Press Release No. 03/18

Press Release: IMF Completes in Principle Second Review Under the Three-Year Poverty Reduction and Growth Facility Arrangement and Approves Request for Waiver of Performance Criterion for the Kyrgyz Republic

February 21, 2003

The IMF's Executive Board approved the three-year arrangement effective on December 6, 2001 (see Press Release No. 01/49) for a total of SDR 73.4 million (about US$100 million).

The PRGF is the IMF's concessional facility for low-income countries. It is intended that PRGF-supported programs will in time be 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 each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty.

Following the discussion of the Executive Board, Eduardo Aninat, Deputy Managing Director, and Acting Chairman, said:

"The Kyrgyz Republic has made good progress in macroeconomic stabilization, which provides a promising base for the government's ambitious medium-term economic strategy. Prudent fiscal and monetary policies have brought down inflation and helped to stabilize the foreign exchange markets. Real GDP, which declined in 2002, is projected to return to growth in 2003. Important structural reforms to sustain growth and reduce poverty are underway.

"The medium-term challenges are demanding, however. These include the need to further reduce poverty and the external debt level, and to diversify the economy in light of the prospect of declining gold production and exports. Strong structural policies to support productivity growth and improve cost competitiveness are crucial in order to strengthen non-gold exports. The authorities will need to devote special attention to further reforms in the areas of governance and banking, which will be particularly important to support private investment and economic diversification.

"Fiscal consolidation, together with the support of international creditors and donors, will be important to bring the external debt to more sustainable levels. Raising revenues through better tax administration and a broadening of the tax base is needed, as the room for spending cuts is limited. On the expenditure side, the streamlining of the Public Investment Program will free resources that can be devoted to social spending and poverty reduction efforts.

"Monetary policy has been successful in containing inflation while allowing remonetization of the economy, and the exchange rate policy of managed floating has prevented excessive nominal appreciation. The central bank stands ready to react promptly to any signs of accelerating inflation.

"The authorities are to be commended for completing the rescheduling agreements with all Paris Club creditors. It is to be hoped that the remaining negotiations with non-Paris Club creditors will be finalized soon and on comparable terms.

"The comprehensive approach to poverty reduction contained in the Kyrgyz Republic's National Poverty Reduction Strategy (NPRS) document supports well the ambitious medium- term macroeconomic strategy. The NPRS will be updated, with a focus on refining costing and prioritization policies and improving the monitoring and evaluation mechanisms," Mr. Aninat said.