International Monetary Fund

Please send us your feedback

Program note

Kyrgyz Republic

Last Updated: September 25, 2013

IMF Financial Support:

On June 10, 2013, the IMF Executive Board completed the fourth review under the three-year US$102.3 million Extended Credit Facility (ECF) that was approved on June 20, 2011. Completion of the review made US$14½ million available to the Kyrgyz Republic, bringing total disbursements under the arrangement to US$73 million.


The current coalition government has been able to maintain a relatively stable political environment. However, the political situation remains fragile as some members of parliament continue to voice their disagreement with government’s reform agenda. The Kyrgyz parliament approved the legislation to close the U.S. Manas transit center in July 2014

The economy is recovering well following a contraction in 2012 caused by disruptions in gold production. Non-gold growth continues to be strong, while inflation is on a declining trend due to the slowdown in food and energy prices. Core inflation declined gradually to single digits in May. The current account is improving with the recovery in gold exports, but remains elevated because of imports related to FDI and public investment projects. Financial stability indicators continue to improve, but vulnerabilities remain. The resolution of Zalkar bank is an important step toward strengthening confidence in the banking sector, and the enactment of amendments to the Criminal Code and the Law on Counteracting Terrorism signals the government’s commitment to implementing the Action Plan agreed with the Financial Action Task Force.

The medium-term outlook is generally positive. Growth is projected to pick up to an average of 7.1 percent in 2013–14, aided by the recovery in gold production and strong performance of trade and construction. The 2013 budget is based on conservative revenue forecasts, restraint in nonpriority expenditure, and social considerations. The overall fiscal deficit is expected to decline to 5.2 percent of GDP, in line with the government’s commitment to consolidate the fiscal position. Prudent fiscal and monetary policies, in line with the ECF arrangement, would help keep inflation at bay. Barring exogenous shocks, inflation is expected to stabilize at about 7 percent over the medium term. Ongoing structural reforms, geared toward enhancing the business environment and strengthening public financial management and the financial sector, will also be critical in sustaining strong private sector–led growth.

Role of the IMF

The IMF, together with the World Bank and the Asian Development Bank, has played a leading role in helping the Kyrgyz Republic respond to the challenges it faced in the aftermath of political unrest in April 2010 and the outbreak of ethnic conflict in the south in June 2010. In September 2010, the IMF Executive Board approved a disbursement under the Rapid Credit Facility in support of the authorities’ emergency economic program to meet the immediate post-crisis challenges. Strong adherence to the policies agreed under the three-year ECF that was approved by the IMF Executive Board in June 2011 played a pivotal role in achieving post-conflict economic recovery and macroeconomic stabilization.

The ECF draws from the authorities’ priorities and supports their efforts to restore and maintain macroeconomic stability, rebuild policy buffers, promote inclusive growth in a low-inflation environment, achieve medium-term fiscal consolidation, improve the operational framework for monetary policy, address weaknesses in the financial sector, bolster reserves, and catalyze critical donor support. The Kyrgyz authorities are also benefitting from technical assistance from the IMF and the donor community in the areas of public financial management, tax policy and administration, and financial sector issues.

The Challenges Ahead

Significant immediate and medium-term challenges remain. Restoring fiscal sustainability will be essential, as the budget has become more dependent on external assistance since the 2009 global crisis. The closure of the Manas transit Center in 2014 is creating headwinds for medium-term fiscal adjustment. At the same time, the authorities will need to create fiscal space for priority spending such as health, education, and infrastructure. Shallow financial markets remain an impediment to growth, and the still-sizeable government footprint in the banking sector hampers innovation in the sector. Better governance and institutions are essential for continued strong economic performance and inclusive private sector–led growth over the medium term. The Kyrgyz economy remains vulnerable to external shocks, including adverse terms-of-trade shocks and the impact of a global downturn on remittances. In addition, a shock to international food and fuel prices could push up inflation and aggravate external vulnerabilities.