Regions and Countries

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p. 6 of 7 BACK | NEXT Executive Summary I. Current Development Trends and Issues II. The Government's Development Strategy III. ADB's Development Experience IV. ADB's Strategy V. ADB's Assistance Program VI. Risks and Performance Monitoring and Evaluation

Country Strategy and Program 2004-2006: Kyrgyz Republic

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V. ADB's Assistance Program

A. Overall Assistance Level

48. The Kyrgyz Republic is an ADF-only borrower and this status is expected to remain in place over the CSP period. Since 2002, ADF lending levels have been determined by the performance-based allocation (PBA) system. Country-specific triggers covering macroeconomic, structural, and portfolio implementation issues will determine whether a low, base, or high case lending scenario is applied (Appendix 1, Table A1.9 gives details). Consequently, the lending figures for 2004–2006 in the attached program should be regarded as indicative. Depending on ADF resource availability in 2004, the lending program may also need to be reviewed.

49. An assessment of the country’s performance under the PBA exercise to determine allocation for 2003 showed satisfactory overall progress. However, to reflect the limited absorptive capacity of the Government (linked to the high level of external debt and PIP constraints), the assistance program envisages annual base case commitments of only $30 million, which is much lower than historical lending levels. The lending program for 2004– 2006 consists of six loans for a total amount of $90 million.¹⁹ The lending program will be supported by nonlending assistance, including a TA grant pipeline of about $6.5 million. Additional projects may also be funded under the Japan Fund for Poverty Reduction or other noncore TA funds. The nonlending program will include assistance to prepare investment projects as well as advisory and capacity-building TA. It will complement the lending program by supporting policy reform and building institutional capacity. The TA program is principally limited to areas/sectors where lending activities will take place. In view of this, active efforts will be made to seek grant cofinancing to support TA in areas such as governance and poverty reduction.

B. ADB Assistance for the Strategic Priorities

50. The CSP is set in a period of difficult debt and fiscal circumstances, which will limit the assistance that ADB can extend and which calls for a sharply focused approach. The overall objective of the new strategy is poverty reduction. Based on ADB’s comparative advantage and the current country circumstances, this will primarily be addressed through private sector-led economic growth. Consequently, the CSP emphasizes (i) agriculture, which is a major sector for pro-poor growth; (ii) the financial sector to stimulate domestic savings and investment for growth; and (iii) improving trade and road linkages with regional markets to foster and sustain growth. Through these initiatives, ADB will support the first MDG target, which seeks to halve income poverty and the related NPRS targets for reducing poverty. Maintaining a GDP growth rate of around 5% per annum is critical to achieve this. ADB efforts in this direction will be reinforced by interventions from the World Bank, Germany, Switzerland, Department for International Development of the United Kingdom (DFID), IsDB, Japan, and United States Agency for International Development (USAID) in key growth areas such as agriculture, energy, SMEs, microenterprises and business development, and transport. The CSP envisages that the growth interventions will be complemented by selective human development interventions, which will also contribute to reducing poverty, alongside income poverty. ADB will provide for selective support for human development, primarily basic education and early childhood development. Through these initiatives, ADB will seek to address those MDGs and NPRS targets related to achieving universal primary education, reducing child mortality, and improving maternal health. ADB’s efforts will be complemented by activities supported by the World Bank, USAID, UNICEF, United Nations Educational, Scientific and Cultural Organization (UNESCO), Save the Children Fund (UK), Germany, Switzerland, Japan, and DFID in the areas of education and health. The lending program and the strategic objectives it supports are described below.

51. Assistance for the Southern Transport Corridor Road Project Phase I is envisaged in 2004. The Osh-Sary Tash-Irkeshtam Road runs through the southern part of the Kyrgyz Republic linking the PRC and Uzbekistan. The road is in very poor condition and needs improvement. Increased trade and communication along this transport corridor would generate economic benefits in all three countries. The road is particularly important to the southern part of the Kyrgyz Republic as it will provide much-needed access to markets in PRC and Uzbekistan and is expected to contribute significantly to growth and trade in that region. This strategic regional road project is expected to bring about considerable development benefits in the southern part of the country, which has a high prevalence of poverty.

52. A Regional Customs Cooperation Program (RCCP) for which ADB assistance was given in 2002 seeks to facilitate trade and modernize customs operations in the Kyrgyz Republic, and strengthen the cooperation among the customs authorities in the CARs and PRC to improve regional trade and cooperation. The 2004 program includes limited support for a Regional Customs Investment Project. The project will improve operational efficiency to facilitate trade and improve revenue collection and is needed for meeting RCCP’s objective of developing an effective mechanism for good regional cooperation.

