An International Monetary Fund (IMF) mission led by Edward Gemayel visited Bishkek in the Kyrgyz Republic from July 8 to 14 to take stock of the latest economic developments and prepare the ground for the third review mission under the Extended Credit Facility (ECF), tentatively scheduled for the second half of September.
At the conclusion of the visit, Gemayel issued the following statement, which conveys preliminary findings after the visit, and do not necessarily represent the views of the IMF’s Executive Board:
“After a difficult start of the year, the pressures on the economy are beginning to moderate, helped by a stabilising regional context. In the first half of 2016, overall and non-gold growth reached -2.3% and 1.2% year-on-year, respectively. Inflation is subdued at 1.3% year-on-year, at the end of June, whereas the som (Editor's note: the som is the currency of the Kyrgyz Republic) has appreciated by 11.3% by early July. For 2016 as a whole, growth is expected to reach 2.2%, while inflation will remain below 3.5%.
“The government should make every effort to keep the fiscal deficit in 2016 within the budgeted 4.5% of gross domestic product (GDP). Meeting this target will require significant efforts aimed at increasing revenues and controlling expenditures. In this context, the recent introduction of a new VAT exemption on imported grain is counterproductive and should be reversed.
“From 2017 onwards, the budget should continue the path of fiscal consolidation, thereby helping to maintain public debt at a sustainable level. Revenues should benefit from the full effect of measures implemented in 2016 to improve tax policies and administration, in addition to rationalising non-priority expenditures. Refraining from spending pressures will be critical in the run-up to next year’s presidential election.
“The National Bank of Kyrgyz Republic (NBKR) should continue to limit interventions only to smooth excessive volatility and allow the som to move in line with fundamentals. The recent appreciation of the exchange rate calls for a careful foreign exchange intervention policy that strikes a balance between financial sector stability and external competitiveness.
“High banking sector vulnerabilities call for the immediate passage of the Banking Law, given its importance to preserving financial sector stability. The Law is essential to reduce the duplication and contradictions prevalent under the existing regulatory framework and strengthen the independence, governance, and transparency of the central bank. Unfortunately, key provisions aimed at establishing a modern and efficient bank resolution framework and protecting depositors’ rights have been removed from the Law during the second reading. The NBKR should exert every effort to preserve the key features of the Law and bring it in line with international best practice.
“The recent completion of the audits of the Debt Resolution Agency (DEBRA) and the banks under its management, as well as the liquidation of the first two banks are important steps forward. Additional efforts are needed to complete the liquidation of all banks under DEBRA by the middle of next year."