May 22, 2008
The Executive Board of the International Monetary Fund (IMF) has completed the sixth and final review of the Kyrgyz Republic's economic performance under the three-year Poverty Reduction and Growth Facility (PRGF) arrangement. To help meet a larger balance of payments need, due to the impact of high food and fuel prices, the Board also approved an augmentation in access under the PRGF arrangement to SDR 17.76 million (about US$28.8 million) from SDR 8.88 million (about US$14.4 million). The completion of the sixth review allows the release of an amount equivalent to SDR 10.15 million (about US$16.5 million), bringing total disbursements to the full amount of SDR 17.76 million (about US$28.8 million). In addition, the Executive Board called on the Kyrgyz Republic to engage in Post-Program Monitoring.
The PRGF arrangement was originally approved on February 23, 2005 (see Press Release No. 05/40) for an amount equivalent to SDR 8.88 million (about US$14.4 million).
Following the Executive Board's discussion, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, said:
"The Kyrgyz Republic's economic performance strengthened significantly in recent years, notwithstanding difficult political circumstances, and the authorities are to be commended for their continued adherence to sound macroeconomic and financial policies. As a result, the objectives of the authorities' economic program supported under the Poverty Reduction and Growth Facility have been largely met. Growth has rebounded and become broader-based, and poverty rates have fallen. Firm fiscal policies, combined with economic growth and Paris Club support, have led to an impressive reduction in the country's debt burden, while inflation remained low until recently.
"The Kyrgyz Republic's near-term outlook has become more uncertain, with inflation rising and growth expected to slow, largely due to the rise in global food and energy prices and the spillover effects from the economic slowdown in neighboring Kazakhstan. The doubling of the Fund's financial assistance under the PRGF arrangement in the final disbursement is the first case of an augmentation of resources under a PRGF arrangement to help countries address the impact of high food and energy prices, and will support the policies that the Kyrgyz authorities are committed to implement to adjust to these shocks.
"The immediate challenge facing the authorities is to bring down inflation while protecting growth and the poor. To this end, the authorities intend to further tighten monetary policy, to limit second round effects from higher food and fuel prices and prevent inflation expectations from being adjusted upwards. Fiscal policy will need to be supportive of the central bank's efforts to tackle inflation. The authorities are appropriately planning to limit the government deficit by reducing non-priority current spending and further strengthening revenue collection. At the same time and also appropriately, they will safeguard social spending and plan to raise social benefits to cushion the effects of higher food and energy prices on the poor.
"Looking ahead, continued strong growth will be needed to substantially reduce poverty. This will require firmly entrenching macroeconomic stability and pressing ahead decisively with reforms to strengthen the business environment, address problems in the energy sector, and improve infrastructure. In these endeavors, the authorities plan to maintain close cooperation with the Fund after the expiration of the PRGF arrangement," Mr. Portugal 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 the country's Poverty Reduction Strategy Paper. This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies 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 5½ -year grace period on principal payments.
Post-Program Monitoring (PPM) provides for frequent consultations between the IMF and members whose arrangements have expired but who continue to have significant IMF credit outstanding. Generally, PPM is recommended when the credit outstanding exceeds 100 percent of the member's quota with the IMF. In PPM consultations, particular focus is placed on policies that have a bearing on external viability.
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