimated from US$ 3 to 5.5 billion in the government’s National Energy Strategy for rehabilitation/addition of generation capacity, strengthening transmission, metering, and distribution system rehabilitation. ### Sector impact of April 2010 events (financial and policy consequences) - Direct impact on state and sector budgets estimated at KGS 6.8 billion (or about US$151 million). - On April 20, 2010, interim government reduced electricity, heating, and hot water tariffs, reversing most increases, with impacts including: - Reversal of power and heat tariffs led to consolidated cash deficit for 2010 estimated at about KGS 2.5 billion (US$55.6 million). According to interim government decree, this deficit would be compensated by the state budget. (Stated by Minister of Energy during a meeting with the JEA mission.) - VAT and retail tax exemptions for provision of electricity and heat service supply would result in about KGS 356 million (US$7.9 million) of lost revenues. (Decrees of the interim government #21 and #17, both dated April 21, 2010, “On introducing changes in the Tax Code.”) - Increase in state subsidies to KyrgyzJilKommunSoyus would increase by KGS 187 million (US$4.1 million). - Re-installing power tariff discounts for mountainous areas requires state budget allocation of about KGS 118 million (US$2.6 million). - Reversal of privatization: - Interim government suspended privatization program and annulled results of energy company privatization tenders. - Voluntary reversal process with Chakan GES: Chakan GES would return shares to the state and government would return about US$4.2 million to Chakan GES (US$3 million for Severelectro and US$1.2 million for Vostokelectro). - Reversal would require the state budget to return US$3.0 million equivalent for the sale of Severelectro. (Payment of US$1.2 million for sale of VostokElectro is still in the Ministry of State Property’s accounts.) - Ensuring supply of electricity for winter 2010/11 will require additional financing: - No certainty in 2010 about export agreements for summer surplus electricity generated for irrigation flows; no firm agreements with neighboring countries to use Central Asia grid for large power transport in winter; companies face budget deficits—likely that power and heat supply interruptions in winter will occur. - Large reduction in investment budgets and deficits would delay urgent repairs to thermal plants, district heating systems, and generating stations in Toktogul complex, risking further disruption. - Several interim government plans (e.g., accountability framework to track energy and cash flows) would need investment support for implementation. ### Fiscal burden, debts, and budget support - Sector debt and financial losses impose significant burden on state budget. - Reported debts: - On December 31, 2009, reported total debt of the distribution companies amounted to KGS 4.6 billion (about US$102 million). (In absence of credible information mechanism, it is not possible verify the data behind these reports.) - Total debt of the generation company as of December 31, 2007 (latest available audited financial statement) stood at KGS 5.5 billion (about US$122 million). No information available regarding debt of transmission company. - Forms of budget support include loans (mainly to clear arrears for fuel supplies), subsidies for urgent rehabilitation and some capital investments, cash transfers to vulnerable groups to cover electricity bills, and on-lending of guaranteed credits from IFIs. - Last large write-off of bad debts amounted to KGS 2.42 billion in December 2009. ### Budget allocations (Table 4, KGS million) - Annual outflows: - Cash subsidies to the vulnerable: 2008 = 971; 2009 = 1,027. - Budgetary loans: 2008 = 583; 2009 = 670. - Source: Ministry of Energy. ### Impact of June 2010 events - Overall direct damage to Osh and Jalalabad regions estimated at about KGS 90 mln (equivalent of about US$ 2.3 million). - Physical losses: poles, wires, transformers burned/damaged/stolen; parts of gas distribution network not operable. - Revenue losses estimated to have reached US$ 0.5 million. - Key interim government decisions and impacts: - Change in administrative ministry and senior management: right to represent government on Boards temporarily given to Ministry of Energy; majority of staff in key positions replaced by new managers. - Enhanced focus on governance and transparency: interim government identified transparency and proper governance as highest priorities; MOE drafting decree on a fuel and energy transparency initiative and examining immediate implementation measures. - Metering and data acquisition system under consideration as priority with support of ongoing initiatives. *Source: _072110 - Introduction (IMF PDF content provided).* ### 60.3 percent of recipients of electricity subsidies are non-poor. ### _072110 - 60.3 percent of recipients of electricity subsidies are non-poor. ### Key finding - "60.3 percent of recipients of electricity subsidies are non-poor." ### Immediate priorities to restore energy services (South and nationwide) - Restore power and gas supply to affected regions urgently before the winter season. - Procure equipment and materials including transformers, wires, poles, etc., and consider funding for rehabilitation and construction works. - Consider funding for supply of critically needed fuel (mazout) for the Osh CHP. ### Short-term objectives and actions - Short-term objective: ensure the 2010 winter power situation is no worse than 2009 and preferably improves. - Bring transparency to transactions and build partnership with civil society in sector management. - Key immediate attention areas: - Ensure the 2010 winter power situation is not worse than 2009. - Prioritize urgent rehabilitation and fuel supply for district heating systems in Bishkek, Osh, and other urban centers. - No sources identified to cover the 2010 cash deficit of KGS 2.5 billion for the energy sector, risking fuel supply plans for the 2010 winter. - 2009 energy sector cash deficit: about KGS 1.7 billion. - Government loans covering part of 2009 deficit: KGS 670 million. - Deferred payments in 2009: KGS 859 million (an increase from KGS 6.532 billion to KGS 7.391 billion). - A US$18.3 million advance payment received from Kazakhstan for summer 2010 power exports was used for sourcing fuel supplies for Bishkek CHP. - Need arrangements to move electricity between northern and southern parts of the country under control of neighboring countries. - Funding needed for urgent spare parts and routine maintenance to avoid collapse of thermal plants, key power generation plants, and electricity and heat distribution systems. ### Water storage and regional dialogue - Toktogul inflows recently became much higher than long-term averages, helping reach a volume close to the maximum level reached in 2009. - Current storage level: 12.7 billion cubic meters; full reservoir level: 19 billion cubic meters. - Recommendation: start high-level dialogue with neighboring and downstream countries to: - Agree on summer exports linked with irrigation water flows. - Arrange movement of power to areas in north and south during summer and winter. ### Improving financial viability - Combine efficiency improvements (decreased losses, better collection) with a well-defined tariff trajectory to bring predictable cash flows. - Funds required for adequate maintenance and to meet significant investment needs. - Immediate steps: - Finalize export arrangements for the summer power surplus. - Reduce significant inefficiencies (high losses, low collections). - Prepare a medium-term tariff strategy with an adequate social protection scheme for vulnerable populations. - Donor community consideration: provide investment and technical assistance within a broader energy sector engagement strategy. ### Enhancing transparency and governance - Acting Minister of Energy committed to addressing sector weaknesses and implementing an Energy Transparency Initiative. - Suggested measures: - Establish an appropriate accountability framework for energy and cash flows for each sector entity and the sector as a whole. - Regular reporting to secure oversight and disseminate information on operations of sector entities. - Hold annual tariff hearings with civil society participation. - Ensure timely annual financial audits by independent and reputable audit firms for joint stock companies. - Competitive public procurement for exports, purchase of fuels and other equipment and material, and publish the results. ### Addressing pressing investment needs - The energy sector has not invested sufficiently to maintain assets, augment the system, or attain energy security. - Grid lacks capacity and flexibility to move power across the country; distribution system lacks systems to meter, bill, and collect revenue. - Inadequate cash flows have put new investments on hold and led to neglected repairs and maintenance. - Risk of catastrophic system failure with serious hardship and financial loss. - Recommendation: consider meeting minimal investment needs. Tables 5 and 6 indicate minimum investments required over the 2010-12 period. ### Urgent funding (Investment) needs by December 2010 (Table 5) — Estimated amounts (US$ million) - District Heating - Supply of required fuel (gas, coal and mazout) for Bishkek and Osh CHPs: 50.00 - Urgent rehabilitation of district heating distribution system for Bishkek and Osh: 10.00 - Supply of urgently-needed equipment and materials for Bishkek CHP and HPPs: 10.00 - Urgent rehabilitation of district heating distribution system for 23 urban centers: 10.00 - Total – District Heating: 80.00 - Electricity - Supply of cables, switches and other essential spares for Toktogul HPP: 20.00 - Rehabilitation of thermal power supply systems in Osh and Jalalabad: 2.13 - Rehabilitation of transmission systems in Osh and Jalalabad: 2.27 - Rehabilitation of electricity distribution network in Osh and Jalalabad: 14.34 - Total - Electricity: 38.74 - Rehabilitation of gas supply networks in Osh and Jalalabad: 1.75 - Total - Energy: 120.49 - Source: MOE and JEA estimates. ### Investment needs for 2011 and 2012 (Table 6) — Amounts in US$ million - Replacement and expansion of district heating network in Bishkek and Osh: 10.00 - Replacement and expansion of district heating network in 23 urban centers: 15.00 - Wholesale electricity metering and automated data acquisition; transmission rehabilitation and modernization: 15.00 - Providing essential equipment and tools (meters, billing system, etc.) to the distribution companies, and transparency in tariff setting and regulatory processes and inform public of sector goals and issues: 10.00 - Identifying quick return energy efficiency (both demand and supply side) measures: 5.00 - Rehabilitation of gas supply network in Osh and Jalalabad: 4.00 - Total - Energy: 59.00 - Source: MOE and JEA estimates. ### Critical Energy Investments (Table 7) — $ million by year and total - District heating – fuel: 2010: 50.00; 2011: -; 2012: -; Total: 50.00 - District heating – CHP: 2010: 10.00; 2011: -; 2012: -; Total: 10.00 - District heating network - Bishkek and Osh: 2010: 10.01; 2011: 6.00; 2012: 4.00; Total: 20.01 - District heating network – 23 urban centers: 2010: 10.00; 2011: 9.00; 2012: 6.00; Total: 25.00 - Gas distribution rehab. – Osh and Jalalabad: 2010: 1.75; 2011: 4.00; 2012: -; Total: 5.75 - Electricity generation: 2010: 22.13; 2011: -; 2012: -; Total: 22.13 - Electricity transmission: 2010: 2.27; 2011: -; 2012: -; Total: 2.27 - Electricity distribution: 2010: 14.34; 2011: 18.00; 2012: 12.00; Total: 44.34 - Total – Energy: 2010: 120.49; 2011: 37.00; 2012: 22.00; Total: 179.49 - Source: JEA estimates. ### Other critical medium-to-long term investments (preliminary) - Essential repair, maintenance spares for thermal and hydro power plants, including: - US$150 million – rehabilitation of Bishkek CHP to 350 MW - US$64 million – rehabilitation of Uch-Kurgan HPP - Identifying critical transmission bottlenecks to provide energy security and independence from networks controlled by other countries (Uzbekistan and Kazakhstan). Examples: - US$342 million – Datka-Kemin 500kV PTL and Kemin SS - US$192 million – Datka-Khodjent 500kV PTL - US$140 million – Kemin-Almaty 500kV PTL - Note: Details on investment needs plans are preliminary and would need to be agreed jointly with the companies and Ministry of Energy. *Source: _072110 - 60.3 percent of recipients of electricity subsidies are non-poor.