IMF di­rects Kyr­gyzs­tan to strengthen bank­ing laws

The Pak Banker - - COMPANIES/BOSS -

An IMF mis­sion led by Mr. Ed­ward Ge­mayel vis­ited Bishkek dur­ing Jan­uary 29 to Fe­bru­ary 4, 2016 to dis­cuss re­cent eco­nomic de­vel­op­ments, govern­ment poli­cies and eco­nomic prospects in the con­text of a chal­leng­ing re­gional en­vi­ron­ment.

The dis­cus­sions also pre­pared the ground for the se­cond re­view mis­sion un­der the Fund sup­ported Ex­tended Credit Fa­cil­ity, ten­ta­tively sched­uled for April 2016.

At the con­clu­sion of the visit, Ge­mayel said while progress has been made, strong ad­di­tional ef­forts will be needed to con­sol­i­date pub­lic fi­nances, strengthen the fi­nan­cial sec­tor and en­sure con­tin­ued progress un­der the IMF sup­ported pro­gram.

The Kyr­gyz econ­omy ex­hib­ited re­silience in the face of ad­verse ex­ter­nal shocks, with growth reach­ing 3.5 per­cent in 2015 and in­fla­tion re­main­ing in the low sin­gle dig­its. The ex­ter­nal en­vi­ron­ment re­mains chal­leng­ing this year. The con­tin­u­ing de­cline in oil prices, and the slow­down in Rus­sia, Kaza­khstan and China will ex­ert pres­sure on the Kyr­gyz econ­omy through re­mit­tances and the ex­change rate and trade chan­nels.

Ef­forts to re­sume fis­cal con­sol­i­da­tion and put pub­lic debt on a sus­tain­able path should re­sume in 2016 in or­der to achieve deficit tar­gets agreed un­der the pro­gram. To this end, ad­di­tional ef­forts are nec­es­sary to coun­ter­act the ef­fect of the phas­ing out of sales tax, ex­ten­sion of tax ex­emp­tions and other pos­si­ble tax rev­enue short­falls, while con­tain­ing non pri­or­ity spend­ing. Main­tain­ing debt sus­tain­abil­ity will re­quire pri­or­i­ti­za­tion and rephas­ing of pub­lic in­vest­ment and bet­ter debt man­age­ment.

The Na­tional Bank of the Kyr­gyz Re­pub­lic (NBKR) suc­ceeded in steer­ing the for­eign ex­change mar­ket through a par­tic­u­larly tur­bu­lent pe­riod. Go­ing for­ward, in­ter­ven­tions should be lim­ited to smooth­ing ex­ces­sive volatil­ity, in or­der to avoid de­plet­ing re­serves and erod­ing com­pet­i­tive­ness.

De-dol­lar­iza­tion is a long term process, which re­quires a com­pre­hen­sive ap­proach based on mar­ket-based prin­ci­ples, macroe­co­nomic sta­bil­ity, and pru­den­tial poli­cies that strengthen the fi­nan­cial sec­tor.

In this con­text, the con­ver­sion pro­gram for for­eign cur­rency mort­gage loans should not be ex­panded be­yond its cur­rent scope, and fis­cal mea­sures are needed to be taken to off­set the ad­di­tional costs to the bud­get.

The State Mort­gage Com­pany ( SMC) should be li­censed, reg­u­lated and su­per­vised by the NBKR and its op­er­a­tions should not gen­er­ate any bud­getary losses.

The au­thor­i­ties, in­clud­ing the govern­ment and the NBKR, should ex­ert ev­ery ef­fort to en­sure progress to­wards the pas­sage of the bank­ing law within the time­frame and pa­ram­e­ters agreed un­der the pro­gram, which would be nec­es­sary to en­sure timely com­ple­tion of the se­cond re­view. It is es­sen­tial that the fi­nal ver­sion of the law pre­serves the key fea­tures of the leg­is­la­tion, which aim at strength­en­ing cen­tral bank in­de­pen­dence and mod­ern­iz­ing the ex­ist­ing bank res­o­lu­tion frame­work in line with in­ter­na­tional best prac­tice.

IMF staff will con­tinue to work closely with the au­thor­i­ties and pro­vide sup­port as needed dur­ing those chal­leng­ing times.

The IMF team met with se­nior govern­ment of­fi­cials and rep­re­sen­ta­tives of the pri­vate sec­tor, civil so­ci­ety and the diplo­matic com­mu­nity. I would like to thank the Kyr­gyz au­thor­i­ties and tech­ni­cal staff for their warm wel­come, hos­pi­tal­ity and con­struc­tive dis­cus­sions.

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