— Tell us more about the assistance that the IMF agreed to provide to Kyrgyzstan.
— This is an emergency loan that does not require fulfillment of any conditions for targeted use of the funds for certain expenses. The amount is limited to 50 percent of the quota of Kyrgyzstan in the IMF, which is 88.8 million SDRs (equivalent to $ 120.9 million at the time of granting).
— Allocation of funds is usually a rather lengthy process. But this time the decision is made very quickly. What is the reason for such a rush?
— The rapid pace at which the decision was made is explained by the need to quickly respond to a crisis of unprecedented severity in healthcare and the economy. The Kyrgyz Republic was among the first countries to send a request, and IMF teams in Bishkek and Washington quickly responded to it.
— Is this a one-time assistance or additional tranches are possible if necessary?
— This is a one-time payment. The IMF also has other tools that help countries overcome longer-term shocks. These tools facilitate structural reforms and include certain conditions. If the authorities ask for additional support within the framework of these tools, we will respond to their request as quickly as possible.
— Will the IMF support for Kyrgyzstan concern only financing of budget gaps, or will it be possible to assist in acquisition of the necessary equipment for the healthcare sector?
— The IMF support will be aimed at covering the financial gap in the budget and can be aimed at the spending of the health care system.
— Who and how will control the targeted spending of the funds?
— In their letter of intent, the authorities outlined procedures to ensure the proper use of the financial support. Procurement of urgently needed medical supplies will subsequently be audited, the results of which will be published on the website of the Ministry of Finance.
— Does the IMF have any estimates on how much the coronavirus will hit the global GDP and the economies of the countries in the Central Asian region?
— The IMF reviews its assessment of the impact of the crisis on the global economy every day. We expect a recession in most of the largest economies in 2020 and a serious slowdown of growth in many other countries. We will publish our forecast «Prospects for Development of the World Economy» in mid-April, but it will be characterized by an unprecedented level of uncertainty.
— How tangible may the losses be for Kyrgyzstan? Can you voice specific figures on the fall in GDP, trade, tax shortfalls?
— Negative impact on the Kyrgyz economy will be reflected in a reduction in budget revenues due to closure of borders and weakening of economic activity, a reduction in remittances from Russia due to low oil prices and rising health care expenditures.
Based on the assumption that the crisis will end in June, we believe that the COVID-19 shock will slow down real GDP growth to 0.4 percent in 2020.
Tigran Poghosyan
In addition, an average inflation rate will increase to 11 percent, the current account deficit of the balance of payments will increase to 14.5 percent of GDP and the budget deficit — to 8 percent of GDP. Forecasting is characterized by an unprecedented level of uncertainty. There are many risks of deterioration, including the risk that the crisis will drag on.
— Exchange rate of the national currency of the Kyrgyz Republic declined due to coronavirus and volatility in the foreign exchange market amid falling oil prices. Kyrgyzstan may have problems with repayment of its external debt. Can the IMF write off the debt of Kyrgyzstan or prolong it?
— The weakening of the exchange rate helped the economy cope with external shocks and allowed the National Bank of the Kyrgyz Republic to preserve international reserves. Our joint assessment of the state debt sustainability with the World Bank shows that the likelihood of a debt crisis is moderate. There are currently no multilateral debt restructuring initiatives, and the IMF has not held such discussions with Kyrgyzstan’s authorities.
— What useful lessons can the Kyrgyz government learn from the current situation?
— We have recommendations regarding economic policy:
— To continue a flexible exchange rate policy and pursue a monetary policy that responds to changes in economic data, taking into account a significant level of uncertainty;
— To return the inflation rate to the target of 5-7 percent in 2021;
— It is urgently necessary to find donor funding to fill the remaining gap in the balance of payments and ease the burden of adjusting the economy to a new reality.
— To be prepared to provide liquid funds to the financial system, ensuring the availability of transparent information about collateral guarantee;
— To provide coverage for the growing budget deficit provided that sufficient funds are mobilized and to develop a plan to reduce the deficit to below 3 percent of GDP after the crisis;
— To use bank capital and liquid reserves to cover credit losses and lack of liquidity, and once these reserves are depleted, show flexibility in terms of return of capital and liquidity to a level exceeding the required minimum.