* ### 8. Over 90 percent of the passengers and more than 50 percent of the freight in the Kyrgyz ### _072110 - 8. Over 90 percent of the passengers and more than 50 percent of the freight in the Kyrgyz ### Transport overview and modal shares - Over 90 percent of the passengers and more than 50 percent of the freight in the Kyrgyz Republic move by road. - Railways carry increasing amounts of bulk commodities and machinery over 320 km of single track comprising several spurs from two branches (from Kazakhstan in the north and Uzbekistan in the southeast). - Air transport carries less than 5 percent of total traffic; domestic air services are mainly between Bishkek and Osh. - Table 8: National Freight and Passenger Traffic Flows (million ton-kilometers and million passenger-kilometers) - Freight (million ton-kilometers) - Rail: 2002 394.6; 2004 714.9; 2006 752.0; 2008 943.1 - Road: 2002 875.1; 2004 847.4; 2006 864.0; 2008 1059.0 - Air: 2002 38.8; 2004 45.5; 2006 34.2; 2008 58.6 - Total: 2002 1,308.5; 2004 1,607.8; 2006 1,650.2; 2008 2,061.6 - Passenger (million passenger-kilometers) - Rail: 2002 43.1; 2004 45.3; 2006 61.5; 2008 89.6 - Road: 2002 4,857.3; 2004 5,407.3; 2006 5,936.4; 2008 6,509.6 - Air: 2002 341.9; 2004 458.9; 2006 360.2; 2008 632.7 - Total: 2002 5,242.3; 2004 5,911.5; 2006 6,358.1; 2008 7,231.3 ### Roads — network, management, and financing - Road network totals 34,720 km: public (republican) roads 18,810 km; urban, rural, agricultural, industrial, other roads 15,910 km. - International roads total 4,163 km; national roads 5,678 km; local roads 8,969 km. - Pavement composition of republican roads: about 40 percent (7,500 km) paved; 50 percent gravel; the remainder unpaved. - Roads carry about 95 percent of passenger traffic and more than half of freight traffic (90 percent of domestic traffic). - MOTC assigned main responsibility for road policy, planning, regulation, development, and other transport modes; parts reorganized in 2007 and early 2009; plans to downsize regional road agencies and privatize 58 local road maintenance units; six corridor management departments created to operate/maintain core international network and feeder roads. - Road Sector Development Strategy (RSDS) 2007–2010 objectives include: (i) rehabilitate and maintain key roads; (ii) create transport independence; (iii) improve road financing; (iv) involve private sector in construction and maintenance; (v) involve local communities; (vi) reform MOTC and road network management; (vii) improve road safety; (viii) use modern technologies. Key road condition and financing figures: - Over 60 percent of roads require periodic maintenance or rehabilitation. - Management of about 16,000 km formerly under state/collective farms now with district administrations. - Average road maintenance expenditure of MOTC network: US$1,320 per km. - Estimated needed maintenance: US$2,000 per km. - Only 20 percent of maintenance work is routine. - Road Fund enacted 1998 but taxes consolidated under central budget; Road Fund Council decreed 2003 but has not met. - Table 10: Budgetary Allocation to the Road Subsector, 2000–2010 (KGS ‘000) - Capital Investments: 2000 38,919; 2003 93,219; 2005 209,350; 2007 319,430; 2010 650,000 - Road Maintenance: 2000 74,339; 2003 99,996; 2005 221,674; 2007 1,058,758; 2010 1,114,358 - Total: 2000 113,258; 2003 193,215; 2005 431,024; 2007 1,378,188; 2010 1,764,358 ### Railways — operations, finances, and plans - Kyrgyz Railways is 100 percent state-owned, owns track and operates services; network: one north line (Kazakhstan through Kara Balta, Bishkek, Balykchy) and eight branch lines off Uzbek railway in the south. - Track condition adequate for current low traffic but requires substantial improvements for larger economic role. - Government provided no public funds to railways since 1991; Kyrgyz Railways finances capital and operating expenditures from revenues. - Profits peaked in 2008, decreased to KGS 372 million in 2009 due to the world economic crisis. - 2009 compared to 2008: outgoing (export) freight traffic down about 30 percent; incoming (import) freight traffic down about 20 percent. - Freight services are profitable and increasing in volume; passenger services are almost zero profit (fares regulated by anti-monopoly authorities) and insignificant relative to road and air traffic. - National long-term plan to expand rail network to reduce dependence on neighbors, establishing a trans-Asian corridor. - Pre-feasibility cost estimate for trans-Asian railway through Kyrgyz Republic: about US$2 billion. - Kyrgyz Railways seeking external assistance for: electrification of Bishkek-Lugovaya section (US$100 million) and renovation of wagon fleet and facilities. - Existing equipment inventory is old/obsolete; significant investment required to improve efficiency. ### Civil aviation — structure, finances, and projects - Civil aviation sector comprises: (i) national airline; (ii) airports; (iii) air traffic control. National airline and airports are joint-stock companies under State Property Ministry; air traffic control is 100 percent state-owned. - Airport company (Manas International Airport) is state-controlled (government holds 79.1 percent) and includes Manas (Bishkek), Osh, Issyk-Kul (Tamchi); other small airports/landing strips largely abandoned. - Airport company net income peaked in 2007 at about KGS 400 million; fell slightly in last two years due to world economic crisis. No state subsidies; finances supported by revenues and US transit airbase service payments. - Current airport company projects financed from own resources: - Construction of second terminal at Manas airport and expansion/improvement of Issyk-Kul airport runway at total cost KGS 1,750 million. - Other major projects needing external financing/PPP or dual-purpose investments: second runway at Manas, modernization of Osh Airport (US$105 million per 2009 feasibility study), upgrading Issyk-Kul facilities. ### Communications — telecom and postal services - Telecommunication subsector grew rapidly, mainly due to mobile services. - Kyrgyztelecom (KT) is largest national fixed telecom operator; government stake 78 percent. - KT services include basic phone, internet, telegraph; 2008 total installed capacity: 722,000 phone lines. - KT net income in 2008: KGS 266 million. - KT finances capital and operating expenditures from own resources or non-sovereign borrowing; borrowed US$60 million commercial loan from China Development Bank for fiber-optic laying. - Tender in February 2010: consortium won government 78 percent stake in KT with US$40 million offer; interim government cancelled tender results after April 2010 events; State budget not likely affected as no transaction made. - Cancellation expected to decrease KT revenues and postpone planned capital injections. - Postal services provided by state-owned Kyrgyz Post under MOTC, operating 920 postal service points. ### Sector impact of April and June 2010 events - Roads - No direct damage to road infrastructure from April 2010 event; municipal roads in Osh damaged due to defense equipment movement after June 2010 event. - Development partners provided more than US$400 million (~US$30 million per year on average) for road improvement 1995–2009, rehabilitating nearly 1,600 km (40 percent of international roads). - More than 50 percent of international roads remain to be rehabilitated. - 2010 approved state budget committed capital investments through PIP in road subsector amount to US$169.0 million (60 percent of total PIP resources); approved 2010 state budget allocated US$14.5 million of domestically financed capital expenditures in road subsector. - Financing road maintenance at required level remains a challenge. - Railways - No impact on operation/financial positions from April and June events; no damage to company property; all departments operating without interruption. - Kazakhstan border closure April 7–May 20, 2010 did not affect railway activity as railway traffic permitted; Uzbekistan border closure had almost no effect. - Freight and passenger traffic slightly increased in April-May substituting for temporary suspension of road traffic. - No plans to change freight or passenger tariffs in short- and medium term. - Civil Aviation - No infrastructure damages; operations not affected. Some international airlines interrupted flights for a few days. - Introduction of Russian Federation fuel export duty on April 1, 2010 increased fuel prices and led to some decrease in freight and charter passenger traffic. - No plans to change freight or passenger tariffs in short term. - Communications - Telecommunication and postal entities operated without interruption; no major damages to property/facilities. - State enterprise for governmental telecommunication reported KGS 1 million in damage to Governmental House assets in Bishkek and KGS 104,000 monthly revenue loss due to non-operation of building since April 7, 2010. - No tariff changes expected this year. ### Priorities, investment needs, and risks - 2010 PIP allocation for road subsector revised slightly down from US$169.0 million to US$159.8 million due to changes in disbursement projections (not related to April/June events). - Reductions mainly due to disbursement deferral: US$8.6 million from ACG for Bishkek-Naryn-Torugart section; US$7 million from EBRD for Osh-Isfana due to tender delay. - If government cannot reach agreements with all ACG members, additional external financing may be needed; Government already reached agreement with Islamic Development Bank for about US$20 million; agreements with other ACG members expected by end of 2010. - Government could request additional financing of about US$150 million for rehabilitation of non-critical sections of Osh-Isfana road. - Landslides and floods in 2010 resulted in unplanned expenditures from state O&M allocation. - Crisis impact on execution: works impeded or stopped about 3 months; likely only 75 percent of the program will be performed in 2010 (maybe more as events occurred during construction season). - Price shocks: - Bitumen price increase by almost 100 percent (mainly imported from Uzbekistan) largely due to increased demand from Afghanistan (unrelated to April events). - Fuel and lubricants prices increased on average by 30 percent after Russian Federation introduced export duty. - Cement prices increased significantly due to temporary suspension of local cement plant operations. - Estimated budgetary effects and requirements: - Significant price increases could lead to about US$20 million increase over 2010-12 PIP. - Total requirement for road sector including rehabilitation of urban roads: US$30 million over 2010-12. - Table 11: Critical Transport and Communication Investments ($ million) - Regional roads: 2010 - ; 2011 12.00; 2012 8.00; Total 20.00 - Municipal roads: 2010 5.00; 2011 5.00; 2012 0.00; Total 10.00 - Total – Transport and Communication: 2010 5.00; 2011 17.00; 2012 8.00; Total 30.00 ### Operations plan and fiscal sustainability - Road maintenance expenditures from the state budget have been increasing over last 10 years; 2010 state budget allocation for roads not revised downward after April and June events. - Road maintenance expenditures remain below requirements; further increases needed to avoid greater future investment needs due to deferred maintenance. - Railways, civil aviation, and telecommunication subsectors are financially viable and generate sufficient revenues to cover immediate operating and capital expenditures; short- and medium-term financial sustainability of these subsectors expected to be maintained without government or donor support. - However, sub-optimal efficiency in these sectors could adversely affect the overall economy and merits examination. *Source: Ministry of Transport and Communications; Ministry of Finance; JEA estimates.* ### ANNEX VII: LOCAL GOVERNMENT INFRASTRUCTURE ### ANNEX VII: LOCAL GOVERNMENT INFRASTRUCTURE ### Introduction - Assessment covers urban and rural infrastructure; main subsectors include water supply and sanitation, and small town infrastructure (buildings, roads and heating). - Review carried out for: (i) cities including Bishkek and Osh; (ii) 23 small towns; and (iii) rural communities. ### Background - Kyrgyz Republic faces rapid deterioration in public infrastructure since collapse of the former Soviet Union; services such as drinking water, solid waste collection, and waste water treatment are intermittent or absent. - Local governments lack fiscal resources and utilities suffer managerial weaknesses. - There are 25 urban settlements, including Bishkek (1,2 million persons) and Osh (600,000 persons), and 23 small towns (668,000 persons). - Novostroiki (semi-informal settlements) around Bishkek: about fifty settlements with population between 125,000 and 200,000 (estimates) — up to one-fifth of the city’s population. Osh: eight novostroiki with total population possibly in excess of 50,000. - Novostroiki preserved urban fabric but do not provide minimally acceptable living conditions or integration into urban services; inhabitants generally poor and lack basic infrastructure. ### Sector performance, problems and opportunities #### Service Delivery — Water Supply and Sanitation - Urban access and quality: - About 56 percent of urban residents have piped water in their homes. - Another 42.3 percent rely on street water taps. - In 2007, about 11 percent of water tests failed on microbiological parameters. - Supply is intermittent; most infrastructure built in 1960s and now in poor condition. - About 75 percent of the urban population has access to sanitation services. - Population access to sewerage facilities is 21 percent overall; in Bishkek it is 78 percent; in other regions about 10 percent. - Most sewage treatment plants are not operational or barely operational. - Waterborne illnesses (typhoid and parasitic diseases) are a major problem. - Socioeconomic survey findings: - Water supply: about one quarter of households indicated inadequate water supply for household needs. - 82 percent of households reported incidences of waterborne illnesses in the past 5 years. - Sanitation: about 75 percent of households use dry-pit latrines; 24 percent use flush or pour toilets. - About 66 percent of households stated they would be willing to pay for connection to a sewerage system. - Rural access: - In 2008, about 66 percent of the population had access to water supply services and 51 percent had access to sanitation services. - In Jalalabad and Osh oblasts, only about 40 percent of villages have operable water systems. - Rural communities rely on on-site solutions, primarily latrines and drain fields. #### Service Delivery — Solid Waste Management - Data scarce; 1997 statistics indicate only 28.5 percent of the population is served by regular municipal waste collection services. - Out of 155 dumps around the country, only one can be considered a full sanitary landfill. - Cities focus on collection; disposal issues unattended; dumpsites are major contamination risks and environmental hazards. - Socioeconomic survey findings on household practices: - Approximately 84 percent of households stated that a solid waste collection service was unavailable on a daily basis. - Plastic bottle and packaging collection by the tazalyk enterprise from 50 percent of households. - Waste incineration by 36 percent of households. - Waste disposal into the nearest landfill or waste receptacle by 8 percent of households. #### Service Delivery — Urban Roads and Public Transport - Urban roads suffer from lack of regular maintenance; sub-surface water leakages and harsh winter climates accelerate deterioration. - Road maintenance carried out by local/municipal government; lack of funds results in irregular and inadequate maintenance. - Public transport: - Cities served by municipally owned transport companies and privately operated minibuses. - Minibus sector generally un-regulated, lacking transparent tenders and performance guarantees; outskirts tend to lack reliable service. - Sector needs regulatory framework and integrated ticket system for full affordable reliable coverage. - Bishkek specifics (footnote details preserved): - Bishkek Passenger Transport Company operates approximately 260 buses and carried 41 million passengers in 2009. - Bishkek Trolleybus Company operates approximately 80 trolleybuses and carried 19 million passengers in 2009. #### Service Delivery — District Heating - District heating services in Bishkek and Osh provided through a central heating plant (CHP) in the two cities. - KyrgyzZhil Kommun Soyuz Enterprise, a state-owned enterprise, provides district heating services to the remaining 23 urban centers. - Operations peak from November to March; enterprise dependent on pricing of raw materials for winter heat generation. - Lack of capital expansion and rehabilitation investments over the past 20 years resulted in inefficient services. - Sustaining the service is critical during winters. ### Institutional Issues - Oblast administration oversees local self-governments through rayon centers. - Vodokanal enterprises provide water supply and sanitation through contractual arrangements with cities; tazalyk enterprises provide solid waste management through similar contracts. - Government reform initiatives since 2004 included functional decentralization to local governments. - Paucity of capital investment funds, lack of human resources, and poor cost recovery have resulted in inefficient service delivery. ### Sustainable Financing #### Infrastructure Creation and Public Investment Program (PIP) - Local government infrastructure development accounts for 17.4 percent of the donor financed public investment program (Som 63.55 billion). - Donor financed local government infrastructure: Som 11.08 billion; loans account for 49 percent of the portfolio. - Planned donor financed PIP for 2010: Som 12.16 billion with local government infrastructure spending at Som 1.498 billion. - Key donor PIP in urban WSS subsector include: - World Bank financed small towns infrastructure project. - ADB financed Issyk-Kul Sustainable Development Project. - EBRD and Swiss SECO financed Bishkek, Osh and Jalalabad water supply projects. - GOKR financed PIP limited to Bishkek and Osh, addressing housing, water, sanitation and roads in newly developed areas. - No major capital investments in district heating subsector in the 23 urban centers; current maintenance expenditure barely sustains existing infrastructure. - Key donor PIP in rural WSS subsector include: - World Bank and DFID financed rural water supply and sanitation project. - ADB financed Community-based Infrastructure Services Sector Project. #### Table 12 (2010 Public Investment Program, in Som million) — selected entries preserved exactly - I. Urban Infrastructure — Subtotal – Urban: - GOKR Plan (P): 35.56 - GOKR Plan ®: 37.04 - GOKR Variance: (3.52) - Donor 2010 (P): 662.25 - Donor 2010 ®: 701.51 - Donor Variance: 39.26 - II. Rural Infrastructure — Subtotal – Rural: - GOKR Plan (P): 85.52 - GOKR Plan ®: 73.40 - GOKR Variance: (9.12) - Donor 2010 (P): 803.38 - Donor 2010 ®: 797.20 - Donor Variance: (6.17) - Total - Local Govt. Infrastructure: - GOKR Plan (P): 118.67 - GOKR Plan ®: 106.03 - GOKR Variance: (12.64) - Donor 2010 (P): 1,465.63 - Donor 2010 ®: 1,498.71 - Donor Variance: 33.09 - Source: Ministry of Finance, May 2010. #### Sectoral distribution (Figure 1 percentages preserved) - Energy 8.9% - Transport 45.7% - Local Government 17.4% - Security 0.7% - Education 5.3% - Healthcare 3.0% - Agriculture 15.2% - Others 3.8% ### Impact, Needs Assessment and Service Delivery #### Impact of April and June 2010 events - April 2010: no damage on water supply and sanitation infrastructure, roads, electricity and heating infrastructure. Major cities affected included Bishkek, Tokmok, Talas and Naryn. Public transport and buildings affected in Bishkek; other cities witnessed damages to buildings. - June 2010: larger impact on civil structures. Affected areas: - Osh City and Karasuysky District in Osh Oblast. - Jalalabad Town, Bazar-Korgon, Suzaksky, Ala-Bukinsky districts in Jalalabad Oblast. - Osh city roads damaged; public transport buses severely damaged. - Approximately 1,840 residences were burnt. - Damage assessment by Ministry of Emergency and State Registration Services; State Directorate on Reconstruction of Damaged Property responsible for reconstruction and rehabilitation. - Ministry of Finance coordinated information from commissions: President's Office; Ministry of Economic Regulation; Victims Compensation Commission; Bishkek Mayor's Office. #### Needs Assessment — Ongoing Public Investment Programs and Transfers - Urban infrastructure projects will continue till 2014; rural infrastructure projects expected to complete by 2012 (plans in line with approved donor project documents). - During 2007-09, transfers and subsidies accounted for 27 percent of the state current expenditure: - Transfers to local governments accounting for 17 percent. - Transfers to SOEs accounting for 3 percent of total current expenditure. - Except Bishkek, state subsidy transfers account for 20 percent-50 percent of local governments' operating/current income; transfers cover teachers' salary, staff salary and grants for infrastructure improvement and maintenance. - Vodokanal enterprises' cash flow breaks even but service quality is far below required efficiency; large part of water and sanitation infrastructure requires complete replacement. - Kyrgyz Communal Service dependent on state transfers which account for 73 percent of the entity's income (Som 1,361 million for 2009). - Tariff roll back affected planned income; government's exposure on transfer to the Kyrgyz Communal Service is about a Som 1,000 million annually. - Immediate term recommendation: continue state subsidy transfers to subsectors until accurate and complete information is available on: - (i) capital improvement and rehabilitation planning; and - (ii) cash flow, asset and liability information of local governments and SOEs. - Current transfers to local governments and SOEs constitute 17 percent of the Republican budget's current expenditure. - To ensure systems are sustainable until a long-term urban services policy is formulated, performance-based transfers to the subsectors should account for at least 20 percent of the Republican budget's current expenditure plan. #### Sectoral Needs and Damage-related Investment - Urban sector investment needs to ensure basic service delivery to a population of 2 million persons by 2012: estimated investment need Som 83.25 billion (US$1.85 billion) — based on per capita estimates to be confirmed through feasibility and detailed engineering studies. - For joint needs assessment resulting from April and June 2010 events, investments are limited to urban/public transport rolling stock. - Table 17: Critical Local Government Infrastructure Investments ($ million) - Urban transport: 2010 = 5.00; 2011 = 5.00; 2012 = 0.00; Total = 10.00 - Total – Local Government Infrastructure: 2010 = 5.00; 2011 = 5.00; 2012 = 0.00; Total = 10.00 - Source: JEA estimates. ### Long-term Service Delivery Interventions #### Service Sustainability - WSS and district heating sectors lack funds for infrastructure expansion and system rehabilitation or replacement. - Donor PIP contributes less than 25 percent of the requirement in the WSS subsector. - No investment planned for district heating in the 23 urban settlements. - Systems are dilapidated with little staff technical capacity improvement over the past 20 years. - Donor PIPs have focused on collating WSS asset information for a few urban settlements; approach should be scaled-up to more settlements and to the district heating sector. #### Financial Sustainability - Public finance policy on cost recovery of basic urban services is weak. - Tariffs in both subsectors are low and cumulative arrears on revenue are substantially high; quality of service is affected. - Culture of generating revenue surpluses for asset creation or to leverage debt is absent; local governments and SOEs depend on state transfers. - Recommendation: state subsidy transfers to local governments and SOEs should be performance-based and linked to revenue enhancement and expenditure management efforts of beneficiary agencies. - Robust data on assets and liabilities are absent in most local governments. - Donor PIPs introduced support on improving financial management of local governments and vodokanal enterprises (programs on accounting and management information system improvement); these should be scaled up to other urban settlements and the district heating sector. #### Institutional Sustainability - GoKR lacks a policy on WSS and district heating sector development. - Assistance program will develop an urban services policy framework based on thematic areas: - planning, - service delivery, - institutional effectiveness, - financial management, - legislative and regulatory framework. *Source: ANNEX VII: LOCAL GOVERNMENT INFRASTRUCTURE (extracted from the provided IMF content).* ### ANNEX VIII: PUBLIC BUILDINGS AND STRUCTURES ### ANNEX VIII: PUBLIC BUILDINGS AND STRUCTURES ### Introduction - Covers buildings infrastructure assessment including public and private buildings, particularly housing. - Typical construction types: - Older buildings: unreinforced masonry (URM), typically no more than four stories, fired brick; some adobe masonry. - Newer buildings: reinforced concrete (RC) frame with masonry infill (fired brick or concrete block). - Smaller commercial buildings: URM, or RC frame with masonry infill. - Residential: - Lower apartment blocks: URM or RC frame with masonry infill. - Taller apartment blocks: RC frame or shear wall with masonry infill. - Single family dwellings: one or two storey URM, with or without an RC frame. - Note: About 30 apartment blocks in Bishkek (1980s) built using sliding block (base isolation) technology. - Reported: "80 percent of housing in Osh City is earthen (adobe) URM." ### Background - Kyrgyz Republic is highly seismic; engineered construction must be specially designed for earthquake forces. - Design norms typically based on or similar to the Russian code SNIP II-07-81 (1982) Basic Norms and Rules for Civil Engineering Loads and Actions. - Larger engineered buildings built since about 1981 should nominally have adequate seismic design; information on code enforcement and construction quality unavailable for this assessment. - Smaller buildings and single family dwellings often owner-built; at best may have an RC ‘ring beam’ at top of wall. - Most single family dwellings are collapse hazards if subjected to strong shaking (i.e., MSK 8 or greater). ### Sector impact — Damage overview (April and June 2010 Events) - Total reported damage to buildings, all sectors: KGS 6,639. - Distribution of building damage (by sector and counts): - Private Residential: - Total No. Residential Buildings reported damaged: 2,314 bldgs - Subtotal: Private Sector (Residential) KGS 3,316 - Damage to 2,314 residential buildings accounts for about 50 percent of overall building damage of KGS 6.64 billion. - Public Sector: - Subtotal: Public Sector KGS 2,288 - Public buildings account for 34 percent of overall building damage. - Private Commercial: - Subtotal: Private Sector (Commercial) KGS 1,036 - Total No. Commercial Buildings reported damaged: 723 bldgs - Private commercial accounts for 16 percent of overall building damage. - Table 18 selected line items (values in millions KGS, as presented): - Bishkek: Damage to the building of the House of Government and the President's Office 224 - Bishkek: Damage to the General Prosecutor's office 64 - Bishkek: Damage to Ministry of Interior of the Kyrgyz Republic 95 - Bishkek: Damage to the City Hall of Bishkek 24 - Osh City, Osh Oblast: Cultural and social community facilities 850 - Osh City, Osh Oblast: Hamza Secondary School 30 - Osh City, Osh Oblast: State Automobile Inspection building 35 - Jalalabad Town, Jalalabad Oblast: 7 public buildings 268 - Bazar-Korgon District, Jalalabad Oblast: 2 public offices 77 - Ala-Bukinsky District, Jalalabad Oblast: 9 public buildings 345 - Private Commercial examples (KGS): - Osh City, Osh Oblast 171 Commercial properties 245 - Karasuysky District, Osh Oblast 92 Office buildings 132 - Ala-Bukinsky District, Jalalabad Oblast 74 canteens, 43 barns, 41 sheds... 