IMF Statement at the end of review mission to the Kyrgyz Republic
- The IMF mission and the Kyrgyz authorities have made good progress toward reaching a staff-level agreement on the third review under the ECF. . Discussions will continue in the coming weeks.
- The National Bank of the Kyrgyz Republic (NBKR) has done a good job in steering the economy through the recent period of volatility and subdued economic prospects. The NBKR could relax monetary policy while remaining vigilant for signs of fiscal and exchange rate pressures.
- The Kyrgyz economy should improve further over the medium term as trading partners’ growth recovers but remain below potential.
An International Monetary Fund (IMF) mission team led by Mr. Edward Gemayel visited Bishkek from September 15 to 28 for discussions on the third review under the IMF-supported Extended Credit Facility (ECF).
At the conclusion of the visit, Mr. Gemayel issued the following statement:
“While moderating since the beginning of the year, external pressures continue to hold the Kyrgyz economy back. Non-gold growth reached 2.1 percent by end-August on the back of modest improvements in trade, construction, and agriculture. Consumer prices, which ventured into deflation range earlier in the year, rose to 0.5 percent by the end of August due to some recovery in food and fuel prices.
“We expect growth to pick up towards the end of the year, provided that recent signs of improvement in the external environment hold. While the worst of the crisis seems to be over, annual growth will remain weak at about 2.3 percent in 2016 as a result the regional slowdown. The economy should improve further over the medium term as trading partners’ growth recovers but remain below potential.
“With public debt approaching critical levels and the likelihood that growth will remain modest in the medium term, it is essential for the Kyrgyz government to resume and accelerate fiscal consolidation. Every effort should be made to keep the fiscal deficit in 2016 within the agreed 4.5 percent of GDP and reduce it to 2.4 percent of GDP in 2017. This will require the implementation of additional revenue and expenditure measures, the reversal of a recent VAT exemption on flour, and the unwinding of other tax exemptions. It will also require careful consideration of public investment projects, be they foreign or domestically financed, to ensure that only the most essential ones are selected and that they are executed in an efficient and transparent manner. In the run up to next year’s Presidential elections, it is essential to refrain from unbudgeted spending.
“The National Bank of the Kyrgyz Republic (NBKR) has done a good job in steering the economy through the recent period of volatility. Given the recent fall in headline inflation, the moderation of credit growth, and subdued economic prospects, the NBKR could relax monetary policy while remaining vigilant for signs of fiscal and exchange rate pressures. Foreign exchange intervention should continue to be limited to smoothing out excessive volatility.
“We welcome the recent passage of the Banking Law by Parliament and look forward to its signing by the President and publication in the Official Gazette. The law is an important step towards building a modern and effective regulatory framework. It includes advances over previous legislation but should be strengthened further to enhance the banking resolution framework, and NBKR’s autonomy and governance. Further work is therefore needed in the coming months to reintroduce key provisions in those areas, which were lost during the protracted parliamentary deliberations.
“The mission and the authorities have made good progress toward reaching a staff-level agreement on the third review under the ECF. Discussions with the authorities will continue in the coming weeks. If these discussions are successful, the review can be completed in December.
“During its visit, the mission met with Prime Minister Jeenbekov, Deputy Prime Minister Pankratov, Minister of Finance Kasymaliev, Minister of Economy Kozhoshev, Chairman of the National Bank Abdygulov, Head of the SDPK faction in Parliament Omurkulov and other senior officials, and representatives of the private sector, civil society, and the diplomatic community. The team thanks the authorities and other counterparts for their warm welcome, excellent cooperation, and candid and constructive discussions during the visit, and reaffirms the IMF’s support to the government’s efforts to implement their economic reform program.”