1. 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

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

3. I. Current situation

4. 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

5. 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

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

7. 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

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

9. 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)

10. 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

11. 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,

12. 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

13. 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

14. II. Economic recovery, reconstruction, and fiscal sustainability tasks

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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

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

26. 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

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

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

29. 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

30. 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

31. Thank you for your attention!