IMF Staff Concludes Visit to the Kyrgyz Republic

November 9, 2017

End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings after a visit to a country. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. This mission will not result in a Board discussion.
  • Growth continues across most sectors, benefiting from the impact of rising remittances on domestic demand and the recovery in key trading partners’ economies.
  • The authorities recognize the serious risk these slippages pose for fiscal and debt sustainability and the need to take bold measures to address the situation.

An IMF team led by Mr. Edward Gemayel, visited Bishkek from October 26 to November 8, 2017 to conduct the combined fourth and fifth reviews for the Kyrgyz Republic arrangement under the Extended Credit Facility (ECF).

At the conclusion of the visit, Mr. Gemayel issued the following statement:

“Kyrgyz’s growth continues across most sectors, benefiting from the impact of rising remittances on domestic demand and the recovery in key trading partners’ economies. Domestic credit and RKDF activities also contributed to the recovery. We expect the economy to grow by 3.5 percent for 2017 with inflation inching up, but remaining within the National Bank of Kyrgyz Republic (NBKR) target range of 5 to7 percent. The recent tightening of controls at the border with Kazakhstan could shave as much as 0.2 percentage points from this year’s output growth and is expected to increase next year, if not resolved soon.

“Fiscal performance in 2017 veered off course under the impact of pre-election spending and rehabilitation efforts following the landslides in the south. More recently complications at the border with Kazakhstan, have also put upward pressure on this year’s fiscal deficit. Policy initiatives, including the recently adopted universal child allowance, wage and pension increases, and tax exemptions, could add a permanent fiscal burden of 2 percent of GDP from 2018 onward, undermining consolidation efforts.

“The authorities recognize the serious risk these slippages pose for fiscal and debt sustainability. Together with the authorities the team discussed corrective actions, including in the areas of taxes, wages, energy subsidies, and social transfers. To this end, the authorities plan to streamline tax exemptions and take other measures aimed at broadening the tax base and improving administration, including through the Taza Koom Smart City program. Efforts will continue to improve the efficiency of the public-sector workforce and contain the burden of the wage bill on the economy. As part of the government’s program recently approved by Parliament, a new medium-term tariff policy for the energy sector will be developed with the aim to restoring cost recovery and financial sustainability to this sector. The mission emphasized the importance of targeting as the most efficient and equitable way of utilizing the limited resources of the social benefits program. In this context, the mission encouraged the authorities to explore ways to introduce targeting into the recently adopted universal child allowance law.

“The authorities are determined to maintain the Kyrgyz Republic’s leading position in the region when it comes to the openness of the economy and structural reforms. The government will develop a credible, effective, and enforceable fiscal rule to act as an anchor for fiscal policy and safeguard against slippages. The authorities are also committed to protect the integrity of the competitive and transparent public procurement framework enshrined in the procurement law, helping to improve the efficiency of public spending and combat corruption. The NBKR will continue to enhance its governance framework, and will remain focused on its core objective of maintaining price stability and ensuring a level playing field among the banks and financial institutions it supervises.

“We have made good progress toward reaching a staff-level agreement on the combined fourth and fifth reviews under the ECF. Discussions will continue in the coming weeks. If these discussions are successful, the combined reviews can be completed by the end of the year.

“During the visit the team met with First Deputy Prime Minister Abdygulov, Minister of Finance Kasymaliev, Minister of Economy Novikov, Chairman of the National Bank Kulmatov, Head of the Financial and Economic Analysis and Monitoring Department at the President’s Administration Ahmetova, other senior officials, and representatives of the diplomatic community.

“We would like to thank the authorities and other counterparts for their warm welcome, excellent cooperation, and candid and constructive discussions during the visit. The team would like to reaffirm the IMF’s support to the government’s efforts to implement their economic reform program.”

IMF Communications Department

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