Press Release No. 05/237

Press Release: IMF Executive Board Completes First Review of the Kyrgyz Republic's Three-Year PRGF Arrangement and Approves US$1.8 Million Disbursement

October 24, 2005

The Executive Board of the International Monetary Fund (IMF) completed today the first review of the Kyrgyz Republic's economic performance under a three-year Poverty Reduction and Growth Facility (PRGF) arrangement. This enables the Kyrgyz Republic to draw an amount equivalent to SDR 1.27 million (about US$1.8 million).

The Executive Board approved the three-year arrangement on February 23, 2005, which became effective on March 15, 2005 (see Press Release No. 05/40), for a total amount of SDR 8.88 million (about US$12.8 million) to support the government's economic program for 2005-2007.¹

Following the Executive Board's discussion of the Kyrgyz Republic, Mr. Agustín  Carstens, Deputy Managing Director and Acting Chair made the following statement:

"The authorities are to be commended for preserving macroeconomic stability and keeping the PRGF-supported program on track despite the difficult political environment. As economic growth has slowed recently, it will be important to maintain strong performance under the program in order to boost confidence and help turn around the recent weakening of business sentiment.

"The new government's commitment to combating corruption and promoting private sector development is particularly welcome. Concrete results are now needed to gain credibility in the fight against corruption. Progress in raising tax collections and in reducing the energy sector's financial imbalances will be important measures of the success of this effort.

"Successful implementation of the fiscal program continues to be an important challenge. The tax reforms envisaged in the program—in particular the lower income and payroll tax rates—should go a long way toward improving the investment climate. The new government's realistic approach in preparing the 2006 budget is encouraging, and prompt approval by parliament of the proposed budget would send a clear signal of the country's continued commitment to a prudent fiscal policy. The authorities should also adhere to their commitment to enhance transparency in the mining sector under the Extractive Industries Transparency Initiative.

"While the central bank has been successful in containing inflation and maintaining stability in the foreign exchange market, further progress is needed in deepening the securities market to enhance the potential of indirect monetary instruments. It will also be important to take concrete steps to strengthen the independence of the central bank, in line with the authorities' pledge to improve governance in public institutions.

"The Paris Club debt restructuring agreement has improved the prospects for debt sustainability and offered welcome breathing space. It is essential that the authorities pursue strong stabilization policies and maintain a cautious external borrowing policy, given the still high debt levels," Mr. Carstens said.

The PRGF is the IMF's concessional facility for low-income countries. PRGF-supported programs are 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 PRGF-supported programs are consistent with a comprehensive framework to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5 ½-year grace period on principal payments.