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IMF to support Kyrgyzstan to reduce macroeconomic vulnerabilities

10 April 2015 12:17 (UTC+04:00)
IMF to support Kyrgyzstan to reduce macroeconomic vulnerabilities

By Sara Rajabova

The International Monetary Fund will allocate $92.4 million credit to support Kyrgyzstan in dealing with its economic difficulties.

The Executive Board of the IMF on April 8 approved a three-year arrangement under the Extended Credit Facility for Kyrgyzstan in a sum equivalent to SDR 66.6 million (about $92.4 million).

It will enable the immediate disbursement of about $13.2 million, while the remaining amount will be phased over the duration of the program, the IMF said.

The new IMF-supported program will provide a macroeconomic framework that will support the Kyrgyz authorities’ efforts to reduce macroeconomic vulnerabilities stemming from a weak regional environment and dependency on gold and remittances.

The economic slump in Russia continues to negatively affect Kyrgyzstan, which largely relies on remittances from this country as well as other Central Asian countries.

The other factors that slow down growth in Kyrgyzstan are the sluggish performance of its neighbor Kazakhstan and a further drop in gold production as the quality of extracted ore declines.

“Despite Kyrgyzstan’s good performance under the 2011–14 Extended Credit Facility arrangement, important challenges remain,” said Min Zhu, IMF Deputy Managing Director.

He noted that these include a weak regional economic environment that is weighing on growth; a high public debt resulting from an ambitious investment program; the transition to the Eurasian Economic Union; and a heavy reliance on gold, remittances, and foreign aid.

“Moreover, further progress on the reform agenda is needed, particularly in the financial sector. The authorities’ program, which will be supported by a new three-year Extended Credit Facility arrangement, aims to address these challenges by helping achieve fiscal and debt sustainability, ensure financial sector stability, and encourage structural reforms to boost the economy’s growth potential,” Zhu said.

He further added that the fiscal strategy will play a critical role, noting it will consist of a pause in fiscal consolidation in 2015 to accommodate external shocks, followed by the resumption of the adjustment in 2016–17 to maintain public debt at a sustainable level.

“Strong tax measures to increase revenues as well as the streamlining of current expenditures will be essential to improve the operating balance. The elaboration of a new debt management strategy and the review of the public investment program are crucial to address the high public debt level,” Zhu said.

He also said Kyrgyzstan’s central bank will focus on containing inflation and also limit foreign exchange interventions to smoothing excessive volatility without resisting exchange rate trends.

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Sara Rajabova is AzerNews’ staff journalist, follow her on Twitter: @SaraRajabova

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