The Executive Board of the International Monetary Fund (IMF) today completed the fifth review of Kyrgyz Republic’s economic performance under the program supported by the Extended Credit Facility (ECF). The Executive Board’s decision enables the immediate disbursement of an amount equivalent to SDR 9.514 million (about US$14.6 million) to the Kyrgyz Republic, bringing total disbursements under the arrangement to SDR 57.08 million (about US$87.6 million). The Executive Board also considered the Report on the 2013 Financial System Stability Assessment (FSSA).

The Kyrgyz Republic’s Extended Credit Facility arrangement was approved by the IMF’s Executive Board on June 20, 2011 (see Press Release No. 11/245) with total access equivalent to SDR 66 million (about US$102.2 million).

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

“The Kyrgyz economy is recovering strongly after a contraction related to disruptions in gold production in 2012. Fiscal policy has remained prudent despite declining gold prices. Imports for large infrastructure projects are putting pressure on the current account. The medium-term outlook is broadly favorable, but not without challenges, including from gold price volatility and the slowdown in the region.

“The loss of nontax revenues related to the closure of the Manas Transit Center in 2014 will create headwinds for the fiscal consolidation that is needed to reduce vulnerabilities, rebuild policy buffers, and ensure macroeconomic stability and debt sustainability. In the near term, the revenue loss will be offset by grants, revenues from the new oil refinery, and expenditure restraint. Over the medium term, tax system reforms are expected to offset the loss and build a more stable and predictable revenue base. In addition, public financial management reforms will strengthen fiscal governance and transparency, and help to control expenditures.

“Proper implementation of the new operational framework for monetary policy will be instrumental in improving monetary transmission. It will be important for the National Bank to maintain a tight monetary policy stance to mitigate potential inflationary pressures stemming from the strong recovery and rapid credit growth.

“Creating a well-functioning financial sector is key to supporting private sector-led growth. The new banking code, once enacted, will be instrumental to strengthen the bank intervention and resolution process and bolster confidence in the banking system. Developing a strategic plan to strengthen bank supervision and a crisis management framework are important elements to increase stability and resilience of the financial sector. To strengthen the Anti-Money Laundering/Combating the Financing of Terrorism framework, the authorities should adopt the remaining legislative changes.

“Diversification of the economy would help reduce the volatility in growth stemming from potential disruptions in gold production and reduce the persistently high current account deficit. Good governance and sound institutions remain critical to create a level playing field, improve investor confidence, and lay the foundation for strong private sector-led growth.”