Press Release No. 03/116

Press Release: IMF Completes Third Review of the Three-Year Poverty Reduction and Growth Facility Arrangement and Approves Request for Waivers of Performance Criteria for the Kyrgyz Republic

July 17, 2003

The Executive Board of the International Monetary Fund (IMF) today completed the third review of the Kyrgyz Republic's economic performance under the three-year Poverty Reduction and Growth Facility Arrangement (PRGF). The Executive Board also approved a request for waivers for the nonobservance of two structural performance criteria - the measures regarding the extension of the value added tax to large agricultural producers and the new tax law on real property have been implemented, following brief delays. The decision enables the Kyrgyz Republic to draw an amount equivalent to SDR 9.56 million (about US$13.2 million) under the arrangement.

The Executive Board approved the three-year arrangement effective on December 6, 2001 (see Press Release No. 01/49) for a total of the equivalent of SDR 73.4 million (about US$101.7 million).

The PRGF is the IMF's concessional facility for low-income countries. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in the Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5 ½-year grace period on principal payments.

Following the discussion of the Executive Board, Shigemitsu Sugisaki, Deputy Managing Director , and Acting Chairman, said:

"The Kyrgyz Republic continues to make good progress toward achieving the objectives of the program supported by the three-year PRGF arrangement. Macroeconomic performance continues to be strong, with growth recovering from the natural disasters of 2002 and inflation remaining low, and all quantitative macroeconomic targets during the period ending March 2003 were met. The Fund has concluded the third review under the PRGF arrangement on the strength of the authorities' policies and adherence to the objectives of the program.

"The authorities have achieved fiscal consolidation by containing expenditure growth and improving tax collection. However, continued fiscal adjustment will be necessary for reducing the high debt burden and facilitating increased social spending to reduce the high rate of poverty. In this connection, the authorities have taken difficult steps in adopting key legislation to broaden the base of the value added tax to cover the sales of large agricultural producers and by introducing a real property tax. These measures will strengthen revenues, and improve the efficiency of the tax system.

"The central bank has pursued appropriate monetary and exchange rate policies, which have maintained low inflation and encouraged remonetization of the economy. Although the som has recently appreciated in nominal terms, reflecting strong money demand, relatively low inflation has avoided appreciation of the real effective exchange rate and helped sustain competitiveness.

"Looking forward, the authorities' priorities will be to maintain prudent fiscal and monetary policies and continue the process of fiscal adjustment. In addition, there is a need to press ahead with privatization, restructure the power sector and strengthen the financial system. Moreover, improving governance and reducing corruption will be essential for creating an environment that will be conducive to high investment, growth, and poverty alleviation", Mr. Sugisaki said.