387 - Private Residential examples (counts and KGS): - Osh City, Osh Oblast 656 Residential Buildings 940 - Karasuysky District, Osh Oblast 707 Residential buildings 1,013 - Ala-Bukinsky District, Jalalabad Oblast 478 Residential buildings 685 - Notes associated with Table 18 (verbatim): - 1 based on average loss per building where loss known, excluding House of Govt. and Presid. Office 38.3 = average loss per typical public building - 2 based on Gosstroi unit costs, use value = 1 house 31.43 = 940/656 for Osh City, which agrees well with Gosstroi value for typical dwelling cost in Kyrgyzstan - 4 274 million was reported, but appears unrealistically low, so use value from Note 3 - 5 no breakout available for these districts, so use value from Note 3. ### Building, contents and economic loss summary (Table 19) - Table 19 presented in US$ million (USD calculated at 46 KGS/USD): - Public buildings: - Building 49.73 - Content 37.30 - Economic 3.36 - Total 90.38 - Private buildings – Commercial: - Building 22.52 - Content 15.77 - Economic 1.58 - Total 39.86 - Private buildings – Residential: - Building 72.08 - Content 36.04 - Economic 2.88 - Total 111.01 - Total – Buildings and Structures: - Building 144.33 - Content 89.10 - Economic 7.82 - Total 241.25 - Note (verbatim) on valuation and economic loss assumptions: - "Contents are valued at 50 percent of residential building value, 70 percent of commercial, and 75 percent of public building value. Economic activity were calculated based on commercial rates of return of 20% with restoration of business activities after 6 months, and corresponding public sector equivalent IRR=8% with 12 months disruption and residential equivalent IRR=6% with 18 months disruption. USD was calculated at 46 KGS/USD." ### Priorities for recovery and reconstruction - All three aspects of the Building Sector (Public, Private Commercial and Private Residential) are high priorities. - Private Residential may be the highest priority because: - Winter conditions require transitional shelters to be thermally robust and resistant to wind and snow. - Transitional shelters will require substantial resources; directing resources to permanent dwellings avoids double-building. - Construction season permits outdoor construction until about late November, allowing almost four months for construction if beginning early August. - Four months considered sufficient to construct a permanent ‘core’ house of perhaps 50 or more sq. m to serve households through the winter. - Recommended approach: streamlined building materials provisioned, technically assisted owner-builder program beginning as quickly as possible. - Constraints on such a private-residential program: - Material support: lining up funds, building materials, technical assistance in a timely manner is challenging. - Community support: must secure buy-in by victims first; moving too quickly may feed suspicions. - Equity: reconstruction must be tuned to avoid feeding animosities; build only a core house initially helps mitigate perceived unfair gains. - Design: housing needs differ among ethnic Kyrgyzs and ethnic Uzbeks; reconstruction designs must be flexible. - Seismic: reconstructed buildings should not be collapse-prone; achieving adequate seismic resistance requires some training of owners and builders. - Integrated social program recommendation: - Physical reconstruction must be integrated with programs addressing physical, psychological and social trauma, livelihoods, gender and economic needs. - Development and implementation of an integrated social program should precede and be concurrent with actual construction. - Given socio-economic roots of the April and June events, an integrated social program is more pressing than in a purely natural disaster context. - Relative priorities following Private Residential: - Private Commercial and Public Building reconstruction probably have equal priority; Public Building reconstruction probably less problematic. - Public buildings: relatively few damaged; functions can be temporarily housed in other public or rented space; restoration is vital as symbols of governance. - Private Commercial: sizable task and vital for economic restoration; commerce is flexible and a combination of compensation and selected reconstruction may be most feasible. ### Sectoral business environment and private sector development impacts (excerpt) - Political and social unrest of April 7-9, 2010 followed by ethnic violence in June disrupted public security and business activity; looting and destruction heightened security concerns and disrupted businesses. - Background on reforms and constraints: - Early transition: price, trade, foreign exchange liberalization and small-scale privatization implemented. - Less progress on large-scale privatization, governance and enterprise restructuring, competition policy, banking reform, non-bank financial sector reform, infrastructure reform. - Streamlining reforms included "one-stop-shop" for business registration and streamlined license procedures in construction. - Electricity service problems cited in EBRD/World Bank 2008 BEEPS; medium-term tariff plan (2008-12) announced late 2008, implementation suspended in 2009; new plan adopted November 2009 but tariff increases at beginning of 2010 reversed by the interim government. - May 2010: Toktogul Reservoir reached full capacity, expected to greatly reduce frequency of scheduled brownouts for winter. - Taxation, access to credit and governance issues stifle private sector development; taxes cited as most problematic; access to financing became more costly in 2009 due to tightening of international liquidity in Kazakh bank subsidiaries. - Privatizations of Severelectro and Kyrgyz Telecom occurred through international tenders but fell short of full transparency and privatizations have been reversed. - Key areas for improvement identified by stakeholders: - Strengthen the rule of law and judicial independence and capacity to reduce corruption and perceived credit risk; strengthen enforcement of financial contracts and extrajudicial settlement mechanisms. - Establish independence of the regulator in the financial sector and review the overall regulatory framework; develop a local currency funding base and lending products. - Ensure full transparency in future privatization processes and strengthen market-supporting institutions, including competition policy. - Accelerate infrastructure reforms to attract private sector investment: appropriate tariff methodology with cost-recovery principles, public-private partnership framework for infrastructure financing, concession law clarifying obligations and rights of concessionaires, and an independent regulator. - Tariff increases and metering of utilities are prerequisites for aligning incentives for energy efficiency. ### Sector impact — Tourism, trade, SMEs - Tourism: - Tourism was among the hardest hit sectors. - Tourist reservations are down 80 percent from last year's levels. - Tourism-related economic activity represents close to 5 percent of GDP. - Episodes of instability may continue until October elections, keeping tourists away; July-August is usual peak season. - Trade and SMEs: - Ministry of Emergency Situation reported damaged structures for 248 trade establishments in the south. - World Bank independent enterprise survey (July 2-6, 2010; 250 respondents: 100 in Osh, 100 in Jalal-Abad, 50 in Kara-Suu) found that all SME respondents except two stopped operating due to the June events, mainly attributed to lack of power. - Small enterprises suffered physical damage most; in Osh, 91 percent of respondent SMEs indicated they were unable to resume commercial operations. - Job losses: respondent SMEs in Osh reported average employees dropped from 22 to 2; in Jalal-Abad from 21 to 13, mainly due to dislocation of workers. *Source: ANNEX VIII: PUBLIC BUILDINGS AND STRUCTURES (content unit _072110) from the provided PDF chapter.* ### Box 1 – Damage Cost to Business ### Box 1 – Damage Cost to Business ### Estimating direct damage - Estimating the direct damage to private property from the April and June events is challenging. - For the April events, the interim government, through the Ministry of Economic Regulation (MoER), recorded claims by businesses. - Summary costs of the April events to private business (Unit: Million Som; Source: MoER): - Retail businesses: 657 - Wholesale distribution: 71 - Large Establishments: 372 - Total: 1,100 - Most affected businesses will have financial difficulty undertaking repairs, restocking, and resuming commercial activities. - Access to finance is very limited under normal circumstances. - April damages are concentrated in three urban centers. - Requested assistance from affected businesses cannot easily be met by the interim government in this year's state budget due to severe fiscal constraints. - The provisional government is still consolidating damage estimates incurred by businesses in the south. ### World Bank July 2-6, 2010 survey — indicative southern damage estimates - Osh: - Share reporting damage: buildings 71%, other assets 77%, inventories 71%. - Respondents’ average rehabilitation cost estimates: buildings KGS 202,000; other assets KGS 450,000; inventories KGS 186,000. - Jalal-Abad: - Share reporting damage: buildings 49%, other assets 47%, inventories 54%. - Respondents’ average rehabilitation cost estimates: buildings KGS 831,000; other assets KGS 1,226,000; inventories KGS 210,000. - Kara-Suu: - Share reporting damage: buildings 14% (average cost KGS 119,000); other assets 18% (average cost KGS 171,000); inventories 38% (average cost KGS 34,000). ### Trade, border closures, and short-term trade impacts - Neighboring countries’ decisions to close borders for movement of goods and people significantly impacted formal and informal trade in April and May. - Observable decline in exports of garments, fruits, vegetables, and dairy products expected to be reflected in trade figures once available. - Closure of Kazakh and Uzbek borders hampered re-export activities and made it difficult for bank borrowers in trading sector to unload imported stocks and repay working-capital loans. - Trading activities represented around 16 percent of GDP in 2009. - Border passages largely open from end-May, but backlog of merchandise awaiting clearance will take time to process. - A large part of re-export trading activity lost during six to eight weeks of border closure cannot be totally forgone; recovery depends on whether buyers found alternative suppliers or borders remained open in June. - Some input prices impacted by supply shortages; more clarity when price data become available. - Priority has been given to medicine, fuel and food items. ### Impact on banking and risks to investor confidence - April political leadership change accompanied by rumors of capital flight from specific financial institutions and a short-lived episode of no confidence in some banks. - Downward pressure on KGS value, especially in second and third weeks of April; deposit base in banking system temporarily affected. - National Bank of the Kyrgyz Republic (NBKR) intervened to sustain KGS against the dollar, at the cost of by US$64.4 million in official foreign exchange reserves between April 7 and May 25. - NBKR appointed temporary administrators to a number of banks and initiated thorough audits in banks of systemic nature. - Interim government nationalized Asia Universal Bank (AUB) in June 2010. - Efforts to reverse privatization agreements and review ownership of physical and immovable assets interpreted as steps toward good governance, but interagency coordination difficulties and complexity added uncertainty for business. - General Prosecutor's Office (GPO) efforts to take control of properties associated with previous political figures may impair banks' security interests where properties were pledged as collateral; threat of expropriation may inhibit borrowers' willingness to repay loans and slightly impact bank asset quality. - Unless property-related issues are resolved swiftly and transparently, credibility of political transition can be affected. ### Impact on investments - Some banks saw deposit base rebound after initial withdrawals without raising deposit rates; interpreted as flight-to-safety and sign of confidence in overall soundness of banking system. - Liquidity difficulties remain in some banks; others showed lending resilience and continued to welcome loan applications. - Reported feedback: many investment projects initiated before April events expected to continue; other managers reported drop in demand for new loans due to fear of further instability. - Kumtor confirmed it will continue its large-scale investment project in mining, generating some confidence in private sector investment resilience. - Recent estimates project aggregate private investment decline from 18 percent of GDP in 2009 to 15 percent in 2010 reflecting significant impact of the June crisis on private sector confidence. - June events in the south likely expand number of cancelled investments; April looting led to cancellation of a number of Chinese and Turkish investments. - Several medium-sized investments seeking IFI direct lending had already put plans on hold in May. - Indications that June events further deter potential new foreign direct investments. ### Short-term stabilizing factors - Tariffs on electricity and heat energy for businesses and population restored to 2009 levels; 2010 compensation measures remain in place. - Larger-than-expected gold extraction activity in the Kumtor mine helped support balance of payments, public expenditure, and avoid worse macroeconomic shocks to business. - Remittances are up from last year's level as economies where many Kyrgyz nationals work recover from 2009 slump; expected to support domestic consumption. - Investments in retail services expected to benefit from ongoing recovery in remittances; remittances expected to increase 30% against 2009 (noted as expectation in text). - Banks fund only between 3-6 % of fixed capital formation in the Kyrgyz economy; retained earnings fund 20-23% and individual savings fund 27-30% of investments. ### Priorities, reform focus, and enforcement problems - Kyrgyz Republic was considered one of the top 10 reformers in the 2010 World Bank “Doing Business Report,” improving to position 41 out of 183 countries. - In the World Economic Forum's Global Competitiveness Report, the country ranks 122 out of 134 countries. - Need for growth diagnostics approach to identify binding constraints on private sector expansion rather than extending long lists of problems. - Risk of permanent loss of credibility in business climate reforms if legislative changes are not implemented on the ground. Box 2 — specific legislative and enforcement observations: - Since 2007 the Government adopted: Inspections Law (2007), Tax Code (2008), Law on Registration of Legal Entities (2009). - Business Registration: - 2009 Law introduced one-stop-shop, reduced time to three days; in practice registration takes over 30 days. - Licenses and Permits: - Despite reforms, about 25 percent of SMEs are required to have permits; average number of permits per business ranges from 1.5 to 3. - Licenses held by more than half of businesses in the SME sector. - One-stop-shop and “silent is consent” introduced for permits in construction sector in May 2008 only. - Tax Administration: - New Tax Code effective January 1, 2009 reduced number of taxes under general tax regime from 15 to 8. - Compliance burden remains high due to complicated tax reporting, excessive tax audits, and other issues. - Risk-based audit provided by the Tax Code has not been implemented in practice; selection for audit