Press Release No. 13/399

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

October 10, 2013

An International Monetary Fund (IMF) mission, led by Mr. Christian Beddies, visited Bishkek from September 18 to October 2, 2013 to hold discussions for the fifth review under a three-year Extended Credit Facility (ECF) arrangement (Press Release No. 11/245). The mission reached staff-level agreement with the Kyrgyz authorities on measures needed for the conclusion 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 fifth review in early December 2013. 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 57.084 million (about US$90 million).

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

“Following the disruption in gold production in the largest gold-mining company and negative growth in 2012, the economy rebounded strongly this year with robust and broad-based growth in a low-inflation environment. The current account deficit is estimated to decline in 2013, helped by the recovery in gold output and lower food and fuel prices. Twelve-month inflation dropped to 6.6 percent in August 2013 and core inflation declined to single digits.

“This year, growth is expected to rebound strongly to 7.8 percent on the back of the recovery in gold production and continued strong performance in the nongold sector. Next year, growth is projected to moderate to 6.5 percent, while the current account deficit is projected to increase because of imports related to infrastructure projects. The mission welcomes the central bank’s continued commitment to implement policies that will keep inflation at bay. Barring exogenous shocks, inflation is expected to stabilize at 7 percent over the medium term.

“Program performance remains on track. The government continues to place strong emphasis on fiscal consolidation in 2013 and the medium term, albeit the closure of the Manas Transit Center in 2014 is creating headwinds. The 2014 budget is therefore based on conservative revenue forecasts, nonpriority expenditure restraint, and social considerations. The overall fiscal deficit is expected to decline to 4.1 percent of GDP in 2014. The government is committed to strengthening the tax policy function and identifying measures to cope with the permanent revenue shortfall from the closure of the transit center. At the same time, the government continues to improve tax administration and public financial management.

“Structural reforms are progressing. In the financial sector, the mission welcomes the resolution of Zalkar bank. The bank’s full recapitalization should be completed swiftly and its operations monitored closely. The new draft banking code has been submitted to parliament. Once approved by parliament, the code will modernize the resolution regime and streamline the supervisory framework. The mission urged the authorities to work with parliament to ensure that the new banking code and amendments to the Anti-Money Laundering/Combating Financing of Terrorism framework are adopted in line with international best practice.

“The mission agreed with the authorities that further improving the business environment is a key pillar of sustainable and inclusive growth. In addition, a stable and predictable investment climate with proper contract enforcement, strengthened property rights, and addressing perceived corruption are essential for attracting investment and spurring private sector-led growth.”