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

EXECUTIVE SUMMARY Political context. The political environment has been broadly stable, albeit the ongoing dispute with gold company Centerra is creating tensions. In September, the government and Centerra signed a memorandum of understanding which stipulated the exchange of 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 Kyrgyz share in the joint venture. The Kyrgyz parliament approved the legislation to close the Manas Transit Center in July 2014. Background. Growth (both overall and nongold) was strong over the first nine months of 2013 (9.2 and 6.1 percent, respectively) and inflation has declined steadily. Intensive public investment programs and the decline in gold prices are putting temporary pressures on the current account. The loss of nontax revenues related to the closure of the Manas Transit Center next year is creating headwinds for fiscal consolidation. Nonetheless, the medium-term outlook is broadly favorable, despite the slowdown in the region. System-wide financial stability indicators have been broadly sound and the capitalization of Zalkar bank, which was renamed Rosinbank, is underway. Program. The program is broadly on track with all end-June 2013 quantitative performance criteria, and all but one indicative targets met. The end-September structural benchmark on issuing regulations to expand commitment control to local budgets and special means was missed. Issuing the regulations is a prior action for this review. The authorities are requesting the sixth disbursement (SDR 9.514 million) to become available upon completion of this review.