international bank for reconstruction and...
TRANSCRIPT
Document of
The World Bank
FOR OFFICIAL USE ONLY
Report No: 62777-KG
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
INTERNATIONAL DEVELOPMENT ASSOCIATION
INTERNATIONAL FINANCE CORPORATION
MULTILATERAL INVESTMENT GUARANTEE AGENCY
WORLD BANK GROUP
INTERIM STRATEGY NOTE
FOR
THE KYRGYZ REPUBLIC
FOR THE PERIOD FY12 – FY13
June 16, 2011
Central Asia Country Unit
Europe and Central Asia Region
International Finance Corporation
Eastern Europe and Central Asia Region
This document is being made publicly available prior to Board consideration. This does not imply a presumed outcome. This document maybe updated following Board consideration and the updated document will be made publicly available in accordance with the Bank’s Policy on Access to Information.
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DATE OF THE LAST CAS PROGRESS REPORT: October 1, 2009
CURRENCY EQUIVALENTS
(Exchange Rate Effective as of June 10, 2011)
Currency Unit = Kyrgyz Som (KGS) US$1.00 = 45.14KGS
GOVERNMENT FISCAL YEAR
January 1–December 31
ABBREVIATIONS AND ACRONYMS
AAA Analytical and Advisory Activities ESW Economic and Sector Work ACAFI Azerbaijan – Central Asia Financial
Infrastructure Project EU European Union
ADB Asian Development Bank FDI Foreign Direct Investment AISP Agricultural Investment and Services
Project FSAP Financial Sector Assessment Program
CAS Country Assistance Strategy GDP Gross Domestic Product CASCR Country Assistance Strategy Completion
Report GSAC Governance Structural Adjustment Credit
CBEM Capacity Building for Economic Management
GTAC Governance Technical Assistance Credit (Treasury Modernization Project)
CEM TA Country Economic Management Technical Assistance
GIZ Deutsche Gesellschaft für Internationaler Zusammenarbeit
CMTDS Country Medium Term Development Strategy
HIPC Heavily Indebted Poor Countries
CG Consultative Group IC Investment Council CIS Commonwealth of Independent States ICRs Implementation Completion Reports CPIA Country Policy and Institutional
Assessment IDA International Development Association
CSO Civil Society Organization IEG Implementation Evaluation Group (WB) DCELG Demand – site Capacity for Effective
Local Governance IFC International Finance Corporation
DFID UK Department for International Development
IMTAK Information Matters: Transparency and Accountability in the Kyrgyz Republic
DPCC Development Partners’ Coordination Council
IMF International Monetary Fund
DPO Development Policy Operation ISN Interim Strategy Note DSA Debt Sustainability Analysis JCSS Joint Country Support Strategy EBRD European Bank for Reconstruction and
Development JCPR Joint Country Portfolio Performance
Review EC European Commission JEA Joint Economic Assessment ECF Extended Credit Facility JSDF Japanese Social Development Fund EITI Extractive Industries Transparency
Initiative KfW Kreditanstalt für Wiederaufbau
ERSO Economic Recovery Support Operation LRER Land and Real Estate Registration ESF External Shocks Facility LSG Local Self Government
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MER Ministry of Economic Regulation SDP Strategic Development Plan MoH Ministry of Health SEW Single Economic Window MIGA Multilateral Investment Guarantee
Agency SECO Swiss Economic Cooperation Office
MDGs Millennium Development Goals SME Small and Medium Enterprises MTTP Medium Term Tariff Policy SOEs State-owned Enterprises MTBF Medium Term Budget Framework SWAp Sector-Wide Approach MoF Ministry of Finance SIDA Swedish International Development
Agency M&E Monitoring and Evaluation SLRER Second Land and Real Estate
Registration Project NGOs Non-governmental Organizations TA Technical Assistance NBKR National Bank of the Kyrgyz Republic TICI Transparency International Corruption
Index OECD Organization for Economic Co-operation
and Development TF Trust Fund
OSS One Stop Shop UMB United Monthly Benefit PDG Policy Development Group UN United Nations PEFA Public Expenditure and Financial
Accountability UNAIDS Joint United Nations Program on
HIV/AIDS PER Performance Expenditure Review UNDP United Nations Development Program PBA Performance Based Allocation UNFPA United Nations Population Fund PFM Public Financial Management UNICEF United Nations Children’s Fund PIP Public Investment Program USAID United States Agency for International
Development PIU Project Implementation Unit VAT Value Added Tax PPER Programmatic Public Expenditure
Review VIP Village Investment Project
PPP Public Private Partnerships WB World Bank PPR Portfolio Performance Review WBI World Bank Institute RBF Result Based Financing WBG World Bank Group RIA Regulatory Impact Assessment WHO World Health Organization RTBET Reducing Technical Barriers for
Entrepreneurship and Trade Project WMIP Water Management Improvement
Project RWSS Rural Water Supply and Sanitation WTO World Trade Organization SDC Swiss Agency for Development and
Cooperation WUA Water Users’ Association
IBRD IFC MIGA
Vice President Philippe Le Houérou Rashad-Rudolf Kaldany Izumi Kobayashi Country Director Motoo Konishi Nena Stoiljkovic Ravi Vish
Country Manager Alexander Kremer Tomasz Telma Task Team Leader Dinara Djoldosheva Gulnura Djuzenova Task Team Saumya Mitra
Naresha Duraiswamy Jyldyz Beknazarova
Oksana Nagayets
Frank Linden
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FY12-13 INTERIM STRATEGY NOTE FOR
THE KYRGYZ REPUBLIC
Table of Contents EXECUTIVE SUMMARY .......................................................................................................................... 1
I. COUNTRY CONTEXT ........................................................................................................................ 4
A. The Socio-Political Context ............................................................................................................. 4
