Press Release No. 14/239

Press Release: IMF Announces Staff-Level Agreement with the Kyrgyz Republic on the Sixth Review of the Extended Credit Facility

May 21, 2014

An International Monetary Fund (IMF) mission, led by Mr. Christian Beddies, visited Bishkek from May 6 to 16, 2014 to hold discussions for the sixth and final review under a three-year Extended Credit Facility (ECF) arrangement (Press Release No. 11/245). The mission has reached a staff-level agreement with the Kyrgyz authorities on measures needed for the completion of the review. This agreement requires approval by the IMF’s Executive Board, which is expected to consider the Kyrgyz Republic’s request for completion of the sixth review in late June 2014. Upon approval, SDR 9.514 million (about US$15 million) would be made available to the Kyrgyz Republic. This would bring total disbursements under the arrangement to SDR 66.598 million (about US$105 million).

At the conclusion of the visit, Mr. Beddies made the following statement:

“Economic performance in 2013 was very strong. Growth reached 10.5 percent and was broad-based. The current account deficit declined in 2013, helped by the recovery in gold output and lower food and fuel prices. Twelve-month inflation dropped to 4 percent by end-2013 and core inflation remained in single digits. The National Bank of the Kyrgyz Republic (NBKR) made significant strides toward modernizing the operational framework for monetary policy, which, if supported by continued prudent fiscal policy, should help keep inflation at bay.

“Growth is expected to moderate to 4.4 percent this year because of the slowdown in the region. Inflation is projected to pick up, in part because of depreciation pressures earlier in the year, but should stay in single digits. Over the medium term, growth is expected to pick up slightly and hover around 5 percent, while inflation is projected to stabilize at 6 percent. The intensive public infrastructure investment program for the next few years is creating pressures on the current account, but once completed should support growth.

“The program is broadly on track. Prudent macroeconomic policies enabled the authorities to comfortably meet the quantitative performance criteria set for end-December 2013. The government remains committed to fiscal consolidation in 2014 and over the medium term. The fiscal deficit is expected to reach 4.2 percent of GDP in 2014, and decline gradually thereafter. Tax policy and administration reforms, as well as streamlining further nonpriority current expenditures, are necessary to support the fiscal consolidation efforts.

“Structural reforms remain vital for enhancing the country’s growth potential. The mission urged the authorities to approve swiftly the Banking Code, Payments System Law, and Anti-Money Laundering/Combating Financing of Terrorism (AML/CFT) legislation currently in the parliament. Adopting this legislation would be a major step forward in developing the financial sector and enable it to support strong private sector-led growth. It will modernize the resolution regime, streamline the supervisory framework, and bring the AML/CFT framework in line with best international practice. Speeding up the public financial sector management reforms will help to increase further the transparency of the public finances.

“The mission encouraged the authorities to speed up the implementation of a broad range of reforms specified in the National Sustainable Development Strategy. Fiscal consolidation supported by tax policy and administration reforms aimed at increasing tax revenues, as well as expenditure restructuring, will be essential to create additional fiscal space for social spending. The civil service reform would help to generate a modern public administration system with competitive salaries. A stable and predictable investment climate with proper contract enforcement, strengthened property rights, and addressing perceived corruption are essential for attracting investment and spurring growth. Moreover, improving further the business environment and reforming the energy sector will enable the Kyrgyz Republic to increase its competiveness. The IMF stands ready to support the Kyrgyz Republic in its reform efforts and to continue the fruitful cooperation.”