often based on subjective judgments. - Inspections: - 2007 Inspections Law introduced procedural guarantees but does not support risk-based inspections; businesses remain exposed to excessive inspections. - IFC Investment Climate Survey suggests procedural violations are common during inspections; many inspections conducted illegally without proper authorization. - Over 75 small and medium-size companies and individual entrepreneurs are inspected in the Kyrgyz Republic (text phrasing preserved). - Share of inspected business and average number of inspections per year is higher than in many regional countries. - Unofficial practices (bribery) common: about one-third of SMEs indicated involvement in unofficial practices to facilitate compliance with administrative procedures. Direct impact on ongoing reforms and immediate actions: - Political transition likely to put some reform processes on hold, risking loss of momentum. - After April events, business community and Investment Council proposed a time-bound road-map of objectives; approval by interim government at advanced stages. - Risk of crowding-out between competing reform requests; coordination crucial. - Reported increase in perceptions of corruption and expropriation risks compounded by increased uncertainty from political processes. - Urgent investor priorities include stabilizing the economic situation, resolving property-related cases initiated by GPO, and wrapping up risk-mitigating measures in banking system. ### Development partner support and sector impacts - Damage to commercial establishments, business disruptions, and border closures resulted in private sector losses, particularly in tourism and retail trade. - Displacement, lack of security, and movement restrictions in the south reduced consumer demand for goods and services. - Government estimates that, taking into account the April events, retail trade will contract by 7.9 percent and hotel and restaurant sectors will contract by 4.5 pecent. - Tourism: - Tourism export receipts in 2009 were about $445 million; 20 pecent of which would be tourism-related retail sales. - With significant cancellations in tourist bookings, tourism export receipts for 2010 may fall as much as 60 percent. - Foregone profits that would have been used for reinvestment estimated around $20 million. - Development partners can provide project financing and bridging facility amounting to around $20 million to allow tourism and related retail establishments to maintain and rehabilitate establishments and recoup foregone revenue in 2011 when more economic stability is achieved. - Note: economic losses to the tourism sector (foregone wages, foregone supplier revenue, servicing existing financial liabilities) likely significantly higher than estimated development partner financing support; additional support can be requested in the future. *Source: Box 1 – Damage Cost to Business (excerpts provided).* ### ANNEX X: TAX AND CUSTOMS ADMINISTRATION ### ANNEX X: TAX AND CUSTOMS ADMINISTRATION ### Introduction - Assessment focus: impact of the April 2010 events and the ethnic violence of June 2010 on the institutional capacities of the State Tax Service (STS) and the State Customs Service (SCS). - Key findings: - "The April and June 2010 events have had no significant impact on tax and customs administration." - Weaknesses identified by the 2009 PEFA Assessment remain. - Two identified direct impacts on tax administration: - Complete destruction by fire of the Pervomay (Pervomaiskyi) Tax Office. - Closure of the STS “special means” funds, which are being used for the roll-out of one-stop shops in tax offices. ### Background - STS staffing and structure: - Total STS personnel: 2,228. - Central office staff: 169. - STS has 62 tax offices with total staff at 2,059. - Largest tax offices by personnel: Sverdlosky (132), Pervomaiskyi (126), Oktiabrsky (121), Leninsky (119), and Bishkek unit (63). - Departments include: taxpayers service, local tax methodology, taxpayer appeals, internal audit, organizational work and supervision, revenues, tax collection control and taxpayer registration and investigation, tax off-set and refund control, taxpayer audit, legal support, IT, personnel, administration, press service, and international cooperation. - Ongoing tax administration and modernization programs in STS. - SCS staffing and structure: - Total SCS personnel: 1,275. - Central office staff: 158. - SCS consists of central office and 40 customs posts. - Departments include: customs regulation, legal, financial, payments, IT, statistics, customs security, post-customs control, anti-smuggling and drug trafficking, investigation, personnel, administration, audit, inspection and monitoring, international cooperation, press service, and training center. - Customs modernization program ongoing since 2002. - 2009 PEFA Assessment summary of tax administration weaknesses: - Overall tax administration is weak; most PEFA indicators either remained the same or deteriorated in 2009 compared to 2005. - Transparency in taxpayer obligations and liabilities remains weak. - Administration of some taxes (e.g., the new sales tax and non-standard exemptions on VAT) appears problematic. - Tax appeals mechanism is cumbersome and time-consuming. - Existing tax administration IT system is fragmented and lacks integration with other systems (e.g., business registration and the Social Fund). - No risk-based approach to audits adopted. - STS commitment to collect tax arrears has been ineffective; collection rate for tax arrears was rated lower in the 2009 PEFA Assessment than in 2005. ### Sector Impact - Tax Administration: - Minimal impact on STS institutional capacity; staff complement generally intact. - One STS deputy chairman designated Acting Chairman, preserving institutional memory. - Senior management unchanged except for a deputy chairman and four heads of tax offices (specifically: Bishkek, Osh, Leninskii, and Southern Inter-regional Office). - No changes in the Large Taxpayers Unit (LTU) which collects around 40 percent of tax revenue. - Operations largely undisrupted except for one rayon tax office affected by April disturbance: - Pervomaiskyi Tax Office: - Looted and completely burned down on 7 April. - Employed more than 120 staff who collect in excess of KGS 200 million each month. - MER estimates damage on office equipment (excluding the building) is around $124.7 thousand (KGS5.613 million). - All tax files destroyed, but taxpayer data recovered from the office server’s hard drive. - Relocated to a nearby building; limited resources redirected from headquarters and other tax offices. - Collected KGS 150,000 for April, "which was not significantly lower that the monthly average." - Office remains far from adequately equipped. - STS continues mandated tasks except routine audits, which are on hold pending introduction of risk-based audit selection procedures; audits relating to tax evasion will continue. - April 2010 caused IT problems in banks for processing tax payments; resolved by May. - Donor-supported reform programs have not been reversed; new STS management reaffirmed commitment to pursue reforms. - Customs Administration: - All customs posts remain operational; no physical damage reported during April and June 2010 events. - No major changes in SCS staff; only two heads of border posts (out of 40) changed since April 2010, not related to events. - Operating procedures, systems, and organizational structure remained the same. - Acting Chairman was formerly a deputy chairman, retaining institutional knowledge. - Modernization program started in 2002 will continue. - Special means fund generated from customs receipts to support customs operations remains operational. - External risk: - In 2010, the Russia-Kazakhstan-Belarus customs union is not likely to pose a significant risk as existing procedures and tariffs are maintained. - As the customs union harmonizes procedures and tariffs, it will pose risk to Kyrgyz international trade in 2011 and subsequently have implications on customs receipts and operations. ### Priorities - STS priorities: - Continue tax administration modernization reforms to improve efficiency and effectiveness. - Continue roll-out of one-stop shops in tax offices. - Complement one-stop shops with improvements of IT systems used for tax administration. - Continue efforts to lessen contact between tax officials and taxpayers to remove discretion among tax officials. - Customs/Trade priority: - Monitor and prepare for potential risks to international trade, customs receipts, and operations as the Russia-Kazakhstan-Belarus customs union harmonizes procedures and tariffs in 2011. *Source: ANNEX X: TAX AND CUSTOMS ADMINISTRATION (content unit _072110 - ANNEX X: TAX AND CUSTOMS ADMINISTRATION)* ### Introduction ### _072110 - Introduction ### Overview - Microfinance organizations (MFOs) have grown in number and expanded operations in the Kyrgyz Republic. - By the end of 2009 there were 360 MFOs (including 4 microfinance companies, 237 microcredit companies, and 128 microfinance agencies). - As of May 2010, there were 369 MFOs. ### MFO sector size, composition, and performance - Number of MFOs, end of year: - 2004: 75 - 2005: 106 - 2006: 147 - 2007: 232 - 2008: 291 - 2009*: 360 - Of which microcredit companies: - 2004: 21 - 2005: 35 - 2006: 57 - 2007: 103 - 2008: 170 - 2009*: 237 - Of which microcredit agencies: - 2004: 54 - 2005: 71 - 2006: 89 - 2007: 127 - 2008: 119 - 2009*: 128 - Of which micro-finance companies: - 2004: - - 2005: - - 2006: 1 - 2007: 2 - 2008: 2 - 2009*: 4 - MFOs’ combined loan portfolio: KGS 7.9 billion at the end of 2009. - MFOs account for 23 percent of all credit provided by the financial system. - MFO lending as percent of GDP: - 2005: 1.5 percent of GDP - 2009: 4 percent of GDP - Number of MFO borrowers: - 2004: 42,000 - end-2009: 306,391 - Average MFO loan in 2009: KGS 26,070. - Average lending interest rates (MFOs): 34.5 percent. - Classified loans (MFOs): - 2006: 3.7 percent of the credit portfolio - 2009: 2.9 percent of the credit portfolio - Sector concentration: - FINCA, Bai Tushum, and Kompanion accounted for 75 percent of the loan portfolio of MFOs at end 2009. - These three aimed to obtain deposit-taking MFO licenses, or bank licenses, in 2011. - MFO sector focus by activity: agriculture 41 percent; trade 35 percent. - Credit unions: - Number as of April 2010: 231 - Total lending at end-2009: KGS 959 million - Share of total financial sector credit: 2.8 percent - Average loan size: KGS 52,469 - Interest rate (credit unions): 29.6 percent - Borrowers: - 2004: 22,000 - end-2009: 18,274 - Loan allocation at end-2009: agriculture 50 percent; trade and commerce 33 percent - Classified loans (credit unions) at end-2009: 2.7 percent - FCSDCU ownership and transfer: decision taken in late 2009 to transfer FCSDCU (owned by NBKR) to the Development Fund; transfer did not take place before the events of April 2010. ### Impact of April–May 2010 events - Operational access disruptions: - Some MFOs and credit unions lacked access to bank accounts placed under temporary administration for 7 to 10 days in April. - Collateral registries were not operating for about three weeks in April. - Reported operational losses and damage: - One MFO was the victim of an apparent arson attack on May 5. - Some branch offices suffered minor damage. - Some smaller MFOs operating in southern regions faced greater operational security risks. - Lending effects: - Some MFOs reduced lending by as much as 30% compared to their targets for April and May. - Total disbursements by four large MFOs increased in April 2010 by 24 percent over the previous year. - Outstanding loan volumes at the end of April 2010 were 20 percent higher than end April 2009 (for the four large MFOs with data). - Consolidated disbursements by these MFOs increased in April and then fell in May by 7.6 percent. - For four of five large MFOs, disbursements in April 2010 increased compared to April 2009; one MFO’s disbursements decreased by 10 percent. - Portfolio-at-risk (PAR) and classified loans: - For four large MFOs, classified loans increased to 1.66 percent of the loan portfolio at end-April 2010, compared to 1.44 percent at end-April 2009 and 1.62 percent at end-March 2010. - Some smaller MFOs’ PAR increased by as much as 10 percent in mid-April; they largely recovered and PAR fell below 5 percent. - Provisioning: - Provisioning levels did not increase substantially in April–May because MFOs already had adequate provisions per NBKR regulations. - Funding: - MFOs reported funding sources remained solid and reliable in April–May. - One MFO reported international creditors increased interest rates by just over 1 percent because of higher perceived risks. - One MFO’s main shareholder delayed disbursement in April. - Liquidity mechanics and concentration: - MFOs are allowed to lend only in KGS, but most funding comes in USD. - MFOs had foreign-denominated borrowings of US$134.8 million as of May 1, of which US$104 million was used for swaps or back-to-back loans. - AUB had accounted for about 80 percent of the market for swaps/back-to-back operations and charged a spread of 4.5 percent. - With AUB’s operations suspended, swaps and back-to-back loans from other banks had spreads of 7 to 9 percent and shorter tenors. - AUB agreed to roll over current swap and back-to-back loan arrangements but was not conducting new swaps or back-to-back loans. ### NBKR liquidity options and proposed terms - Option 1: NBKR do swaps directly with MFOs. - MFOs proposed a spread of 4.5 percent (the same as AUB). - NBKR suggested providing KGS funding to MFOs at 7 percent, with the restriction that MFOs onlend at no more than 17 percent. - Option 2: NBKR do swaps with banks, which in turn would do swaps with MFOs, with an additional mark-up. ### Impact of June 2010 events (southern regions) - Lending suspension and delinquencies: - Virtually all lending suspended in affected regions (Osh and Jalalabad). - Overall disbursements in June contracted by close to 24 percent from the previous month. - MFO borrower impact categories (as used by MFO assessments): - Borrower