An IMF mission led by Edward Gemayel visited Bishkek from February 9–15, to take stock of the latest economic developments and discussed progress on economic reforms.
At the conclusion of the visit, Gemayel issued the following statement:
With external pressures subsiding, economic indicators have improved, but the recovery remains modest. Growth accelerated towards the end of 2016, reaching 3.8 percent with 0.5 percent deflation due in part to exchange rate appreciation of about 9 percent. Despite a shortfall in tax revenue, the 2016 deficit was contained to 4.5 percent of GDP due to restrained spending on non-priority items and the rephrasing of some investment projects.
Consolidation efforts should continue to meet the 2017 fiscal deficit target of 3 percent of GDP. It is important to continue to implement revenue and expenditure measures announced last year, including the elimination of the value added tax (VAT) exemption on flour, rationalizing the public sector wage bill, and streamlining spending on goods and services. Resisting spending pressures will be critical in the run up to the presidential election. Developing a credible and transparent fiscal rule will help maintain fiscal discipline.
The current neutral and cautious monetary policy stance is appropriate. Further easing should be conditional on inflation being on track to reach the target range of 5-7 percent. The National bank of the Kyrgyz Republic should continue to carry out foreign exchange interventions only when necessary to smooth out excessive fluctuations while maintaining two-way flexibility.
Efforts to bolster financial sector resilience should continue. The liquidation of banks remaining under DEBRA should be completed as planned. The unification of bank capital requirements should not be delayed.
The passage of the anti-money laundering and counter finance of terrorism (AML/CFT) law is vital for the stability of the financial sector. The law is necessary to keep the Kyrgyz Republic on the white list of the Eurasian Group on AMl/CFT. Failure to pass the law could lead to loss of correspondent banking relations and cut the financial sector off from the outside world.