B. Poverty Profile, Gender and Millennium Development Goals (MDG) ........................................... 6
C. Recent Economic Developments ..................................................................................................... 8
II. COUNTRY NEAR-TERM PRIORITIES .......................................................................................... 11
A. Response to the Crisis .................................................................................................................... 11
B. Priorities in 2011 ............................................................................................................................ 12
C. The Country Medium Term Development Strategy ...................................................................... 13
IV. JOINT COUNTRY ASSISTANCE STRATEGY 2007-2010: PROGRESS AND LESSONS .......... 17
A. Background .................................................................................................................................... 17
B. IDA Response to the Internal Conflict ........................................................................................... 18
C. Lending and Exposure.................................................................................................................... 19
D. IFC and MIGA Program under last CAS in 2007- 2011 ................................................................ 20
E. Lessons Learned ............................................................................................................................. 21
V. WORLD BANK GROUP INTERIM ASSISTANCE STRATEGY................................................... 22
A. Rationale for the Strategy ............................................................................................................... 22
B. Proposed Program .......................................................................................................................... 23
C. IFC interventions for FY12-13 under proposed ISN ..................................................................... 29
E. Consultations .................................................................................................................................. 30
F. Partnerships: aid coordination and harmonization ......................................................................... 30
G. Risk Management .......................................................................................................................... 31
H. Beyond ISN .................................................................................................................................... 32
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TABLES
Table 1: Kyrgyz Republic: Poverty Trends, 2006--2009 (%) ...................................................................... 6
Table 2: Impact of the Crisis in 2010 and Final Outturn .............................................................................. 8
Table 3: External Debt and Debt Service, 2009-16 .................................................................................... 11
BOXES
Box 1: Link of ISN Pillars to Government Priorities .................................................................................. 23
ANNEXES
Annex A1: Country at a Glance .................................................................................................................. 34
Annex B2: Selected Indicators* of Bank Portfolio Performance and Management ................................... 36
Annex B3: IBRD/IDA Program Summary ................................................................................................. 37
Annex B3: IFC Investment Operations Program ........................................................................................ 38
Annex B4: Summary of Nonlending Services ............................................................................................ 39
Annex B5: Social Indicators ....................................................................................................................... 40
Annex B6: Key Economic Indicators ......................................................................................................... 41
Annex B7: Key Exposure Indicators .......................................................................................................... 43
Annex B8: IFC for Kyrgyz Republic .......................................................................................................... 44
Annex B8: Operations Portfolio (IBRD/IDA and Grants) ......................................................................... 45
Annex C: Active Trust Fund Portfolio ........................................................................................................ 46
Annex D: Millennium Development Goals ................................................................................................ 48
Annex E: ISN Consultations with Civil Society Organizations .................................................................. 49
Annex F: Update of FY07-10 World Bank CAS Results Framework to reflect ISN (FY12-13) interventions ................................................................................................................................................ 51
Annex G: Country Financing Parameters (CFPs) ....................................................................................... 53
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EXECUTIVE SUMMARY
i. This Interim Strategy Note (ISN) covers the period of August 2011 to June 2013 and succeeds the previous CAS, which was presented to the Board in May 2007. The ISN focuses on the country’s recovery and stabilization needs, while paving the way for support for long-term development. The need for an interim strategy approach is underscored by the current fragile political, social and economic situation in the country.
