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Economic recovery of Kyrgyzstan remains modest

With external pressures subsiding, economic indicators of Kyrgyzstan have improved, but the recovery remains modest. The head of the International Monetary Fund mission Edward Gemayel said, following his visit to the Kyrgyz Republic.

IMF mission visited Bishkek during February 9–15. The specialists took stock of the latest economic developments and discussed progress on economic reforms. Following the visit, it was noted that the economic 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, 2016 budget deficit was contained to 4.5 percent of GDP due to restrained spending on non-priority items and the rephasing 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," Edward Gemayel stressed.

Specialists noted that the current neutral and cautious monetary policy stance by the National Bank 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.

In addition, the experts recommended the Kyrgyz authorities to continue to strengthen the stability of the financial sector.

Failure to pass anti-money laundering and counter finance of terrorism law can lead to the isolation of the country’s financial sector.

«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 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," IMF mission statement says.