An IMF mission led by Mr. Edward Gemayel visited Bishkek during January 29 to February 4, 2016 to discuss recent economic developments, government policies and economic prospects in the context of a challenging regional environment. The discussions also prepared the ground for the second review mission under the Fund supported Extended Credit Facility, tentatively scheduled for April 2016.
At the conclusion of the visit, Mr. Gemayel issued the following statement:
“While progress has been made, strong additional efforts will be needed to consolidate public finances, strengthen the financial sector and ensure continued progress under the IMF supported program.
“The Kyrgyz economy exhibited resilience in the face of adverse external shocks, with growth reaching 3.5 percent in 2015 and inflation remaining in the low single digits. The external environment remains challenging this year. The continuing decline in oil prices, and the slowdown in Russia, Kazakhstan and China will exert pressure on the Kyrgyz economy through remittances and the exchange rate and trade channels.
“Efforts to resume fiscal consolidation and put public debt on a sustainable path should resume in 2016 in order to achieve deficit targets agreed under the program. To this end, additional efforts are necessary to counteract the effect of the phasing out of sales tax, extension of tax exemptions and other possible tax revenue shortfalls, while containing non priority spending. Maintaining debt sustainability will require prioritization and re-phasing of public investment and better debt management.
“The National Bank of the Kyrgyz Republic (NBKR) succeeded in steering the foreign exchange market through a particularly turbulent period. Going forward, interventions should be limited to smoothing excessive volatility, in order to avoid depleting reserves and eroding competitiveness.
“De-dollarization is a long term process, which requires a comprehensive approach based on market-based principles, macroeconomic stability, and prudential policies that strengthen the financial sector. In this context, the conversion program for foreign currency mortgage loans should not be expanded beyond its current scope, and fiscal measures are needed to be taken to offset the additional costs to the budget. The State Mortgage Company (SMC) should be licensed, regulated and supervised by the NBKR and its operations should not generate any budgetary losses.
“The authorities, including the government and the NBKR, should exert every effort to ensure progress towards the passage of the banking law within the timeframe and parameters agreed under the program, which would be necessary to ensure timely completion of the second review. It is essential that the final version of the law preserves the key features of the legislation, which aim at strengthening central bank independence and modernizing the existing bank resolution framework in line with international best practice.
“IMF staff will continue to work closely with the authorities and provide support as needed during those challenging times.
“The IMF team met with senior government officials and representatives of the private sector, civil society and the diplomatic community. I would like to thank the Kyrgyz authorities and technical staff for their warm welcome, hospitality and constructive discussions.”
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