ii. The security situation deteriorated following the ouster of President Bakiev in April 2010
and the outbreak of ethnically motivated violence in June 2010. The country appeared to be on the brink of civil war in April and again in June; however, the interim government managed to keep the fragile peace and lead the country through the process of constitutional reform and legitimization of the new political settlement. The parliamentary elections were successfully held in October 2010 and the coalition government of social democrats, market-oriented and nationalist parties was formed in December 2010.
iii. With an estimated per capita GDP of $880 in 2010, the Kyrgyz Republic is one of the
poorest economies in the Europe and Central Asia region. According to the latest available official statistics, an estimated 32 percent of the population lived below the poverty line in 2009, while 3 percent lived in extreme poverty. The incidence of poverty in rural areas (37 percent) was far higher than in urban areas (22 percent). The 2010 crisis events led to a 1.4 percent fall in GDP and initial indications suggest a 2 percent increase in the poverty headcount during 2010.
iv. Looking ahead, the government is attempting a program of security, governance, anti-corruption and, where feasible, ethnic reconciliation measures in order to secure a political consolidation. However, the political situation remains still volatile and the government’s authority in the South is tenuous. Thus the Kyrgyz Republic will remain vulnerable to further unrest over the ISN period. Moreover, Presidential elections in October 2011 add to the uncertainty. Fiscal aggregates are under severe pressure, and unemployment and food price inflation of 27 percent in 2010 have added to social tensions.
v. The present ISN has been guided by the insights of the World Development Report:
Conflict, Security and Development. The strategy aims to address the stresses underlying the conflict and critical deficits in the capability of Kyrgyz institutions. It seeks to build wide partnerships and aims at assured volumes of financing for stability and development. Given the fragility of the situation, the ISN reflects the continuum of possibilities for a transition to economic and social stability, with the polar ends of the possibility range being a continued transition to stability and restoration of the foundations of sustained growth or a stalled or failed transition, with attendant risks of instability and failure to pursue a development agenda. The interim strategy will be adapted to deal with the evolving transition. It is intended that a full CAS will supersede the ISN if the medium-term political outlook is sufficiently clear and a Country Medium Term Development Strategy is in place.
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vi. The ISN therefore aims to partner the transition from recovery, via stabilization, to long-term sectoral development. It will do so by supporting not only improved governance, but also the social and economic stabilization that is a prerequisite for sustained governance reforms.
vii. In view of the uncertainties that characterize the next two years, the ISN will cover the Bank’s operations until June 2013. In the ―continued transition‖ scenario, the ISN is intended to serve as a bridge between the crisis recovery strategy set out in the July 2010 Joint Economic Assessment (JEA) -- a post-conflict assessment by donors, jointly led by the Bank -- and a full Country Assistance Strategy. The key features of the ―continued
transition‖ scenario are:
a. Noting that the government is attempting a program of security, governance and anti-corruption measures in order to secure the post-conflict political settlement, the ISN proposes support both for improved governance and the socioeconomic stabilization required as a platform for sustained governance reforms. If successful, the prospects for future conflict will be diminished.
b. Fiscal adjustment is essential for socioeconomic stability. IDA budget support was provided in FY11 ($70 million). The ISN proposes partnering the Fund by providing budget support in FY12 ($30 million) and FY13 ($30 million) to sustain consolidation.
