Press Release No. 09/184

Press Release: IMF Completes First Review Under Exogenous Shock Facility with the Kyrgyz Republic and Approves US$25.5 Million Disbursement

May 22, 2009

The Executive Board of the International Monetary Fund (IMF) today completed the first review of the Kyrgyz Republic’s economic performance under the 18-month Exogenous Shocks Facility (ESF) arrangement and approved the immediate release of SDR 16.65 million (about US$25.5 million). This will bring total disbursements under the ESF to SDR 33.3 million (about US$51 million). The 18-month, SDR 66.6 million (about US$102 million) arrangement under the ESF was approved on December 10, 2008 (see Press Release 08/316).

The Board also concluded the 2009 Article IV consultation. Details of the findings will be published in a Public Information Notice.

Following the Executive Board's discussion, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, stated:

“The global crisis is causing a sharper economic slowdown in the Kyrgyz Republic than was expected at the time of the approval of the 18−month arrangement under the Exogenous Shocks Facility (ESF) in December 2008. The crisis is affecting the Kyrgyz economy mainly through trade and remittance channels, spilling over to domestic demand and creating revenue shortfalls and larger balance of payments needs. As a result, economic growth is expected to slow sharply in 2009. The authorities are committed to take additional measures as needed.

“The spread of the global financial crisis has also put downward pressure on the exchange rate. The banking system has been resilient, but the increased uncertainty has affected money demand and credit growth, and banks’ asset quality has deteriorated. At the same time, inflation has declined sharply, helped by lower international food and energy prices, prudent monetary policy, and, more recently, the slowdown in activity.

“The authorities’ macroeconomic policies aim to mitigate the impact of the crisis on economic growth and the poor. Policy implementation under the ESF arrangement has been strong, and all targets set for end-December 2008 were met. Large financial support from the Russian Federation will also help sustain activity by allowing fiscal policy to accommodate the revenue shortfall, and create room for an increase in capital and social spending. The sizable donor support will also cover the larger balance of payments needs and help maintain an adequate level of foreign exchange reserves.

“The Kyrgyz central bank’s policies aim to lower inflation and maintain financial sector stability. The central bank will continue to pursue a flexible exchange rate policy to absorb external shocks and limit reserve losses. Provided that inflation continues to decline and exchange rate pressures abate, monetary policy could be eased gradually to provide additional support to the economy. The central bank will continue to monitor banks closely. The authorities have acted proactively by putting in place emergency liquidity facilities and by standing ready to provide capital to systemic banks if needed. The early introduction of a deposit insurance scheme will help bolster confidence in the banking system,” Mr. Portugal said.