53. The Education Development Project in 2005 will address reform and investment needs for the medium- and long-term development of the primary and secondary education subsectors with specific relation to quality, access, and sustainability. A detailed sector assessment planned for 2003–2004 will help identify project priorities, including the policy and institutional reforms to be undertaken as well as investment requirements. The findings of the study are expected to be shared with other development partners such as the World Bank and USAID. In light of severe fiscal and external debt constraints, the domestic financial sector has to play an increasing role in financing private sector-led growth in the Kyrgyz Republic. A Financial Sector Program II is therefore scheduled for 2005 and will aim to increase savings in the economy and improve financial intermediation.

54. Agriculture is underperforming as many of the farms and agro-processing facilities are not operating efficiently and are not financially viable. A concentrated and coordinated focus on the key constraints at the farm level to bring together the ongoing and planned investment projects and enhance their impact, needs to be adopted to improve farm productivity and profitability and to reduce poverty in rural areas in the south of the country. Toward this end, a Second Agriculture Area Development Project in 2006 is expected to see a continuation of similar activities such as farm development, rehabilitation of drainage and irrigation and development of private sector marketing, and input supply services (as included in the ongoing first phase area-based project in Chui oblast, which is proceeding satisfactorily). Another project for 2006 is a Rural Development Project. This project will focus on improving the livelihood of the rural population in selected poverty areas through a regional planning and decentralization approach involving local governments and communities. The project will complement ongoing and proposed rural development activities. It will be demand driven and possibly include rural infrastructure, a livelihood program, agricultural development support, and microfinance.

C. External Funding Coordination and Partnership Arrangements

55. Details of past external assistance to the Kyrgyz Republic and that planned by development partners over the CSP period are in Appendix 1, Table A1.12. ADB closely coordinates its operations with the World Bank, EBRD, IsDB, and IMF; United Nations specialized agencies; and bilateral development partners. A key partner is the World Bank, as together, ADB and the World Bank account for the major part of PIP financing. ADB’s Kyrgyz Resident Mission (KYRM) plays a key role in coordination with other development partners. In the past, external agency partnership has taken various forms. In some areas, there was a clear division of labor with, for example, ADB taking the lead in areas such as education, regional cooperation, roads, and corporate governance and the World Bank in health, public sector governance, and energy. Over the CSP period, external agencies will be moving away from this approach. The Government’s limited absorptive capacity, the reduced levels of future borrowings, the characteristics of different external agency assistance to the country, and the staggered need of individual sectors make demarcation of responsibilities across sectors difficult. The World Bank’s new country assistance strategy approved in May 2003 aims to (i) promote private sector-led growth, (ii) support key infrastructure and social services, and (iii) address governance constraints. The strategy also envisages support over a much broader range of sectors/areas than is proposed in the CSP. In this environment, close sector and project level coordination must be maintained.

56. The Consultative Group Meeting in October 2002 discussed the need to strengthen external agency coordination. Since then, the Government and the international funding community in Bishkek have agreed to hold more regular working group meetings on particular sectors. The latter have jointly employed local staff to maintain a web-based partnership information system to strengthen knowledge sharing and cooperation. There is also an apparent effort to move toward common sector-wide approaches. The first attempt is in the education sector where KYRM has been asked by the Government to chair an international advisory council. The council consists of external agencies active in the sector and advises the Ministry of Education and Culture, inter alia, on aid coordination and policy and project development. This initiative was launched earlier this year. ADB is already sharing analytical work and has used the poverty assessment recently completed by the World Bank and the Government instead of conducting its own poverty analysis in the preparation of the CSP. The two institutions have also agreed to pool resources in assisting the efforts of the Kyrgyz Republic (selected as a pilot country) to implement decisions arising out of a February 2003 conference in Rome on harmonization. In the agriculture sector, ADB, World Bank, and DFID are cooperating in drainage and irrigation rehabilitation and the development of water user associations. Finally, as a further step toward improved external agency coordination, ADB and the World Bank held their first joint country portfolio review this year.

57. ADB will continue to seek cofinancing from official sources to support the operational program during the CSP period. It will seek to enter into strategic partnerships with other external agencies to leverage the impact of its assistance during a period of reduced external borrowing. This, and accessing channel funds, are particularly important given the limits to government borrowing and ADB’s own TA funds for the country. The international funding community in Bishkek has voiced its support for the directions of the proposed ADB strategy. The international funding community showed interest in the loan and TA program for 2004– 2006, particularly in the proposed projects in the financial and education sectors, although no commitments of cofinancing have been made so far. The Government has indicated that the PRC has shown interest in cofinancing the regional Southern Transport Corridor Road Project, Phase I.

58. Detailed consultations took place with the stakeholders in the preparation of the CSP. Discussions were held with senior officials of the Government, the Ombudsperson, and representatives of Parliament, the judiciary, the private sector, NGOs, and the international funding community. The thrusts and directions of the proposed strategy and program were supported and well received by them. ADB, as a major external agency in the country, has developed considerable outreach and links with local governments and various sections of civil society, including the private sector and NGOs. Its ongoing support of community-based projects has helped reinforce these ties. Consultations with stakeholders have become an essential part of the processing of new projects and will continue to take place during the implementation of the new CSP.

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