c. The Joint Economic Assessment, prepared in the immediate wake of the 2010
conflicts, made an urgent case for financing livelihoods and services to re-stabilize the South. During FY11-12 the Bank is targeting road, health, irrigation and urban infrastructure there via four additional finance operations. The JEA has provided the framework for strong partnerships with other international financial institutions, the UN and domestic and international non-governmental organizations; the Bank concentrates on its areas of comparative advantage (as described in the JEA) and other partners focus on activities for social reconciliation and security in the south.
d. The 2010 crisis caused turbulence in the banking system and exposed weaknesses
in bank supervision and resolution mechanisms for failing banks. IDA will provide technical assistance to address these needs and also improve access to financial services.
e. In the longer term, the state’s legitimacy depends upon its sustaining public
services. Starting in FY13, the Bank will resume support for sector-wide programs in health and education.
viii. Alternatively, if the situation tends towards the ―stalled or failed transition‖ scenario the emphasis of IDA activities will shift from budget support towards livelihoods support. It may even be necessary to reconsider the feasibility of sector-wide approaches in the social sectors. It is conceivable that a successor ISN refocusing the World Bank’s strategy on support for livelihoods and basic services may be proposed.
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ix. Consequently, the present ISN presents a ―continued transition‖ program of financial and non-financial assistance from the World Bank to the Kyrgyz Republic for the period of FY12-13 and indicates the adjustments required if the situation tends towards a ―stalled transition‖. Under any scenario the total amount of financial assistance from IDA is expected to be about $60 million per year, consistent with the current IDA allocation. In addition, IFC envisages supporting the Kyrgyz private sector, focusing on increasing investments in the banking, manufacturing, mining, and agribusiness sectors and providing accompanying advisory services to the government and private sector clients..
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I. COUNTRY CONTEXT
A. The Socio-Political Context
1. Background. The Kyrgyz Republic– a landlocked mountainous country in Central Asia with
a multi-ethnic population of 5.4 million – is one of the poorest countries in the Europe and Central Asia region, with income per head of $8801 in 2010 (Atlas methodology). Since independence in 1991, the country has made a strong advance towards the creation of a liberal market economy with the aim of promoting sustained economic growth and fighting poverty, and has sought international integration through trade and investment, notably through membership of the World Trade Organization (WTO). It has met with some success in fostering open institutions, but has struggled to embed lasting democracy and civic freedom. Economic reforms resulted in an average annual growth of 5.4 percent over the five years to 2009 and a decline in poverty from 40 percent to 32 percent over 2006-9 and extreme poverty from 9 percent to 3 percent over the same period. But improvements in governance have been elusive: the country was ranked 164 out of 178 in Transparency International’s Corruption Perception Index, and Organization for Security and Co-operation in Europe (OSCE) missions characterized elections until 2009 as falling short of international good practice.
2. Recent political developments. The first elected president of the republic was forcibly
removed from office in 2005 after nearly 15 years in power following a disputed re-election. In April 2010, anti-government political demonstrations took place against the authoritarian tendencies of his successor who had centralized power within the presidency. Protests were fuelled by a widespread belief that corruption, especially nepotism, and misuse of public assets had risen markedly. There was popular frustration with economic and social policy decisions (such as a sudden and very large energy tariff rise) that appeared to benefit a corrupt elite, as well as of rising inflation, and a deterioration in social services and infrastructure. These protests culminated in the removal of the president from office, and the formation of an interim government headed by a coalition of opposition political and civic leaders.
3. Internal conflict. The April 2010 events left a power vacuum in the south, which forms a
part of the Fergana Valley with a mosaic of ethnic groups (Kyrgyz, Tajik and Uzbek), cultures and languages living both side by side as well as in mono-ethnic enclaves. Local politicians attempted to mobilize ethnic sentiment to secure their position. In June 2010, political and social tensions climaxed into violent inter-ethnic clashes. In a spasm of ethnically-directed extreme, brutal violence and targeted arson, 300 persons were killed according to official statistics. Over 2500 were injured and at the peak 400,000 were internally displaced. Large scale destruction of public and private property, especially housing, occurred. The civil conflict led to a weakening of confidence within the private sector, and to economic and fiscal pressures. Conditions in the south of the country remain bleak and highly volatile with a continuation of low intensity civil conflict, a depressed economy, sporadic security coverage, and deep scars left by the violence.
