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Annual Report 2001

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Kyrgyz Republic

Economic performance

The Kyrgyz Republic grew at 5.3% in 2001. Agriculture rose 6.8% aided by double-digit growth in crop production. Industry grew at 5.4%, while the output of several subsectors shrank. The services sector grew at 2.4%. Gross domestic investment fell from 18% of GDP in 1999 to about 16% of GDP in 2000 due to a fall in public investment by the same magnitude. In 2001, public investment, which is largely externally funded, fell further to 4.4% of GDP. Tight monetary policy and a good agriculture performance reduced the monthly average rate of consumer price inflation to 6.9% in 2001 from 18.7% in 2000. Food prices remained stable and prices of nonfood consumer goods increased by a modest 1.4%. However, there was a sharp increase in the administered prices of utilities (electricity, gas, and water). Foreign trade volume shrank by 10.2% in 2001. Exports fell by 6.0% mainly due to a decline in exports of electricity, food products, and nonprecious metals. Imports also shrank by 14.4% because of a fall in public investment. The current account deficit was about 0.7% of GDP in 2001. The Government embarked on a fiscal compression program, cutting the fiscal deficit from 10.2% of GDP in 2000 to 4.4% of GDP in 2001 under the Poverty Reduction and Growth Facility of the International Monetary Fund (IMF). This was accomplished largely by compressing public investment. These developments notwithstanding, the high external debt burden continues to threaten macroeconomic stability unless concessional treatment of debt is provided by the Paris Club. Increased real wages, stable food prices, and growth in farm output reduced the incidence of poverty from 52.0% in 2000 to 47.4% in September 2001.

ADB operations

Operational strategy: The main objectives of ADB’s strategy are to support the Government’s reform activities and strengthen its policy formulation, development management, and public service delivery capacities; create a conducive environment for promoting growth through private sector investment; and enhance long-term growth potential by investing in physical infrastructure, human development, and environmental improvement. Since 1998, the emphasis of ADB’s assistance has shifted to addressing social problems to mitigate the adverse impact of the high poverty incidence. The current operational strategy will be revised to focus on the priorities of the National Poverty Reduction Strategy and the Comprehensive Development Framework, once these two important policy documents are finalized and approved by the Government. It will also take into account the country’s debt burden.

Policy dialogue: ADB’s policy dialogue with the Government covered several areas, including finalizing the Comprehensive Development Framework and the Interim National Poverty Reduction Strategy. ADB also provided technical assistance to strengthen the Government’s capacity to manage and prioritize the public investment program for ensuring debt sustainability, and to assess the quality of public sector governance at national and regional levels. Under the second phase of the Corporate Governance and Enterprise Reform Program, ADB initiated policy dialogue with the Government to create an environment conducive to private sector development. The dialogue included improving corporate governance and banking, carrying out judicial reforms to reduce adjudication costs and improve judicial governance, introducing international accounting standards, and accelerating public enterprise reforms. ADB also had policy discussions with the Government to enhance road safety and improve operations of rural credit unions.

Loans and technical assistance: ADB approved two loans totaling $75 million in 2001 for a road rehabilitation project and a corporate governance and enterprise reform program. ADB approved four advisory technical assistance grants totaling $2.2 million in 2001 to conduct a governance assessment study on sound development management and poverty reduction, institutional support in the transport sector, building capacity of the Ministry of Finance for financial management and planning the public investment program, and strengthening corporate governance and judicial reforms.

Project implementation: Since joining ADB in 1994, the Kyrgyz Republic has received 20 loans, of which 16 were active at the end of 2001. Contract awards totaled $41.1 million, bringing the cumulative figure to $323.3 million. The contract award ratio was 21.3%, higher than the ADB-wide average of 14.8%. Disbursements during the year totaled $58.3 million, bringing cumulative disbursements to $314.7 million. The disbursement ratio was 30.3%, higher than the ADB-wide average of 20.5%.

Following a review of ongoing projects in December, ADB agreed with the Government to enhance staff resources to help implement agriculture and social sector projects. Additional review missions were scheduled to build capacity and promote knowledge transfer.

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