“Performance under the current Exogenous Shock Facility (ESF) continues to be good. All quantitative performance criteria established for end-June 2009 under the program were met. Progress continues toward observing structural benchmarks for end-June 2009, and the mission agreed with the authorities on policies to ensure their completion over the next few weeks.

”The Kyrgyz economy has weathered effects of the global crisis well. Despite the continued fallout of the crisis and related regional slowdown, preliminary data indicate some signs of resilience in the economy as growth registered 2.3 percent in 2009, compared with near 8 percent in 2008, largely because of a heavy fiscal stimulus and good harvest. Credit has largely stagnated as economic prospects have worsened and banks have become risk averse. Inflationary pressures continue to dissipate and the som remains broadly stable as exchange market pressures have subsided with a decline in imports. The balance of payments has improved markedly as the fall in exports from reduced global demand was more than offset by lower imports; international reserves coverage reached about 4 months of imports.

“In view of the urgency to ensure energy security and stability the government has launched a comprehensive strategy to address the precarious situation in the energy sector. It plans to undertake large investments in the sector using own resources as well as large external borrowing. In addition, the government has increased electricity tariffs in an effort to improve cost recovery and plans higher expenditures to compensate the vulnerable for increase in tariffs. The mission supports the overall strategy of the government to overcome the energy problems.

”2010 will also be a difficult year, further fiscal expansion is warranted to achieve energy sector sustainability and support growth. Recovery in Russia and Kazakhstan, key partners for the Kyrgyz Republic, is expected to be muted and thus continuing to affect remittances and trade with the Kyrgyz Republic. The economy is expected to register 4½ percent growth and inflation will rise to an average of 8 percent in 2010 largely because of the effect of the electricity tariff increase.

“Based on the Kyrgyz authorities’ performance in the first half of 2009, their policies through end-2009 and policy intentions for 2010, the mission will recommend completion of the second review of the ESF arrangement, a six-month extension and an augmentation of access. The IMF's Board of Executive Directors is expected to consider this recommendation in March.”