July 2, 2002
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The Executive Board of the International Monetary Fund (IMF) completed the first review of the Kyrgyz Republic's economic performance under the three-year arrangement under the Poverty Reduction and Growth Facility (PRGF). Completion of this review entitles the Kyrgyz Republic to borrow an amount equivalent to SDR 11.72 million (about US$16 million) under the arrangement.
The IMF's Executive Board approved the three-year arrangement on December 6, 2001 (see Press Release No. 01/49) for a total of SDR 73.4 million (about US$98 million).
The PRGF is the IMF's concessional facility for low-income countries. It is intended that PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty.
Following the discussion of the Executive Board, Eduardo Aninat, Deputy Managing Director, and Acting Chairman, said:
"The authorities should be commended for the favorable performance under the program supported by the Poverty Reduction and Growth Facility-in particular, the fiscal performance and the better-than-expected accumulation of foreign reserves. At the same time, political uncertainties have prevented the further broadening of the small tax base by expanding the VAT coverage within the agricultural sector. A stronger tax effort from current low levels will be essential to allow the government to finance poverty reduction programs without rekindling inflationary and balance of payment pressures.
"A cautious monetary stance has contributed to low inflation and declining currency substitution. While money growth has abated since the beginning of the year, the central bank should stand ready to mop up excess liquidity if any indications of price or exchange rate instability reappear. The recent agreement between the central bank and the Ministry of Finance to deepen the government securities market, and increase the volume of government paper available for open market operations is welcome.
"In the banking sector, the slow progress of reform is a source of concern and it would be important to formulate a comprehensive strategy-based on the results of the FSAP mission-to address the remaining weaknesses in this sector, including those related to the legal framework.
"The rescheduling agreement reached with the Paris Club will help improve the country's prospects for growth and poverty alleviation, provided that the authorities implement their debt reduction strategy effectively. In particular, further fiscal consolidation will be needed to enhance the credibility of the debt strategy and to keep the program on track, and to assure a successful rescheduling of the debt stock.
"The pace of structural reform needs to be accelerated. In particular, it is essential to strengthen governance in order to improve the investment climate," Mr. Aninat said.
