IMF Executive Board Concludes 2021 Article IV Consultation with the Kyrgyz Republic
IMF News, June 8, 2021
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- Published: June 8, 2021
Economic impact of COVID-19 and 2020 outcomes
- Real GDP declined by 8.6 percent in 2020 due to significant contraction in exports, gold mining, industry, tourism, transport, and construction.
- Headline inflation rose to 9.7 percent in 2020, primarily because of imported food price inflation and the exchange rate pass-through.
- Public debt increased by 16.5 percent of GDP to 68 percent.
- Authorities’ crisis-mitigating measures amounted to 7.2 percent of GDP and included emergency health spending, a food security program, temporary tax deferrals and subsidized loans to small and medium enterprises, liquidity support to banks, deferrals of loan payments, and the temporary relaxation of capital and loan provisioning norms.
- Unemployment and poverty increased in 2020.
Outlook and key projections (2021–25)
- Real GDP growth projections:
- 2021: 3.8 percent
- 2022: 6.4 percent
- 2023 onward: projected growth rates shown in table (e.g., nongold real GDP growth in 2021: 5.5 percent)
- Annual inflation:
- Expected to remain elevated in the coming months but gradually return to the central bank’s target range of 5–7 percent.
- Consumer prices (12-month percent change, average) projected: 2021: 9.4; 2022: 6.2; 2023: 6.1.
- External sector:
- Current account deficit projected at about 6 percent of GDP in 2021 and in the medium term.
- Export of goods and services (in millions of U.S. dollars): 2021: 2,572; 2022: 3,216.
- Import of goods and services (in millions of U.S. dollars): 2021: 4,000; 2022: 5,819.
- Gross International reserves (in millions of U.S. dollars): 2021: 2,628; projected end-2025: 1,924.
- Public finances and debt:
- Revenue (in percent of GDP) around 31.0–31.1 in 2020–21.
- Overall balance (net lending/borrowing): 2020: -3.3; 2021: -4.2; 2022: -4.0.
- Total state government debt: 2020: 68.0; 2021: 67.1; 2022: 65.1; 2025: 64.3 (percent of GDP).
Risks, uncertainty, and potential shocks
- High uncertainty driven by:
- Slow vaccine rollout or emergence of new COVID-19 variants which may delay the recovery to 2022 or beyond.
- Lower gold prices or weaker remittances weakening the balance of payments.
- More depreciation due to external pressures would further raise public debt.
- Financing constraints could limit fiscal room for countercyclical policies.
- Policy buffers largely exhausted in 2020, implying tighter constraints and less policy flexibility.
Executive Board assessment and policy recommendations
- General assessment:
- Directors agreed the Kyrgyz Republic was severely hit by the COVID-19 pandemic; output contracted, inflation and public debt rose, and unemployment and poverty increased.
- Commended authorities’ broad-based policy response and international financial support.
- Emphasized securing vaccines as soon as possible to save lives and revive economic activity.
- Recommended maintaining accommodative policies in the near term supported by medium-term fiscal consolidation.
- Stressed the importance of advancing structural reforms to improve the business climate and strengthen market confidence.
- Fiscal policy:
- Fiscal policy should support the economy in the near-term but aim to reduce public debt to below 60 percent of GDP by 2025.
- To achieve needed fiscal consolidation and create space for development needs, urged reduction of the wage bill, goods and services spending and energy subsidies, and improvement in revenue mobilization and public financial management.
- If financing becomes a constraint, additional expenditure cuts would be necessary while protecting social spending.
- A demonstrated commitment to reforms would engender additional concessional donor financing.
- Monetary and financial sector policy:
- Monetary policy should remain focused on price stability.
- Welcomed the National Bank of Kyrgyz’s decision to raise the policy rate given recent inflation; further monetary tightening would be warranted if second-round inflation pressures emerged.
- Welcomed the central bank’s intention to adopt an inflation targeting framework over the medium-term and its commitment to maintain exchange rate flexibility as a shock absorber.
- Encouraged NBKR vigilance to ensure financial sector stability given a possible rise in NPLs and stressed strengthening institutional and operational independence of the central bank.
- Structural reforms and governance:
- Urged ambitious implementation of structural reforms to achieve higher and more inclusive, private sector-led growth.
- Priorities included strengthening governance, transparency of emergency spending, reducing perceptions of corruption, restoring financial viability of the energy sector, improving access to finance, reducing non-tariff trade barriers, and improving human capital and female labor force participation.
- Strengthening the AML/CFT framework was highlighted as important.
- Stressed criticality of political stability, policy predictability, and a market-friendly business environment.
- A speedy and transparent resolution of the ongoing commercial dispute with the largest foreign investor would be critical to ensure uninterrupted gold production while protecting the environment.
Key social and demographic indicators (selected)
- Population (in millions, 2021): 6.6
- GINI Index (2019): 0.36
- Unemployment rate (official, in percent, 2019): 3.0
- Life expectancy at birth in years (2019): 71.5
- Poverty rate (in percent, national definition, 2019): 20.1
- Adult literacy rate (percent of popul., 2018): 99.6
- Per capita GDP (2019, U.S. dollars): 1,430
- Under-five mortality (per 1000 live births, 2019): 17.5
Information based on the IMF press release: IMF Executive Board Concludes 2021 Article IV Consultation with the Kyrgyz Republic.
