Kyrgyz Republic: IMF Announces Staff-Level Agreement on First Review of the Extended Credit Facility

An International Monetary Fund (IMF) team, led by Mr. Christian Beddies, visited Bishkek September 7-21, 2011 to hold discussions for the first review under a three-year, SDR 66.6 million (about US$106 million) Extended Credit Facility arrangement with the Kyrgyz Republic (see Press Releases No. 11/245). The IMF mission reached a staff-level agreement with the Kyrgyz authorities on the measures needed for completion of the first 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 first review in early December 2011. 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 19.028 million (about US$30 million).

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

“The Kyrgyz economy is recovering strongly from the last year’s political turmoil and economic downturn. Real GDP grew by 7 percent year-on-year over the first eight months of 2011, supported by a strong rebound in neighboring countries. While headline inflation remains high at 17.5 percent at end-August year-on-year, it is on a solid downward path and is expected to decline to 13 percent in December, 2011.

“Looking ahead, we expect real GDP to grow by about 7 percent this year and about 5½ percent on average over the medium term on the back of strong growth in agriculture, trade and construction, particularly if prices for key exports remain high, and regional partners continue to grow. The mission welcomes the authorities’ commitment to implement continued tight monetary policy to help reduce pressures on core inflation. Over the medium term, inflation is expected to subside, largely reflecting anticipated stabilization of international food and fuel prices, and prudent fiscal and monetary policies.

“The mission agreed with the authorities to rebuild policy buffers and to launch a more ambitious fiscal consolidation than envisaged earlier, given the stronger-than-expected economic recovery. Fiscal consolidation will be supported by prudent expenditure policies and tax policy and administration measures, which will help ensure strong tax revenue performance. To support inclusive growth, in particular the poor, the authorities should further develop targeted social assistance programs. In light of the uncertain global economic outlook, it will be important to exercise caution in fiscal policy implementation and prepare appropriate contingency measures.

“To bolster the financial system, the mission advised the government to swiftly complete the resolution of the remaining problem banks in a transparent and competitive manner. Moreover, the mission urged the authorities to closely monitor and effectively control the growth of systemically important banks, including through the application of supervisory measures. The legal reforms envisaged under the ECF-supported program, once adopted, will strengthen the bank resolution framework and thereby better equip the central bank to effectively deal with problem banks in the future. The IMF is providing ongoing technical assistance in this area.”