IMF Staff Concludes Visit to The Kyrgyz Republic

IMF News, February 16, 2017

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IMF mission led by Mr. Edward Gemayel visited Bishkek during February 9–15.
Purpose: take stock of latest economic developments, discuss progress on economic reforms, and prepare for the upcoming combined Article IV consultation and fourth review under the ECF program planned for April.
Views expressed are those of 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 accelerated towards the end of 2016, reaching 3.8 percent.
Deflation of 0.5 percent in 2016, due in part to exchange rate appreciation of about 9 percent.
Despite a shortfall in tax revenue, the 2016 deficit was contained to 4.5 percent of GDP due to restrained spending on non-priority items and the rephasing of some investment projects.

Consolidation efforts should continue to meet the 2017 fiscal deficit target of 3 percent of GDP.
Important revenue and expenditure measures to continue implementing (as announced last year):
- Elimination of the value added tax (VAT) exemption on flour.
- Rationalizing the public sector wage bill.
- Streamlining spending on goods and services.
Resisting spending pressures will be critical in the run up to the presidential election.
Developing a credible and transparent fiscal rule will help maintain fiscal discipline.

The current neutral and cautious monetary policy stance is appropriate.
Further easing should be conditional on inflation being on track to reach the target range of 5-7 percent.
The National Bank of the Kyrgyz Republic (NBKR) should continue to carry out foreign exchange interventions only when necessary to smooth out excessive fluctuations while maintaining two-way flexibility.

Efforts to bolster financial sector resilience should continue.
The liquidation of banks remaining under DEBRA should be completed as planned.
The unification of bank capital requirements should not be delayed.
The passage of the anti-money laundering and counter finance of terrorism (AML/CFT) law is vital for the stability of the financial sector.
- The law is necessary to keep the Kyrgyz Republic on the white list of the Eurasian Group on AMl/CFT.
- Failure to pass the law could lead to loss of correspondent banking relations and cut the financial sector off from the outside world.

During the visit, the team met with government officials, private sector representatives, and the diplomatic community.
The IMF team thanked the Kyrgyz authorities and technical staff for a warm welcome and constructive discussions.

IMF Staff statement — IMF Staff Concludes Visit to The Kyrgyz Republic (February 16, 2017).