Press Release No. 19/82

IMF Staff Completes 2019 Article IV Mission to the Kyrgyz Republic

March 20, 2019

• The economy of the Kyrgyz Republic grew by 3.5 percent in 2018, benefiting from stable regional environment, and its growth is expected to reach 3.8% in 2019.
• Tax exemptions and the public-sector wage bill as a share of GDP should be reduced to create the fiscal space for investment in human capital and infrastructure.
• Putting the economy on a higher and more inclusive growth path will hinge on improving the business climate and rule of law.

A team from the International Monetary Fund (IMF) led by Christian Josz visited Bishkek from March 6–19 to hold discussions on the 2019 Article IV Consultation with the Kyrgyz Republic. At the end of the mission, Mr. Josz issued the following statement:

“The economy of the Kyrgyz Republic grew by 3.5 percent in 2018, benefiting from stable regional environment. Inflation at 1.5 percent on average for the year, a moderate fiscal deficit of 1.3 percent of GDP for 2018, gross official foreign exchange reserves at 4.0 months of imports and a stable banking sector point to the success of stabilization policies, carried out by the government and National Bank of the Kyrgyz Republic (NBKR).

“In 2019, the economy is expected to grow by 3.8 percent, average inflation to reach 2.2 percent, the fiscal deficit to increase to 3.4 percent of GDP and gross foreign exchange reserves to reach the still comfortable level of 3.7 months of imports of goods and services.  

“Despite reform efforts, structural vulnerabilities persist. Remittances which account for 30 percent of the economy are susceptible to external economic and geopolitical shocks; gold which accounts for 38 percent of exports proceeds could fall sharply in 2023 if Kumtor output is not replaced. A challenging investment climate and corruption continue to stand in the way of private sector-led diversification. As a result, expected average annual growth rates of about four percent over next five years would be insufficient to further reduce poverty or raise living standards.

“To cement macroeconomic stability and build buffers, the fiscal deficit should not exceed 2.5 percent of GDP in the medium term. Tax exemptions and the public-sector wage bill as a share of GDP should be reduced to create the fiscal space for investment in human capital and infrastructure. The NBKR should maintain a vigilant eye on inflation and allow the exchange rate to fluctuate in response to changing economic dynamics. 

“Putting the economy on a higher and more inclusive growth path will hinge on improving the business climate and rule of law. Reforms aimed at strengthening the financial sector, increasing energy tariffs, and improving governance are critical to achieving these objectives.

“The anomalous situation created by the recent acquisition of a troubled bank by the NBKR should be resolved avoid a conflict of interest with its role as banking supervisor, maintain a level playing field in the banking sector and protect NBKR balance sheet. Following a valuation of the bank in question by a reputable independent expert, it should be transferred to the state in the shortest timeframe possible. 

“The IMF staff team had constructive discussions with the authorities of the Kyrgyz Republic on economic developments and policies over the past two weeks and wishes to thank the authorities for their warm hospitality and cooperation.”