The Kyrgyz Republic: Fifth Review Under the Three-Year Arrangement Under the Extended Credit Facility, and Request for Modification of Performance Criteria

EXECUTIVE SUMMARYPolitical context. The political environment has been broadly stable, albeit the ongoingdispute with gold company Centerra is creating tensions. In September, the governmentand Centerra signed a memorandum of understanding which stipulated the exchangeof 33 percent of the government's share in Centerra for a 50 percent stake in Kumtor.Parliament, however, asked for further negotiations with a view to increase the Kyrgyzshare in the joint venture. The Kyrgyz parliament approved the legislation to close theManas Transit Center in July 2014.Background. Growth (both overall and nongold) was strong over the first nine monthsof 2013 (9.2 and 6.1 percent, respectively) and inflation has declined steadily. Intensivepublic investment programs and the decline in gold prices are putting temporarypressures on the current account. The loss of nontax revenues related to the closure ofthe Manas Transit Center next year is creating headwinds for fiscal consolidation.Nonetheless, the medium-term outlook is broadly favorable, despite the slowdown inthe region. System-wide financial stability indicators have been broadly sound and thecapitalization of Zalkar bank, which was renamed Rosinbank, is underway.Program. The program is broadly on track with all end-June 2013 quantitativeperformance criteria, and all but one indicative targets met. The end-Septemberstructural benchmark on issuing regulations to expand commitment control to localbudgets and special means was missed. Issuing the regulations is a prior action for thisreview. The authorities are requesting the sixth disbursement (SDR 9.514 million) tobecome available upon completion of this review.