1 Throughout the paper, reference is made to the US dollar.
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4. Social factors. The foundational causes of the conflict lie in the multiple, persistent stresses in society. A key stress factor was poor governance, especially corruption, and lack of voice in governing institutions. The remoteness and lack of accountability of a highly centralized, nepotistic presidential system eroded the state-citizen relationship and led to a build-up of social pressures.
5. A further stress factor could be found in community tensions concentrated in the south --
with high unemployment, the lowest social indicators and the thinnest social service coverage. The sway of central authority is incomplete in the south, with organized criminal networks linked to the lucrative drug transport industry and with rent-seeking relationships with political authorities resulting in poor security and extreme corruption. Security and other public services are biased towards the majority community.
6. Inter-community competition over productive resources (agricultural land, irrigation water and pasture, commercial property and assets), disputed borders with neighboring states and harsh border trade regimes that stifle commerce and labor movement between border communities are complicating factors. The problem of marginalized youth is further compounded by a neglect of children whose parents have migrated, and a deteriorating education system that does not equip a large part of youth for productive employment in the market economy.
7. A parliamentary constitution. The provisional government that took office in spring 2010
drafted a new constitution in a participatory manner that transformed the presidential system into a parliamentary one with, at its centre, a prime minister and cabinet accountable to parliament, in the belief that a wider division of powers would counter mis-governance. This constitution was approved by a referendum and parliamentary elections were held in late 2010 with a coalition government of social democrats, economic liberals and centre-nationalists taking power in early 2011. Thus, checks and balances have been introduced and measures taken to ensure public accountability. It was intended to revive elected local authorities, disperse executive authority, and widen consultation and debate through parliamentary and cabinet committees. Parliamentarians are beginning to hold the government to account vigorously and the demarcation of roles between government and parliament is not altogether clear; in particular, parliament’s budget committee has taken a prominent role in economic decision-making.
8. Political and social outlook. The coalition consists of parties of disparate beliefs and it is
coming under strain, especially as the first presidential elections under the constitution will be held in late 2011 and some senior government figures may be rival candidates. A lack of clarity over the division of responsibilities between the executive and legislative branches is impeding decision-making. A new government will likely take office following the presidential elections.
9. The authorities acted rapidly to address the consequences of the June events: social
spending was stepped up, measures taken to re-absorb the internally displaced into their own homes through the construction of winterized temporary shelters followed by durable housing solutions, and essential infrastructure such as energy connections were rapidly rehabilitated. Nonetheless, it is clear that social tensions persist and governance and
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security arrangements continue to be inadequate. A comprehensive program of reconciliation needs to be pursued with a focus on livelihoods recovery in the south (reconstructing markets and their supply chains, supporting agriculture), peace and tolerance building (permitting full voice to the affected in decisions on housing and human rights), youth inclusion, and building confidence in security and justice. These elements are present in different degrees of vigor in the official program for reconciliation, but determined implementation with donor assistance will be necessary. In particular, it will be important to allow communities freedom to decide the arrangements for their new housing and the shape of their livelihoods.
10. The success of the country’s development will depend on (i) to strengthening the
legitimacy of the state through improved governance, notably the reduction of corruption and in the south the establishment of an impartial security regime, within the overall context of a comprehensive reconciliation policy; (ii) the restoration of macroeconomic and fiscal stability and safeguarding of essential public spending, and (iii) protecting human capital and preserving the state’s legitimacy through quality, reliable public social services.
B. Poverty Profile, Gender and Millennium Development Goals (MDG)
11. Poverty. The Kyrgyz Republic has experienced an impressive decline in poverty over the past decade though at times the changes have been uneven. More recently (2006 – 2009), aggregate poverty fell from 40 percent to 32 percent while extreme poverty declined from 9 percent to 3 percent over the same period. Poverty is largely a rural phenomenon: 64 percent of the population is rural and the incidence of poverty is higher among rural residents. The reduction in poverty over 2006-9 has been both urban and rural based. However, the downturn of 2010 was reflected in a 2 percent increase in the poverty rate (see Table 1) in the 2010 data.