and/or member of household killed or seriously injured - Homes and/or businesses burnt/destroyed - Homes and/or businesses robbed - Borrowers on which no data is available (borrower is missing) - Businesses exist, but no turnover or temporary close downs (due to security situation) - Unaffected borrowers - Preliminary impact statistics for southern borrowers: - 12-15 percent of borrowers seriously affected with homes or businesses robbed or destroyed - 15 percent of borrowers reported temporary suspension of business due to security situation and trade disruptions - Information on around 20-50 percent of borrowers not available due to missing borrower - 20-25 percent of borrowers in the south reported not to be affected - Regional spillovers: - Some branches in the North (e.g., Issyk-Kul) reported decreased disbursements and increased delinquencies due to a hit tourist season. - Portfolio concentration and deterioration (four largest MFOs): - Close to 37 percent of total portfolios of the four largest MFOs was allocated in the affected southern regions. - Consolidated classified loans in the affected regions reached 15.2 percent. - Consolidated classified loans throughout the country rose in June by over USD 6.1 million, reaching 5.9 percent of the consolidated gross loan portfolio compared to 1.6 percent as of end-May. - Restructuring and provisioning: - MFOs prepared restructuring plans; most allowed seriously affected borrowers to postpone repayments for two-three months. - One MFO required monthly payments but decreased the interest rate significantly to maintain contact. - Direct losses from borrower deaths did not exceed ten cases; outstanding balances from such cases comprise less than 0.1 percent of the consolidated total portfolio of the largest four MFOs. - The four largest MFOs estimate losses from the June events to reach approximately USD 3 million under a worst case scenario, which accounts for about 7 percent of the consolidated capital of these MFOs as of end-March 2010. - Combined loan loss reserves amounted to 3.4 percent of the consolidated portfolio of the four largest MFOs at end-June. - Further increases in provisioning are expected in the following two-three months. - Only one of the four MFOs reported the possible need for additional capitalization under the worst case scenario in stress testing. - Funding risk: - Many international microfinance funds downgraded country ratings for Kyrgyzstan and decided to postpone planned loans to MFOs until at least November (after planned parliament elections in October). - Some MFOs have significant scheduled repayments in the next two-three months and may restrict loan growth and use customer repayments to make payments. - MFOs had not yet applied for restructuring of their debts; management of the major four MFOs did not expect the need for such restructuring at the moment. ### FX hedging, AUB exposure, and capital risk - AUB exposure and swaps/back-to-back: - Major MFOs reported a total of USD 60 million in swaps and back-to-backs with AUB. - MFOs are no longer allowed to withdraw funds from AUB since conservation of the bank was introduced in June. - MFOs’ swaps and back-to-backs with AUB are rolled over with the same terms and exchange rates fixed as of original transaction dates before the April events. - An increasing uncovered gap between soms MFOs are holding and equivalent FX at AUB is estimated currently at USD 5-6 million (currently not provisioned by MFOs). - In case of AUB bankruptcy this gap may wipe another 13-14% off of the MFOs’ capital, which combined with expected losses from southern branches may have a much more material negative impact on MFO sustainability. ### Regulatory and legal changes - Microfinance Law amendments (March 2010, not signed before April 7): - If signed, would authorize the four microfinance companies, but not other MFOs, to lend in foreign currency. - Parliament debated interest rate ceilings; amendment passed authorizing NBKR to impose interest rate ceilings in the case of monopolistic behavior by MFOs. - NBKR microfinance regulations issued (not effective until registered at the Ministry of Justice): - Regulation changing capital adequacy ratio (CAR) calculation for deposit-taking MFCs: - Minimum CAR reduced from 18 percent to 8 percent. - MFCs may subtract deposits used for hedging in banks from the asset base. - Assets in this calculation remain gross (i.e., do not carry risk weights). - Since there are currently no deposit-taking MFCs, this regulation has no direct impact for now. - Regulation reducing provisioning requirements for MFO loans secured with a group guarantee, recognizing such guarantees as similar to physical collateral. - After the June 27 referendum it is expected the president will sign the new Microfinance Law into effect. - Investigations: - Some MFOs received visits from investigative bodies, requiring management and staff time; some MFOs were closed for short periods during investigations. ### Priorities and policy recommendations - Restore and maintain stability and security: - Stability and security are critical pre-requisites for a healthy microfinance sector and economy. - Re-establishing open borders is essential for traders, who represent more than 30 percent of microfinance clients. - Monitor and manage portfolio quality: - Expect delinquency and provisioning levels to rise in the next few months; MFOs and credit unions should remain vigilant in monitoring performance and prudently perform restructurings to ensure minimal defaults. - Address KGS liquidity and currency risk: - KGS liquidity likely to remain tight, limiting MFO operations and increasing costs. - Authorities may need to provide a temporary facility to ensure access to KGS at market interest rates while promoting resumption of swaps from commercial banks. - Long-term solutions: local currency liquidity facilities and/or derivatives markets (including swaps), as well as deposit taking by qualified MFOs (including transformation into banks for some). - Preserve market-based operations and interest rates: - Reaffirm the principle of market-based operations and interest rates in microfinance to maintain sustainability and continued access to foreign credit lines. - Consider strengthening the consumer protection regime and fit-and-proper tests for MFO owners and managers to address concerns about unscrupulous lenders. - Strengthen governance in credit unions and FCSDCU: - A strategy to strengthen governance, including privatization of FCSDCU, is needed to realize potential of credit unions and ensure safe, sound growth in rural areas. - Monitor subsidy channels (Aiyl Bank): - Ensure subsidies channeled through Aiyl Bank do not distort interest rate policy of Aiyl Bank or the wider financial sector. - Monitor effect of Aiyl Bank’s loans at planned 12 percent interest rates and ensure Aiyl Bank remains independent in setting interest rates. - A reaffirmation of the government’s commitment to privatize Aiyl Bank through a strategic investor may reassure the market. *Source: _072110 - Introduction* ### ANNEX XII: AGRICULTURE ### ANNEX XII: AGRICULTURE ### Scope and purpose - Assessment of the impact of the early political crisis following the events of April 6th 2010, and the ethnic violence in Southern Kyrgyzstan from after June 10th, on agricultural sector output. - Suggests short term (to December 31st 2010), medium term (to June 30th 2012) and long term measures (to June 30th 2014) to address the immediate shock to farm incomes and regenerate the rural economy. - Considers costs of damage from mudslides in Southern Kyrgyzstan in June. - Based on discussions with: the Ministry of Agriculture (MOA), the UN Food and Agriculture Cluster members (including FAO, WFP and ACTED), rural advisory services located in each of the oblasts, the Association of Agribusinessmen in Kyrgyzstan (AAK), the Kyrgyz Agricultural Market Information Service (KAMIS), major fertilizer importers, and the Agribusiness and Marketing Project. Mission also conducted joint field visits with German Agroaction and ACTED in Osh oblast. ### Importance of agriculture in the rural economy - The agricultural sector is the backbone of the rural economy and central to the food security and livelihoods of both Uzbek and Kyrgyz communities. - Agriculture in southern Kyrgyzstan is highly dependent on trade with the North. - Key statistics: - Sector contribution to GDP: 25 percent in 2008. - Employment: about one-third of the workforce. - Farm structure: Forty-one percent of cultivated land is farmed by farms of between 0.2 ha and 10 ha. - Output concentration: Small farms, along with household plots, generate 98 percent of gross agricultural output. - Irrigated land: About 1.0 million of the 1.3 million hectares of arable land are irrigated. - Mountainous pastures: 9 million hectares support the livestock sector. - Regional trade routes and dependencies: - Kazakh border: major route for livestock, dairy, fruit and vegetable exports to Kazakhstan and Russia; route for wheat, flour, oil and sugar, fuel and spare-part imports to Kyrgyzstan. - Uzbek border: major route for seasonal import and export in vegetables and import of nitrogen fertilizer to Kyrgyzstan, as well as for livestock exports. - Tajikistan border: mainly a route for livestock trade. - China border: a major route for a diverse range of imports and exports. ### Competition for natural resources in Southern Kyrgyzstan - Long-term contributory factors to ethnic tensions include competition over access to land, irrigation, pastures and markets. - Agricultural land pressure: - Availability of agricultural land per capita of rural population is lower in the three Southern oblasts than nationally by 36 to 40 percent. - Land Reallocation Fund (LRF) availability: - Nationally: 0.11ha per capita of rural population available. - In the south (all 3 oblasts): 0.07 ha per capita of rural population available — about 36 percent less than the national average. - Local example: In Kadamjay Rayon in Batken Oblast, officially there are 8,941 ha of rainfed arable land, but in practice about 75 percent of this is not suitable for cropping. - Other tension drivers: - Allocation of land and pasture leases by local government resulting in grievances about inequitable access to natural resources. - Irrigation water flows across ethnic and national boundaries, allowing one group to restrict the access of another. - Market access disruptions from restricted access across Uzbek enclaves and poor alternative domestic routes. - Poor farm-to-market roads and weak storage infrastructure limit Kyrgyz farmers' flexibility in marketing produce to Uzbek traders. - Policy implication drawn in the source: - While the short-term shock to farm incomes and food security resulting from the crisis may be addressed through cash transfers, the longer-term response should be a renewed program of investment in rural communities to improve equitable access to natural resources for both communities, increase agricultural productivity, stimulate trade between the two communities and re-establish their economic inter-dependence as a basis for peace. ### Past approach to addressing food insecurity - The former government’s involvement in private sector business and markets contributed to mistrust of the government. - In formulating long term response and food security policies, the new government should be cognizant of strengths and weaknesses of the former government’s approach. - Context and indicators: - The crisis occurred amid increasing government concern over food insecurity. - World Food Program estimate: 35 percent of households were food insecure in 2008. - Kyrgyzstan has been considered one of the most advanced countries in Central Asia in terms of agricultural reform, but recent food security concerns led to an apparent shift in policy towards more government intervention in markets. - Sector performance note (text ends in source): "Real growth in the agricultural sector in 2005, 2006, 2007, 2008, and 2009 was -" *Source: ANNEX XII: AGRICULTURE (excerpt).