20230215-IMF-Kyrgyz_Republic_2022_Article_IV_Consultation-Press_Release_and_Staff_Report_73页_2mb

Kyrgyz Republic 2022 Article IV Consultation Summary

Core Content

The Kyrgyz Republic underwent a 2022 Article IV consultation with the IMF, which assessed the country's economic performance and policy priorities. The consultation highlighted the resilience of the Kyrgyz economy to external shocks, such as the war in Ukraine and global financial tightening, but also pointed out several vulnerabilities, including high inflation, widened fiscal and current account deficits, and declining international reserves. The report includes a Staff Report, Press Release, and Informational Annex, with recommendations for macroeconomic stabilization, structural reforms, and governance improvements.

Main Economic Developments and Outcomes

• Growth: The Kyrgyz Republic's economy grew by 5.5% in 2022, driven by gold production, trade, and agriculture. Growth is expected to slow to 3.5% in 2023 due to the contraction in Russia and a decline in gold production.
• Inflation: Annual inflation rose to over 15% in 2022, mainly due to high global food and fuel prices. Core inflation also increased to double digits. It is projected to decline to 10% by end-2023 and further to mid-single digits in the following years.
• Fiscal Deficit: The general government deficit widened to 5.2% of GDP in 2022 from 0.8% in 2021, primarily due to increased public sector salaries, pensions, and investment spending. Tax revenue improved by 6 percentage points of GDP, reaching 26.8% of GDP in 2022.
• Current Account Deficit: The current account deficit reached -28.7% of GDP in 2022, largely due to increased imports and reduced gold exports. It is expected to narrow to -10.6% in 2023 if gold exports resume.
• Public Debt: Total public debt fell to 60.8% of GDP at end-2021, but the fiscal deficit and financing needs increased, leading to a moderate build-up of public debt in the medium term.
• Banking System: The banking system remains financially healthy, but non-performing loans increased to over 12% of total loans.
• International Reserves: International reserves declined to 3.6 months of imports in 2022 from 6.4 months in 2020. They are projected to fall further to 2 months of imports by 2027.

Key Policy Recommendations

• Fiscal Policy: The Kyrgyz Republic should aim to reduce fiscal deficits and create fiscal space for priority spending on infrastructure, health, education, and social protection. Measures include reducing tax expenditures, optimizing tax policy, strengthening tax administration, cutting the public wage bill, and reducing energy subsidies. Channeling profits from the Kumtor Gold Company to the budget could help reduce the deficit.
• Monetary Policy: A restrictive monetary policy is needed to bring inflation down to mid-single digits. The National Bank of the Kyrgyz Republic (NBKR) should discontinue gold purchases to prevent liquidity injections and resume gold exports to support the current account. Exchange rate flexibility is important for resilience against external shocks.
• Structural Reforms: Structural reforms are required to enhance growth potential, create jobs, and reduce poverty. These include improving governance of state-owned enterprises (SOEs), strengthening regulations, and combating corruption. Early action on climate change is also recommended to build long-term resilience.
• Governance Reforms: Improving transparency and accountability in public procurement, strengthening asset and income declarations, and enhancing the Anti-Money Laundering/CFT framework are essential to reduce corruption risks and improve investment climate.

Risks and Outlook

• Downside Risks: A stronger contraction in the Russian economy, adverse spillovers from the war in Ukraine, and continued high inflation could worsen the current account deficit, increase poverty, and reduce growth. Additionally, delays in infrastructure projects, such as the China-Kyrgyzstan-Uzbekistan railway and Kambarata-1 hydropower plant, could widen the fiscal deficit and weaken debt sustainability.
• Upside Potential: A new wave of capital and labor migration from Russia could improve the short-term growth outlook.

Social and Economic Indicators (2019–2027)

Conclusion

The IMF recommends rebuilding macroeconomic buffers, implementing structural reforms, and strengthening governance to enhance the Kyrgyz Republic's resilience to future shocks. The country's economic stability is crucial for sustaining growth and reducing poverty, and the execution of these recommendations will be vital for long-term development and financial sustainability.