Regions and Countries

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p. 2 of 4 BACK | NEXT I. Development Situation II. Implementation of the Country Strategy and Program III. Portfolio Management Issues IV. Country Performance and Lending Levels

Country Strategy and Program Update 2003-2005: Kyrgyz Republic

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II. Implementation of the Country Strategy and Program

A. Progress under the Poverty Partnership Agreement

9. The Government views the CDF and NPRS documents as its blueprints for development and expects future external assistance to be directed only to the priority areas identified in them. The NPRS is now expected to be finalized in December 2002 and the Government has indicated that the poverty partnership agreement could be finalized after that.

10. Under the CDF and NPRS, the Government has set itself the target of halving total poverty by 2010. This is an ambitious target especially given the regime of tight budget constraints and the difficulties facing private investment (para.14), which are expected to prevail over the medium term. However it underscores the importance the Government sets on reducing poverty in the country. Since 2000, in keeping with the increasing need to address poverty and unemployment in the country, ADB has aimed at reaching agreement with the Government in identifying a pipeline of projects with a focus on poverty reduction. Accordingly, four of the seven programs/projects in the 2003-2005 program are either poverty or core poverty interventions. These aim to support early childhood development, agriculture area development, power distribution, roads, and basic education projects, all of which will be located in poverty areas. These reflect the priority now given by the Government and ADB to reducing poverty and addressing social concerns in the country.

B. Progress in the Country Strategy and Program Focus Areas

11. The current country operational strategy for the Kyrgyz Republic, which was endorsed by the ADB Board in December 1996, needs to be revised to reflect ADB's and the Government's latest priorities. A new country strategy and program (CSP) will be completed in 2003 in close consultation with the Government and other stakeholders. Meanwhile, the Government has sought assistance for the projects in the 2003-2005 program, particularly keeping in mind CDF and NPRS directions as well as the progress of ongoing projects in the same sectors. There have been no significant changes since the last CSPU in the areas of human development, gender and development, private sector development and environment protection.

1. Sectoral Priorities

12. ADB has assisted the Government in carrying out reforms in the agriculture sector that focused on policy and institutional aspects of land reform and natural resources management, restructuring and further improvement of the agricultural input supply system, improved cost recovery in irrigation, provision of credit, and capacity building of the sector's key institutions. ADB has also supported investments for rehabilitating irrigation and setting up viable credit unions in rural areas. The principal challenges faced by the sector require a continuation of these efforts, as also fostering the growth of agribusinesses that will reinvigorate demand for agriculture products. In the power sector, ADB has worked closely with the World Bank to rationalize and raise tariff levels for electricity and district heating and to improve the finances of the power utility. ADB also helped rehabilitate the country's power and district heating system. Government priorities in the sector envisage unbundling the power utility, which is already under way, and enhancing technical, commercial, and financial efficiency and taking measures to rationalize and improve regional energy trade. In the road sector, ADB operations have helped develop an efficient policy and regulatory framework, improve road funding, enhance safety standards, and privatize a number of state-owned enterprises in the sector. Support of the strategic Bishkek-Osh road and the regional road link between Almaty and Bishkek together with improvement of cross-border regulations have met some of the strategic objectives in the road sector. Future Government efforts in the sector will seek to address the needs of maintenance and restoration of the road network and to establish regional road links, which are critical to this landlocked country. ADB program assistance has supported the development of the basic regulatory and supervisory framework that has helped stabilize the banking sector. However, more remains to be done to reduce the vulnerability of the banking system, strengthen the stock market, and develop the insurance sector. ADB's strategy in the education sector aims to restore universal access to primary education, to expand participation in early-childhood and secondary education through reorienting, modernizing, and liberalizing the sector to ensure high levels of quality and financial sustainability. ADB-supported interventions have introduced income generation and cost recovery mechanisms, encouraged private education, rationalized staffing, strengthened planning and management capacities, and developed school-based finance management. In basic education, ADB has supported the development of new curricula and textbooks, teacher education, and school facilities and equipment improvement. The NPRS period envisages further measures to ensure sectoral sustainability and efficiency, development of private education, and improved access for children from poor families to basic education.

2. Thematic Priorities

a. Economic Growth

13. Achieving sustainable economic growth and development is an important objective of the CDF. The Government's principal focus in this regard will be on private sector-led growth, particularly in view of the constraints on externally-financed public investment. Efforts will be made to mobilize domestic resources and attract foreign direct investment. ADB assistance will be provided in 2002 for a regional customs cooperation program, which is expected to improve revenues and bring about legal, policy, and institutional changes in the Kyrgyz customs. ADB program support in 2004 is expected to deepen and build upon the reforms in the financial sector, which were initiated under earlier ADB assistance.²

b. Governance

14. Improving governance is a key feature of ADB's lending and technical assistance (TA) operations in the agriculture, energy, road, and social sectors. ADB has provided loan and TA support to improve governance, including in fiscal management; the financial sector; and the areas of legal, judicial, and enterprise reform and corporate governance. These measures are helping to address some of the administrative bottlenecks and weaknesses in law enforcement and judiciary that have compounded the problems facing private sector activity. The Government's future priorities will include state governance reform, decentralization, and transparency of public finance management. ADB is assisting with strengthening the Ministry of Finance, including customs reforms and improving public investment management. It is supporting the development of a resilient, and properly regulated and supervised financial sector. In addition, ADB has assisted with improving commercial bank audits, and introducing international accounting, auditing, and valuation standards, to improve the need for transparency and predictability in economic activities. ADB continues to support the Government's efforts to reduce corruption. The Government is aware of the need to take strong measures and has formulated a program to fight corruption. A governance assessment being conducted with ADB assistance is scheduled for completion in 2002. It will focus on governance issues that impact directly on poverty reduction and will serve as a key input into the CSP.

c. Regional Cooperation

15. A high-level ministerial conference on Central Asia economic cooperation, sponsored by ADB, was convened in Manila in late March 2002. The conference confirmed that economic cooperation is particularly important to the region and that transport, energy, and trade facilitation are priority areas. In keeping with the identified priorities, the Kyrgyz Republic will be participating in three regional projects in 2002-2005, viz. customs modernization, the southern corridor road, and power transmission. In addition to these, certain other subregional projects are provisionally included in the tables on lending and nonlending products and services (see para. 25). These investments need to be further discussed with the Government.

C. Highlights in Coordination of External Funding and Partnership Arrangements

16. The preparation of the CDF and NPRS, which called for close consultation with and involvement of the funding community, has brought about significant improvements in aid coordination over the last few years. There is close coordination between ADB and the representative offices of the major funders through frequent meetings and consultations and a free exchange of operational information and documents. The Kyrgyz Resident Mission is coordinating ADB's efforts to help the Government prioritize the PIP and to improve its management. The progress and findings of related studies are discussed with the funding community. Coordination with the International Monetary Fund is close as ADB interventions support some of the key structural reforms covered under the PRGF. ADB and the World Bank account for the larger part of the projects in the PIP. The World Bank and ADB have an informal understanding regarding the social sectors that the World Bank will focus on assisting the health sector and ADB on the education sector. However, recently the World Bank has expressed an interest in reviewing this understanding and discussions have been initiated. The loan and TA program for 2003-2005 emerging from this year's country programming mission was shared with the representatives of the funding community in Bishkek and possibilities of cofinancing were discussed. The directions and activities of the major funders in the Kyrgyz Republic are shown in the Development Coordination Matrix at Appendix 1, Table A1.5.

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