* ### 4.2 percent, 1.7 percent, 1.5 percent, 0.7 percent, and 7.4 percent, compared to -0.2 percent, 3.1 ### _072110 - 4.2 percent, 1.7 percent, 1.5 percent, 0.7 percent, and 7.4 percent, compared to -0.2 percent, 3.1 ### Overview and context - Analysis examines impacts of a series of crises on the agricultural sector: - the political crisis of April 2010; - subsequent ethnic violence in Southern Kyrgyzstan in June 2010; - mudslides in isolated parts of Southern Kyrgyzstan in June 2010. - Wet spring and early summer effects are included in the quantitative assessment and are strongly inter-related with the crises. ### Framework for analysis - Effects on agricultural output categorized as impacts on: - crop area and yield due to late spring planting; - crop yield due to lower fertilizer availability; - crop field operations due to insecurity; - crop marketing and output price due to insecurity; - crop input prices due to insecurity and border closure. - Additional discussed but not quantified effects: crop destruction due to mudslides; poorer livestock nutrition due to disruption to grazing and fodder production; reduced livestock output due to theft; reduced agro-processing output due to reduced availability of raw material and insecurity. - Geographical areas considered: - Area A: Areas farmed by severely insecure ethnic minorities in the South. - Area B: The remaining areas of Osh, Jalalabad and Batken oblast. - Area C: Northern Kyrgyzstan, including Chui, Talas, Issyk-Kul and Naryn Oblast. ### Impact on output — headline quantitative results - Agricultural GDP is expected to decline by approximately 19 percent in 2010. - Crop production (GDP from crop production) is estimated to decline by about 32 percent in 2010. - Assumption: crop production contributes about 59 percent to agricultural output in 2008; a 32 percent decline in crop production translates into a -19 percent change in agricultural GDP for the sector as a whole. ### Crop area and planting impacts - Late planting led to a 2% reduction in total planted area and will reduce yields. - Delay in planting: between 5 and 10 days due to the April crisis; additional around 10 days due to a wet spring. - Delayed planting in 2010 resulted in a decline in the spring planting area of 6% compared to 2009. - Spring wheat area declined by 15%. - Overall planted area of winter and spring crops declined by 2% in 2010 compared to 2009. - Mission estimates yields of spring crops planted late will be reduced by between 1% and 10% depending on crop and location. - Table 1 Planting Areas 2009 and 2010 (selected rows preserved exactly): - Grain crops: 2009 654.5 '000 ha; 2010 626.4 '000 ha; Change -28.1; Change -4% - wheat: 2009 402.6; 2010 376.8; Change -25.8; Change -6% - barley: 2009 124.2; 2010 125.9; Change 1.7; Change 1% - food maize: 2009 78.9; 2010 73.4; Change -5.5; Change -7% - rice: 2009 6.3; 2010 6.6; Change 0.3; Change 5% - legumes: 2009 41.0; 2010 42.1; Change 1.1; Change 3% - Technical crops: 2009 93; 2010 94.8; Change 1.8; Change 2% - cotton: 2009 16.9; 2010 26.7; Change 9.8; Change 58% - sugar beets: 2009 4.9; 2010 8.4; Change 3.5; Change 71% - tobacco: 2009 4.9; 2010 4.1; Change -0.8; Change -16% - oil crops: 2009 66.2; 2010 55.3; Change -10.9; Change -16% - Potato & melons: 2009 137.2; 2010 133.6; Change -3.6; Change -3% - potatoes: 2009 87.2; 2010 84.3; Change -2.9; Change -3% - vegetables: 2009 43.4; 2010 41.9; Change -1.5; Change -3% - Fodder crops: 2009 284.9; 2010 290.9; Change 6.0; Change 2% - Total: 2009 1,169.6; 2010 1,145.7; Change -23.9; Change -2% - Source: Ministry of Agriculture ### Fertilizer availability and yield impacts - MOA data: fertilizer imports as of April 2010 were approximately 105 percent of those at the same time in 2009. - June events: suspension of fertilizer imports from Uzbekistan; OshKrastek ceased operations in June. - Analysis assumes a decline in yield of up to 5 percent for different crops as a result of reduced fertilizer application. - Wholesale price of ammonium nitrate fertilizer: increased slightly by 6 percent after April events; on average wholesale price of nitrogen fertilizer increased by 16% during the crisis. - Farm gate prices reported rising from 12 KGS/ Kg to 18 KGS/ Kg in some areas. ### Crop field operations impact due to insecurity - Assumes 15% of arable land in the South is affected by security-related suspension of field work. - On affected farms, crops will decline by 20-30% as a result of inadequate husbandry. - Assumed Crop Husbandry Impact (from Table 2): All wheat/oilcrops/pulses -20.00% in Area A; Other crops -30.00% in Area A; 0.00% in Areas B and C. ### Crop marketing and output price impacts - Insecurity severely undermining trading activity, particularly between Southern Kyrgyzstan, Bishkek and Kazakhstan. - Analysis assumes: - between 10% and 30% of produce in affected farms will not be sold or consumed as a result of reduced trading activity; - a sustained decline in output prices of between 10% and 30%. - Example: a 50% decline in potato prices in the South noted, but historical seasonality shows potato prices in the South fall by 15-25% between May and June on average. - Traders demand higher margins to cover increased cost of risk. ### Crop input and machinery price impacts - Nitrogen fertilizer wholesale price increased by 16% on average during the crisis. - Diesel fuel: increased approximately 30 percent (from 24 KGS/litre in March to 32 KGS/litre by mid May) and again to 34 KGS by the end of June. - Fuel voucher provision in April allowed farmers to purchase a total of 3500 MT of fuel at a subsidized price of 24 KGS/litre. - Russian offer: 20,000 MT of diesel for the agricultural sector to be sold at a subsidized price of 31 KGS/ litre. - Machinery services increased by between 50 percent and 100 percent following the April events. - Funding a 3 KGS per liter subsidy for the remaining 26,800 MT of diesel would require a budget allocation of US$1.8 million. ### Overall quantitative impact on crop GDP and agricultural GDP - Table 3 Summary of Estimated Impact of the Crisis on Agricultural GDP (preserved values): - AREA A: Area (ha) 53,195; GDP from Crop Production Without Crisis (KGS) 2,256,671; Incremental GDP from Crop Production With Crises (KGS) -1,898,460; Percentage Change -84% - AREA B: Area (ha) 355,410; GDP from Crop Production Without Crisis (KGS) 15,077,312; Incremental GDP from Crop Production With Crises (KGS) -5,190,584; Percentage Change -34% - AREA C: Area (ha) 792,224; GDP from Crop Production Without Crisis (KGS) 22,109,839; Incremental GDP from Crop Production With Crises (KGS) -5,690,949; Percentage Change -26% - Total: Area 1,200,829; GDP from Crop Production Without Crisis (KGS) 39,443,822; Incremental GDP from Crop Production With Crises (KGS) -12,779,993; Percentage Change -32% - Incremental GDP from Crop Production With Crises (KGS) -12,779,993 - Percentage Change in GDP from Crop Production With Crisis -32% - Contribution of Crop Production to Agricultural Output 59% - Percentage Change in Agricultural GDP -19% - Source: JEA Estimates ### Other impacts (qualitative and limited quantitative) - Mudslides: nine villages affected; examples: Nookat raion, Kyrgyz Ata AO 20 ha destroyed, irrigation structures serving 85 ha damaged. Overall impact on national agricultural output assumed very small but severe locally. - Irrigation and drainage infrastructure: no major direct damage reported from violence, but neglect and siltation; some gates and structures damaged; State Committee for Water Resources estimates 63 Water User Associations serving 78,000 ha require rehabilitation at estimated cost US$17 million. - Livestock sector: less affected than crop production; fodder (lucerne and maize) output will decline; some reluctance to graze on spring and summer pastures; livestock theft widespread in affected AO but assumed to have small aggregate effect on national livestock output. - Agro-processing: several processors of vegetable products indicated they will not operate this year because of sourcing and marketing concerns; no reports of significant physical damage to processing businesses. - Trade: April closure of Kazakh border affected livestock, dairy, vegetable exports to Kazakhstan and imports of fuel, spare parts, wheat, flour, cooking oil and sugar; June violence may reduce trader confidence longer term (reduced trade credit, reluctance to build stocks, suspension of contracts). - Agricultural finance and investment: potential decline in investment; lenders likely to face higher delinquency rates; reported decline in land rental prices by around 50% in some cases following April events; RosselhozBank agreed to provide a $30 million credit line to two Kyrgyz banks (RSK bank and Aiyl Bank, each $15 million) as emergency assistance following April events — loan 5 year maturity, one year grace period, one percent interest rate; on-lending terms: Aiyl Bank to onlend in KGS at around 12-18 percent interest rate; RSK bank to onlend in USD at 9 percent. ### Short, medium and long term response — rationale and principles - Rationale: reconcile and rebuild economic inter-dependence between Uzbek and Kyrgyz communities; address competition over natural resources (land, irrigation water, pastures) and access to markets; improve equitable access and trust in government. - Principles for investments: - equitable investment (fair geographical distribution); - community- or private-sector-led investment (community based organizations, water user associations, pasture user unions); - public-private partnerships for public service provision where possible; - minimize government involvement in private markets unless clear market failure exists; prefer cash transfers over government provision of inputs/outputs where feasible and transparent. ### Short-term response (to December 31st 2010) — measures and costs - Cash transfers: program of targeted cash transfers financed from budget support to address shock to farm incomes and food security (agricultural GDP decline estimated at 19%). - Fuel vouchers: government arrangements to provide 23,000 MT of fuel for agriculture (20,000 MT from the Russian government) at subsidized price of 31 KGS per liter; government estimates total fuel requirement for summer harvest and autumn planting is 50,200 MT. Funding a 3 KGS per liter subsidy for 26,800 MT requires US$1.8 million (Budget Support). - Emergency de-silting and cleaning mud flow channels: estimated total cost approximately US$430,000 (Budget Support). (Table 4 details costs by district; subtotal Vol.of work 7,118.00 m³; Cost (KGS) 14,856,220.00; continued subtotal Vol.of work 10,640.00 m³; Cost (KGS) 4,410,800.00; Total Vol.of work 17,758.00 m³; Total Cost (KGS) 19,267,020.00.) ### Medium term (January 1st 2011 – June 30th 2012) and Long term (from July 1st 2012 onwards) responses and financing needs - Improve Rural Infrastructure (irrigation and drainage rehabilitation): estimate for rehabilitation of 63 WUAs serving 78,000 ha — Total cost ($US) 17,236,340; cost per hectare ($US) 220. Medium term program includes a budget of $12,500,000 (Additional financing WB on farm irrigation project II). - Improve Access to Markets: assessment and investment in farm-to-market roads, storage and distribution facilities. Estimated new investment loan A: $15,000,000 (medium term contribution $15,000,000) and total US$30,000,000 including medium and long term. - Improve Agricultural Productivity: community based agricultural micro-projects, advisory and marketing services, land and soil improvement, community seed funds, savings and loan groups, orchard rehabilitation. New investment loan A: medium term $7,500,000; long term continuation $7,500,000. - Animal health and pasture management: further investments in pasture improvement and veterinary services; additional financing required US$8,000,000 (financing for Agricultural Investments Services Project). - Table 6 Summary of Short, Medium and Long Term Financing Needs for the Agricultural Sector — key totals preserved exactly: - Total: 72,230,000 (US$) - Short Term: 2,230,000 - Medium Term: 35,000,000 - Long Term: 35,000,000 ### Recommended sequencing and implementation notes - Short-term priority: targeted cash transfers and emergency fuel subsidy and irrigation/flood channel repairs to protect incomes and avoid further asset erosion. - Medium- and long-term priorities: rehabilitate irrigation and drainage (targeting equitable access), invest in farm-to-market roads and storage, implement community-based agricultural productivity programs, and strengthen pasture management and animal health systems to support long-term peace building. - Emphasis on community-led investment and transparent, equitable geographic distribution of investments to rebuild trust and reduce ethnic tensions. - Government should be cautious intervening in private markets; prefer cash transfers over direct government participation in input/output markets unless clear market failure exists. *Source: JEA Estimates; Ministry of Agriculture; State Committee for Water Resources; material extracted from the provided IMF chapter content.* ### ANNEX XIII: PUBLIC FINANCIAL MANAGEMENT (PFM) AND FIDUCIARY ISSUES ### ANNEX XIII: PUBLIC FINANCIAL MANAGEMENT (PFM) AND FIDUCIARY ISSUES ### Background - A decade long reform effort on the PFM system resulted in formation of a professional technical team in the MOF and Central Treasury and establishment of reasonably strong aggregate fiscal discipline in budget execution. - Reform achievements include: bringing extra-budgetary funds into the budget; introduction of cash flow forecasting; implementing a balanced budget; improvements in reporting through a new budget classification and a unified chart of accounts. - Remaining PFM weaknesses relate to shortcomings in strategic planning, resulting in: - inconsistent outcomes of budget policy with a huge variation in the quality of public service provision across the country; - frequent re-allocation of resources within the originally approved budget and low predictability of funds for spending units; - weak links between sector strategies, the Medium Term Budget Framework (MTBF), and the annual budget; - a lack of transparency, with poor public access to key budget information; - poor system of internal checks and balances with the exception of selective spending entities. - The internal audit system is at an early stage and cannot provide credible assurance of legality, effectiveness, and efficiency of public funds use. - PFM reform program is on-going and supported by a US$5 million Multi Donor Trust Fund (MDTF), financed jointly by EU, DFID, SECO and SIDA and administered by the WB. - US$4.5 million remains undisbursed and available to support reforms and basic capacity building. ### Impact of recent events on the PFM system and institutional setup - The PFM system was weakened and fragmented by the previous Government’s attempt to monopolize key PFM functions under the Central Agency for Development, Investment and Innovation (CADII), established under the President’s administration in October of 2009 and led by former President’s son. - CADII took over public investment budget and management of State Owned Enterprises (SOEs) and privatization; supported large national projects in energy, agriculture, and social housing; de facto managed strategic budget policy. - The MOF recovered by reintegrating functions and technical staff; the provisional government abolished CADII together with KDF in April 2010 and devolved functions back to the MOF. - MOF will have complete oversight of capital and recurrent expenditures and is conducting competitive recruitment of civil servants to staff the MOF unit responsible for the Public Investment Program. - The PFM system proved sound against disruptions from April and June events and ensured functioning of essential budget organizations; MOF and Central Treasury institutional capacity maintained at pre-crisis level. - Actions undertaken by MOF and Central Treasury after April 2010: - (i) Treasury information was backed-up at the central data processing centre prior to violence against treasury premises; protective measures taken for locations near heightened ethnic and political tension; budget execution