Table 1: Kyrgyz Republic: Poverty Trends, 2006--2009 (%)*
National Urban Rural Year Incidence Change Incidence Change Incidence Change All Poor
2006 39.9 … 26.7 … 47.7 … 2007 35.0 -4.9 23.2 -3.5 41.7 -6.0 2008 31.7 -3.3 22.6 -0.6 36.8 -4.9 2009 31.7 0.0 21.9 -0.7 37.1 0.3 2010 33.7 2.0 23.6 1.7 39.5 2.4 Extremely Poor 2006 9.1 … 5.5 … 11.3 … 2007 6.6 -2.5 3.2 -2.3 8.5 -2.8 2008 6.1 -0.5 3.2 0.0 7.7 -0.8 2009 3.1 -3.0 2.7 -0.5 3.3 -4.4 2010 5.3 2.2 4.2 1.5 6.0 2.7
_________________________________________________________________________ *Source: Living Standards (Level) of the Population in the Kyrgyz Republic, 2005-2009, National Statistical Committee of the Kyrgyz Republic, Bishkek, 2010 and 2011. Change is given in percentage points.
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12. The 2010 events led to a reversal of these gains because of the disruption in economic activity, the destruction of business assets, disruption of trade with neighboring countries, and loss of life. Most adversely affected were agriculture, construction, and tourism—all labor intensive sectors that employ unskilled or semi-skilled low-wage workers. In agriculture, the events caused a disruption in seed imports just prior to the planting season and led to deterioration in business and agricultural marketing.
13. However, recent government policies will also serve to cushion the impact of recent political
events and the rising food prices on the population’s living standards—at least in the short-run. In April 2010, the interim government reversed the energy tariff increases that came into effect at the beginning of the year. The increases in public sector wages, pensions, social allowances for selected groups, and targeted cash transfers for the poor, which accompanied the previous raise in energy tariffs, have not been reversed. A growth forecast of 6% for 2011 permits some optimism that the pre-2010 positive trend on poverty will resume. Moreover, reconstruction activities if rapidly undertaken will generate jobs that will dampen the poverty-worsening effects of the recent events.
14. Gender. The Kyrgyz Republic performs well in several gender equality dimensions,
especially in comparison to other low income countries but also to the rest of the ECA region. The country has a strong track record in human development and high female labor force participation as well as a non-discriminatory legal framework. For example, the gender gap in primary and secondary school enrollments is negligible and at the tertiary level the female to male ratio is 1.3 to 1. Women’s labor force participation rate of 56 percent is higher than the average for the ECA region; women also comprise 43 percent of the labor force.
15. However, two worrying issues are maternal mortality rates and wages. The (modeled)
maternal mortality rate for the Kyrgyz Republic is 81 per 100,000 live births, which is the highest in the ECA region. Analysis of labor market data indicates that on average women earn 25 – 30 percent less than men, which is a result of factors including occupational segregation but also unexplained factors. 2
16. Progress towards achieving the MDGs. Compared to other low income countries, the country enjoys high levels of human development in several areas such as health and education. However, improvements in critical aspects of economic and social development in the post-independence era have not been consistent. Progress in securing the necessary gains to achieve the MDGs has been mixed (see Annex D).3 With the exception of maternal mortality, health indicators have generally improved since the mid-1990s, but health related goals such as reducing child mortality, improving maternal health, and combating HIV/AIDS, malaria and other diseases are unlikely to improve fast enough to meet the targets. However, progress related to eradicating extreme poverty and hunger, ensuring environmental sustainability as well as developing a global partnership for development appear to be on track to meet the targets. The concern remains that MDG achievement is
2 Kyrgyz Republic: Poverty Assessment Volume II: Labour Market Dimensions of Poverty, (World Bank, 2007.) 3 The Kyrgyz Republic, The Second Progress Report on the Millennium Development Goals, (UNDP, Bishkek, 2010).
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vulnerable to the political and social instability in the Kyrgyz Republic and without improvements in governance, continued progress may be difficult.
