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IMF Deputy Managing Director about som rate, reforms, support of Kyrgyzstan

IMF Deputy Managing Director Tao Zhang told 24.kg news agency how he assesses the stability of the national currency of Kyrgyzstan and what the republic needs to do to achieve higher economic growth rates.

-What is the reason of your visit to the Kyrgyz Republic?

— I am happy to be here to attend the 25th anniversary of the Kyrgyz som at the invitation of the National Bank of the Kyrgyz Republic. It is also a good opportunity for me to meet with President Sooronbai Jeenbekov and the government, to learn about the authorities’ economic and developmental programs and how the International Monetary Fund (IMF) could help.

-This year Kyrgyz currency celebrates its 25th anniversary. How do you estimate its stability?

-The Kyrgyz som has been flexible with limited interventions, which acted as a shock absorber and facilitated quick rebound of the economy following the 2014–15 regional crisis. Exchange rate flexibility is key to reducing external imbalance, preserving competitiveness, and safeguarding international reserves. In this regard, we would like to encourage the National Bank to continue maintaining the flexibility of the Kyrgyz som with limited foreign exchange interventions.

-What are, in your opinion, the development prospects for the global and regional economy?

— Indeed, global economic activity continues to firm up along with stronger investment and trade, reflecting our assessment that still-favorable financial conditions and strong sentiment will continue to support demand. We see more opportunity to benefit from this favorable condition. While we have seen a surge in growth in 2017, it’s a small window of opportunity that the region needs to capitalize on as it may not last.

— What are the prospects for economic growth for Kyrgyzstan? What do they depend on?

-Particularly for the Kyrgyz Republic, bringing the economy to a higher growth trajectory that would maintain progress on poverty reduction and raise per-capita income will necessitate far-reaching structural reforms to address gaps in skills, infrastructure, and institutions, including fighting corruption.

Barring these reforms, growth will remain modest and highly dependent on external sources such as gold, remittances, and foreign aid.

Tao Zhang

Promoting higher and more inclusive growth will also need to be complemented by growth-friendly fiscal consolidation to ensure that public finances remain sustainable and create room for developmental spending, as well as sound monetary and exchange rate policy to ensure macroeconomic stability and unlock credit to private sector.

-How does the IMF estimate the level of a public debt of Kyrgyzstan and its influence to the economy? May you say, if it has critical level?

-Public debt reached nearly 59 percent of GDP in 2017, slightly up from 58 percent in 2016. Debt is expected to be manageable in the next few years, provided that growth-friendly fiscal consolidation is undertaken to gradually lower deficit to below 2 percent of GDP over the medium term.

As you know, part of our review is to look at the debt sustainability for countries. For that, it is better to look at the big picture. When the debt burden increases, interest also increases which puts pressure on the budget and resources are used for servicing the debt when they would have been used for social spending and supporting health, education and infrastructure projects.

Therefore, as mentioned before, it is important to use the favorable external environment and domestic growth momentum to rebuild fiscal buffers by streamlining inefficient tax exemptions, rationalizing public sector wage bill and energy subsidy, and improving the prioritization and management of public investment.

-What will be the program of cooperation of the IMF with Kyrgyzstan in the next years?

-As with all its member countries, the IMF will provide the Kyrgyz Republic with economic analysis and policy advice under what we call the Article IV framework, which is an annual health check of the economy.

As you know, the previous program ended in early April without completing the last review. However, if the Kyrgyz authorities request a new arrangement, the Fund will be happy to consider the request.

Tao Zhang

On the other hand, the Kyrgyz Republic continues to benefit from technical assistance. Recent examples include those on fiscal rule, monetary policy, national account and government finance statistics. As always, we stand ready to help the Kyrgyz Republic and its people.

-What is the reason of change of the mission chief in Kyrgyzstan?

— I would like to thank Mr. Gemayel for his excellent work on Kyrgyz Republic. He has served as mission chief for four years and will shortly be taking on a new assignment. Please note that this is in keeping our internal guidelines for staff to rotate assignments about every three years. I am confident that Mr. Josz, who has much experience in a number of countries, will continue the excellent work done by his predecessor.