information protected despite physical damage to local treasury divisions. - (ii) Continued adherence to strict overall aggregate budget discipline in budget execution, except in June when expenditure pressures undermined the concept of balanced budget. - (iii) Minimal staff turnover at central level; turnover noted at sub-national level due to election of new heads of local governments. - (iv) Considerable funds confiscated from bank safe deposit boxes owned by people presumably related to the previous political regime; the Chamber of Accounts is working to identify sources and ownership. - The provisional government renationalized three SOEs and suspended further privatization plans: - Kyrgyztelecom, Vostok Electro, and Servo Electro were renationalized; termination of purchase and sales agreements for the electricity enterprises occurred voluntarily after reported irregularities in privatization procedures. - New privatization postponed until a new Parliament is elected and until the Government revises current rules and procedures. ### Public procurement - Public Procurement Law revisions introduced principles and stages of an efficient procurement process and defined mandate and authority of the State Procurement Agency. - The State Procurement Agency was abolished in October 2009 as part of the previous government reorganization; a Department on Public Procurement Methodology established under MOF, but procurement supervision function was not assigned to any organization. - National Procurement Training Center was taken over by private ownership; procurement training scope has been decreasing. - Current situation: - Budget entities are solely responsible for procurement with no regular oversight from other government bodies. - Random external audits are conducted by the Chamber of Accounts once every two years. - Weak internal audit heightens corruption risks in procurement. - MOF procurement unit plans to start publishing contract award information for greater transparency; however: - Process for redressing tender violations remains unclear. - MOF capacity and current legal basis constrain immediate improvements. - MOF public procurement unit consists of only five staff focused on procurement methodology; capacity insufficient to promptly and adequately check tender processes. - The unit has begun requesting minutes of tender commission meetings to check accuracy of tender processes. - A new public procurement law has been drafted to re-establish procurement oversight; approval and subsequent capacity/institution building will take considerable time. - Treasury is developing a database of contracts, but an institutional gap remains in monitoring adherence to procurement rules. - Chamber of Accounts reviews procurement process only during regular assessment of budget organizations once every two years. - Government noted supervision function in procurement had reportedly been a source of administrative corruption. - The provisional government will need to establish the procurement oversight function and develop mechanisms for dispute resolution and handling of complaints to reduce corruption in procurement. ### External audit - Impact of April events on external audit: - Opening access to enterprises previously shielded by the former President from public and audit scrutiny. - Temporary suspension of the Audit Council because of a lack of quorum of seven Audit Council Members. - Expectations that the provisional government will nominate a replacement for the supervisory member of the Audit Council (including two members of parliament, and others); making the Audit Council fully operational is an urgent requirement to legitimate decisions by the Chamber of Accounts. - The Chamber of Accounts is actively involved in auditing SOEs, special funds and organizations. - The newly appointed Acting Chairman guides Chamber efforts to search for irregularities in accounting for public funds; such audits may allow collection and transfer of funds to the state budget. - Results of the audit are to be referred to the President for decision-taking. ### Impact of recent events on the budget - The fiscal impact of the April and June events is large and expected to widen due to individual losses and public/community infrastructure damage. - A commission chaired by the Ministry of Economic Regulation was established to estimate cost of damage and compensation required. - Total additional spending needs are estimated in the range of KGS14 billion. - The Joint Economic Assessment estimated associated additional financing needs in 2010 to be around US$ 335 million. - Revenue base negatively affected; revenue collection has deteriorated and is expected to continue declining in coming months. - Total revenues and grants are estimated to decline by KGS 4 billion, increasing the budget deficit up to an estimated KGS28.2 billion (or by 15.9 billion more than originally approved for 2010). - Table 1. Summary 2010 State Budget in KGS (millions) — 2010 Budget Law vs Projection of the 2010 budget reflecting the impact of the crisis as of July 2010: - Total revenue and grants: 61,576 → 57,608 -3,968 - Total revenue: 54,067 → 50,201 -3,866 - Tax revenue: 42,123 → 37,674 -4,449 - Non-tax revenue: 11,384 → 11,959 575 - Capital revenue: 559 → 568 9 - Total grants: 7,509 → 7,407 -102 - Programmatic grants: 2,462 → 2,397 -65 - PIP grants: 5,047 → 5,010 -37 - Total expenditure (incl. net lending): 73,867 → 85,839 11,972 - Total expenditure: 74,595 → 81,769 7,174 - Current expenditure: 56,951 → 60,654 3,703 - Salaries and Soc. Fund contrib.: 19,609 → 21,102 1,493 - Transfers and subsidies: 7,975 → 9,002 1,027 - Transfers to Social Fund: 4,999 → 5,487 488 - Interest: 2,043 → 2,367 324 - Purchases of other goods & services: 22,324 → 22,696 372 - Capital Expenditure: 17,644 → 21,114 3,470 - Capital exp. from domestic resources: 4,353 → 8,532 4,179 - Capital exp. externally financed: 13,291 → 12,582 -709 - Net lending: -728 → 4,070 4,798 - Budget deficit: -12,300 → -28,230 -15,930 - Source: Ministry of Finance ### Government fiscal response to recent events - Treasury delayed financing of unprotected expenses for 14 days in April to ensure protected budget items (mainly wages and social payments) could be financed at 100 percent. - Payments against unprotected expenditures resumed in the second half of April after the provisional government received a Russian grant in the amount of US$20 million to cover its fiscal gap. - Renewed expenditure pressure occurred in June due to special circumstances in the South, jeopardizing the balanced budget practice. - Authorities temporarily contained spending pressures in July by resuming tight control on spending and resisting additional spending pressures. - Treasury monitors revenue receipts and predicts weekly cash flows, but budget execution continues to be done on an ad hoc basis to respond to emerging needs and government decrees requesting additional financing; predictability of funds for spending units (aside from protected items) remains problematic. ### Budget preparation for 2011 - The budget process for 2011 did not begin because of immediate need to develop an Additional Budget after April events. - Before April events, MOF had developed a medium-term budget forecast for 2011-13 as a basis for budget preparation. - Fiscal uncertainty from the April crisis makes the fiscal framework unreliable for the 2011-13 MTBF; MOF plans to develop a 2011 annual budget only. - MOF intends to adhere to the budget preparation calendar prescribed in the Budget Code, but formation of a new parliament (planned for October 10 elections) is likely to delay approval of the 2011 Budget Law. - MOF has decided to use the 2010 parameters (revised after April events) to determine expenditure ceilings for 2011, given limited growth prospects and stagnant revenue collections. - MOF has issued budget preparation guidelines and sector expenditure ceilings for budget organizations and begun budget preparation requests. ### Main Risks and Recommendations for their mitigation - Major risks arise from remaining weaknesses in checks and balances, transparency and accountability, and underdeveloped results orientation of the budget. - Additional pressures include need for additional resources, erosion of the revenue base, and extraordinary amounts of Donors’ funds mobilized for mitigation of recent events. - The PFM System during 2010 will likely experience stress related to: - increased uncertainty of revenues; - additional expenditure pressure for compensation and rehabilitation of affected regions and infrastructure after April and June events; - implementation of additional social benefits approved at the end of 2009; - expenditures related to the Referendum and general elections; - undermined businesses and trade operations affecting revenue collection; - pressure to raise salaries for security personnel. - The 2011 budget will likely be prepared based on the current expenditure framework and will probably undergo further corrections to reflect current economic realities. - To mitigate risks it is imperative to: - preserve the independence of the technical team in the area of PFM; - develop and clearly articulate temporary solutions for coping with extraordinary circumstances and new pressures on the budget; - establish, empower, and support a technical team from the MOF and the Treasury to develop tools and techniques for additional expenditure management and to reduce political pressure on the budget process; - have the technical team present an immediate assessment and develop solutions; donor support should back the team’s work and the provisional government should review and endorse results and articulate them publicly; - pay particular attention to and establish rigorous control, reporting and monitoring mechanisms for use of expenditure mobilized for mitigating impact of June events since they cannot be effectively integrated in the budget. - The climate for more basic PFM reforms seems promising and could decrease fiduciary risk: - The previous Government’s actions had worsened transparency and accountability; President and Minister of Finance have announced intentions to improve transparency and accountability. - A vocal civil society and improved freedom of the press after April events support calls for a more transparent government. - Clearly articulated and concrete actions by the provisional government in financial and social accountability and use of public resources will contribute to public trust. - Internal audit and control: - Normative and methodological basis for internal audit introduction has been established; 12 units out of a planned 14 in ministries and central agencies have been established. - Auditor capacity needs improvement and management attaches insufficient importance to their work. - MOF plans activities to improve capacity and further develop systems of internal control for public administration. - Staff turnover risks: - Staff turnover may present additional risks for local self-government during budget preparation and execution. - MOF will need to consider measures to compensate for capacity gaps through training and other measures. *Source: ANNEX XIII: PUBLIC FINANCIAL MANAGEMENT (PFM) AND FIDUCIARY ISSUES* ### ANNEX XIV: MEMBERS OF THE JEA REPORT TEAM ### ANNEX XIV: MEMBERS OF THE JEA REPORT TEAM ### Leadership and Management - The report was prepared by a team led by: - Asian Development Bank: Ramesh Subramaniam - International Monetary Fund: Nadeem Ilahi - World Bank: Afsaneh Sedghi - The core team managing the report also included: - EBRD: Kenji Nakazawa - European Commission: Rafael Aguirre Unceta - UN: Neal Walker - Management guidance and support: - Motoo Konishi - Roger Robinson (WB) - Lan Wu (ADB) - David Owen (IMF) ### Central team - Jose Antonio Tan III - Vijay Padmanabhan (ADB) - Koba Gvenetadze - David Amaglobeli (IMF) - Saumya Mitra - Fabrice Houdart (WB) ### Economic team - David Amaglobeli - Erkaem Shambetova (IMF) - Saumya Mitra - Bakyt Dubashov (WB) - Rika Ishi (EBRD) ### Budget team - Jose Antonio Tan III - Gulkayr Tentieva - Roman Mogilevskii - Nurbek Jenish (ADB) - Ekaterine Vashakmadze - Svetlana Proskurovska - Marc Tobias Schiffbauer - Hassan Aliev (WB) - Natalia Pisareva (ACF) - Stefan Bruni (SECO) - Peter Bruges (USAID) - Stanislav Toshkov (EC) ### Reconciliation and Recovery - Caroline M. Kende-Robb - Sarah G. Michael - Asger Christensen - Naresha Duraiswamy (WB) - Jan Harfst (UNDP) - Gordon Denoon (OCHA) ### Social protection/poverty team - Olaf Heidelbach - Mark Raymaekers - Jacqueline Delaure - Gnel Sedrakyan (EC) - Balazs Horvathand (UNDP) - Sarosh Sattar - Anastasia Alexandrova - Asel Sargaldakova (WB) - Asel Chyngysheva (ADB) ### Financial sector and banking team - Masaru Honma - Rika Ishii - Mike Taylor - Sabina Dziurman - Arthur Pogosyan - Ainura Guppy - Ruslan Kurmanbekov (EBRD) - Piyabha Kongsamut - Lilia Kadyrberdieva (IMF) - Brett Coleman - Krishnamurti Damodaran - Nurlanbek Tynaev (WB) - Joao Pedro Farinha (ADB) ### Agriculture and food security team - Peter Goodman - Talaibek Torokulovich Koshmatov - Ainura Kupueva (WB) - Mark Raymaekers (EC) ### Infrastructure team - Salman Anees - Olivier Le Ber - Nargis Ryskulova - Charles Scawthorn (WB) - Vijay Padmanabhan - Bobur Alimov - Mirdin Eshenaliev (ADB) - Catarina Bjorlin Hansen - Talay Asylbekov (EBRD) ### Energy team - Sunil Khosla - Mirlan Aldayarov (WB) - Ben Slay (UNDP) - Takafumi Kadono (ADB) ### Private sector team - Joao Pedro Farinha (ADB) - Jose Antono Tan III (ADB) - Masaru Honma - Rika Ishii - Jyldyz Galieva (EBRD) - Bujana Perolli - Hector Malleta (World Bank) - Richard Stern - Vsevolod Payevskiy (IFC) ### Mission support team - Asel Almanbetova - Nurgul Israileva (WB) - Irina Akmatova - Umut Kozhomuratova (IMF) - Olesya Protsenko (ADB) - Maral Sagynalieva (EBRD) - Arkady Tchakovsky (IMF interpreter) - Vladimir Slavnov (IMF interpreter) ### Report processing team - William V. Mayville - Asel Almanbetova - Ian Nicholas Parker - Sarah Nankya Babirye (WB) *Source: ANNEX XIV: MEMBERS OF THE JEA REPORT TEAM* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2010/_072110.pdf_