IMF recommended Kyrgyzstan to continue fiscal consolidation to maintain public debt at a sustainable level

Almaty. July 18. Silkroadnews – The International Monetary Fund (IMF) recommended Kyrgyzstan to continue fiscal consolidation to maintain public debt at a sustainable level, reports KyrTAG.

As reported in the statement by IMF group at the end of their visit to Kyrgyzstan, after a difficult start of the year, the pressures on the economy are beginning to moderate, helped by a stabilizing regional context. In the first half of 2016, overall and non-gold growth reached -2.3 percent and 1.2 percent, year-on-year, respectively. Inflation is subdued at 1.3 percent year-on-year, at the end of June, whereas the som has appreciated by 11.3 percent by early July. For 2016 as a whole, growth is expected to reach 2.2 percent, while inflation will remain below 3.5 percent.

“The government should make every effort to keep the fiscal deficit in 2016 within the budgeted 4.5 percent of GDP. Meeting this target will require significant efforts aimed at increasing revenues and controlling expenditures. In this context, the recent introduction of a new VAT exemption on imported grain is counterproductive and should be reversed,” the statement says.

The IMF experts also recommended Kyrgyzstan’s government to continue fiscal consolidation from 2017 onwards helping to maintain public debt at a sustainable level.

“Revenues should benefit from the full effect of measures implemented in 2016 to improve tax policies and administration, in addition to rationalizing non-priority expenditures. Refraining from spending pressures will be critical in the run up to next year’s presidential election,” the IMF official said.

The National Bank of the Kyrgyz Republic was recommended to continue to limit interventions only to smooth excessive volatility and allow the som to move in line with fundamentals.

“High banking sector vulnerabilities call for the immediate passage of the Banking Law, given its importance to preserving financial sector stability. The Law is essential to reduce the duplication and contradictions prevalent under the existing regulatory framework and strengthen the independence, governance, and transparency of the central bank,” the IMF experts added.

The IMF mission visited Bishkek during July 8-14 to take stock of the latest economic developments and prepare the ground for the third review mission under the Extended Credit Facility (ECF), tentatively scheduled for the second half of September.