Financing economic recovery and ensuring fiscal sustainability

in the Kyrgyz Republic

Ch. Imashev, Minister of Finance of the Kyrgyz Republic

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Presentation outline

I. Current situation

II. Tasks related to economic recovery and ensuring

fiscal sustainability

III. Overall financing needs2

I. Current situation

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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 progress4

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 million5

GDP: actual and forecasts for 2010

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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

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Fiscal trends, 2003-2010 (cash flow basis)

Revenues Expenditures

Deficit

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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)9

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

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Public debt scenarios2010 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 scenarioloan 70/30 grant

70.3% 78.1% 71.8%

11Public 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

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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

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II. Economic recovery, reconstruction, and fiscal sustainability tasks

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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

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2. Ensuring energy securityTotal 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

USD 50 million

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3. Ensuring food security

USD 50 million needed

USD 35 million to create state reserve

USD 15 million for the mechanization of agriculture

to improve sector’s productivity

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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

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5. Ensuring public order and security

TotalOf which :

USD 50 million

Salary increases USD 17 million

Uniforms and equipment

USD 25 million

Procurement of technical facilities

USD 8 million

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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

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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

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8. Capitalization of economy for “catch-up growth”

State budget

External assistance

National economy

Agricultural Bank

State Savings

Bank

$100 million

$100 million

Transition economy has high potential to grow

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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

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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

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III. Overall financing needs: USD 1.24 billion,

Except Kambar-Ata and Kemin – Datka projects

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Current budget Development HumanitarianElections 8.7 Fuel procurement 50 Food, seed purchases 35

Lost budget revenues 62 Repair of electricity transmission lines 70Agricultural equipment purchases 15

Social protection 30 Heating plant repairs 50 Procurement of mobile shelters 20Public order and security 12 Road construction, repair 120 Humitarian assistance 80

Reconstruction of public buildings 21 Airport modernization (Osh, Manas) 20Support for internally displaced persons 20

Response to natural disasters 30 Creation of Development Bank 200

Cover losses of Pension Fund, and others 76 Infrastructure reconstruction 40

Financing of Southern Directorate 100Reconstruction of privately owned buildings 40

Procurement of equipment 10 Capitalization of economy 100TOTAL 350 TOTAL 690 TOTAL

Aggregate table of financial needs—USD 1.24 billion

Note: All figures are in million USD

200

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

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Types of financial assistance expected

Kyrgyz RepublicHumanitarian

assistance

Grants and concessional budget financing

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!

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