Minister of Finance of the Kyrgyz Republic Financing economic recovery and ensuring fiscal sustainability in the Kyrgyz Republic Ch. Imashev, Minister of Finance of the Kyrgyz Republic

Presentation outline I. Current situation II. Tasks related to economic recovery and ensuring fiscal sustainability III. Overall financing needs

I. Current situation

Consequences of this year’s events Civil conflict in the southern regions: Thousands of casualties Tens of thousands left homeless Hundreds of thousands of refugees, and internally displaced Natural disasters affect parts of Osh, Jalal-Abad regions Withdrawal from Kyrgyzstan’s largest private bank bring losses to Social Fund, and others Trade constraints create serious losses for: Farmers Textile and trading companies Falling GDP, loss of development progress

Economic projections for 2010 GDP growth -5.4% Inflation (December 2010 on December 2009) 11% Budget revenues USD 1.14 billion Budget expenditures USD 1.76 billion Budget deficit USD 619 million

GDP: actual and forecasts for 2010 - Previous year = 100

Budget in the first half of 2010 National budget is in critical state, due to: Drastic increase in expenditures after conflict Falling revenues Past quasi-fiscal arrears Budget deficit for 2010: Will exceed USD 619 million (13.5 % of GDP) USD 345 million unsecured—financing gap

Fiscal trends, 2003-2010 (cash flow basis) Revenues Expenditures Revenues total Expenditures total Deficit / proficit Deficit

Tasks expected in 2011 Economic reconstruction will have started Completion expected by end-2012 Budget revenues to grow, but by less than social commitments (time frame is too short) 2011 budget deficit could exceed USD 433 million (8.6% of GDP)

Why timely donors’ assistance is crucial: If financing for this deficit (USD 433 million) is inadequate (will not be received), budget expenditures will be dramatically reduced on: Public investment programme (energy infrastructure, roads, bridges, schools, hospitals, etc.): USD 211 million Operational expenses (maintenance, procurement of goods and services, utilities, etc.): USD 222 million The state would be able to pay only salaries This would substantially restrict the country’s future development

Public debt as share of GDP. Sources: Kyrgyz authorities, Public debt scenarios 2010 2011 2012 Optimistic scenario loan 30/70 grant 58.1% 57.8% 56.4% Intermediate scenario loan 50/50 grant 61.0% 63.8% 62.3% Pessimistic scenario loan 70/30 grant 70.3% 78.1% 71.8% Public debt as share of GDP. Sources: Kyrgyz authorities,

Emergency measures already adopted 2010 state budget spending already reduced: 3.4% in nominal terms, almost 10% in real terms Most discretionary expenditures have been cut International commitments, entitlements not touched USD 27 million in additional budget revenues found Emergency measures reflect needs for long-term fiscal sustainability

Nevertheless… The scope of damage and consequences of tragic events is enormous Domestic resources are limited Economic recovery, reconstruction, and ensuring fiscal sustainability—only possible with support from our development partners

II. Economic recovery, reconstruction, and fiscal sustainability tasks

1. Challenges to fiscal sustainability Current situation: Budget revenues are falling, expenditures are growing 2010 deficit expected to be USD 350 million higher than forecast at the start of the year Within two years we have to pay USD 145 million of principal and interest on external debt

2. Ensuring energy security Total amount required Of which : USD 170 million Procurement of coal, gas and fuel oil USD 50 million Repair and reconstruction of equipment and electricity transmission lines USD 70 million Repair of heating stations in Bishkek and Osh

3. Ensuring food security USD 35 million to create state reserve USD 50 million needed USD 15 million for the mechanization of agriculture to improve sector’s productivity

vulnerable social groups-USD 50mln 4. Support to the most vulnerable social groups-USD 50mln Social support to internally displaced persons will require USD 20 million Social support to persons living in difficult climatic conditions will additionally require USD 30 million

5. Ensuring public order and security Total Of which : USD 50 million Salary increases USD 17 million Uniforms and equipment USD 25 million Procurement of technical facilities USD 8 million

6. Infrastructure construction, reconstruction Total : of which : USD 230 million Repair of public and commercial buildings and objects USD 61 million Construction of ring road in Osh and intra-urban highways in Osh and Jalal-Abad USD 120 million Modernization of Manas, Osh airports, improvement of runway in Osh airport USD 20 million

7. Support for economic growth Confidence building and stabilization of commercial banking system (AUB) will require USD 76 million Creation and capitalization of the Development Bank will require USD 200 million Small-scale strategic investment projects Access clean development mechanism (CDM) funding, other sources of carbon finance Small hydro, solar, wind power Energy efficiency

8. Capitalization of economy for “catch-up growth” $100 million External assistance Agricultural Bank State budget Transition economy has high potential to grow National economy $100 million State Savings Bank

9. Reconstruction of Osh and Jalal-Abad regions – 285 mln Humanitarian aid USD 80 million Housing construction USD 100 million Restoration of engineering infrastructure USD 30 million Procurement and installation of temporary mobile shelters USD 20 million Procurement of medical equipment, medicines and special machinery USD 10 million Support for damaged businesses USD 45 million

10. Recovery from natural disasters in Osh and Jalal-Abad regions The repair of infrastructure and housing damaged by natural disasters in Osh and Jalal-Abad regions requires USD 30 million

III. Overall financing needs: USD 1.24 billion, Except Kambar-Ata and Kemin – Datka projects

Aggregate table of financial needs—USD 1.24 billion Current budget Development Humanitarian Elections 8.7 Fuel procurement 50 Food, seed purchases 35 Lost budget revenues 62 Repair of electricity transmission lines 70 Agricultural equipment purchases 15 Social protection 30 Heating plant repairs Procurement of mobile shelters 20 Public order and security 12 Road construction, repair 120 Humitarian assistance 80 Reconstruction of public buildings 21 Airport modernization (Osh, Manas) Support for internally displaced persons Response to natural disasters Creation of Development Bank 200 Cover losses of Pension Fund, and others 76 Infrastructure reconstruction 40 Financing of Southern Directorate 100 Reconstruction of privately owned buildings Procurement of equipment 10 Capitalization of economy TOTAL 350 690 Note: All figures are in million USD

To finance only urgent measures in 2010 and some of the measures planned for 2011-2012, the Government of the Kyrgyz Republic needs external financial support in the amount of USD 1.24 billion

Types of financial assistance expected Grants and concessional budget financing Kyrgyz Republic Humanitarian assistance Wide access to credit for business Debt restructuring, debt swaps

Ensuring of effectiveness of assistance Transparency in distribution Accountability to the public Participatory of local community Monitoring of implementation (audit, surveillance, financing mechanisms of control) Evaluation of results

Our medium term Goals to move to the trajectory of sustainable economic growth, to improve the standard of living of our citizens to build faire state

Thank you for your attention!