C. Recent Economic Developments
17. Prior to the events of April and June 2010 the Kyrgyz economy was recovering from the
global economic crisis with GDP projected to rise by 4.6 percent in 2010. Economic policies were guided by reliance on the private sector for growth in a liberal trade environment supported by a sharp rise in public capital spending, especially in energy. A continuation of the fall in poverty rates was confidently expected.
18. The 2010 disturbances dealt a large shock to the economy, weakening private sector
confidence, putting the banking system under strain, and public finances under a massive stress. Damage to physical infrastructure (including housing) and the emergence of a large number of internally displaced persons hampered economic activity. Investment, including foreign direct investment, fell, and production, trade and services were adversely affected also by weak security and border closures with Kazakhstan and Uzbekistan. (See Table 2) The economy contracted by 1.4 percent in 2010. Inflation accelerated from zero at end-2009 to about 19 percent at end-2010, driven by food and fuel prices and an expansionary fiscal policy stance, albeit tempered by a tight monetary policy. The external current account balance swung from a surplus of 0.7 percent of GDP in 2009 to a deficit of 2.1 percent of GDP in 2010, and was predominantly financed through public borrowing. External public debt as a share of GDP has risen strongly over the past two years and stood at 57 percent at end-2010. International reserves at $1.7 billion at end-2010 amounted to the equivalent of four months of imports.
Table 2: Impact of the Crisis in 2010 and Final Outturn
Pre-crisis
projection†/
Post-crisis
projection
Final
outturn
Growth in GDP (percent) 4.6 -1.5 -1.4
GDP per head (US dollar) 943 826 888
Inflation (percent; end of period) 13.0 6.6 18.9
Government expenditures (percent of GDP) 36.4 43.2 38.1
Fiscal balance (percent of GDP) -8.1 -9.1 -6.5
FDI ($ million) 248 144 175
External current account (percent of GDP) ††/ -15.2 -6.6 -7.4
Budget support needed ($ million) 175 335 147.7
PPG foreign debt (percent of GDP) 51.7 62.3 57.3
Source: Bank and Fund staff calculations. †/Projections prepared in March 2010. ††/Pre-crisis projection includes planned imports related to new energy sector projects which were to be financed by external borrowing.
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19. Attempting to deal with the immediate impact of the crisis, the authorities reallocated capital spending from energy to reconstruction in the south of the country, stepped up social spending and raised certain public salaries. Together with automatic stabilizers, these actions were projected to raise budgetary expenditures from a pre-crisis 36.1 to 43 percent of GDP; however, actual capital spending rose much slower than planned due to capacity constraints and total expenditures amounted to 38 percent of GDP. At the same time, contrary to expectations, tax revenues in 2010 rose by about 1 percentage point of GDP as import-related revenues (especially fuels) rose markedly and Kumtor gold mining company made advance payments in 2010 of its taxes due in 2011. These developments constrained the requirement for externally-financed budget support to around $148 million (in contrast to the estimate in the Joint Economic Assessment (JEA) of $335 million. The consolidated general government deficit increased from 3.5 percent of GDP in 2009 to 6.5 percent in 2010, as compared to the JEA estimate of 9.1 percent of GDP.
20. The banking system was largely immune to the global financial crisis of 2008-09, but the
2010 events put a severe strain on the sector, revealed fraudulent and corrupt practices in a major, systemically-significant bank, and resulted in a worsening in loan quality and in significant deposit withdrawals. While much of the banking system continued to be sufficiently liquid and capitalized, the major, systemically-significant bank became insolvent, was eventually nationalized and restructured through a good bank/bad bank division. The new commercial bank, Zalkar Bank, is currently undergoing a thorough review of its balance sheet. The prompt actions by the authorities helped prevent contagion to other banks, but weaknesses in the banking system remain, non-performing loans are notably high, and the supervision system needs to be strengthened. A spike in non-performing loans at microfinance organizations (MFOs) as well as limitations on their ability to swap foreign currency for local currency also caused them to reduce lending. Altogether, credit to the private sector remained flat at 13 percent of GDP.
Medium Term Outlook and Macroeconomic Sustainability
21. The Kyrgyz economy is expected to resume growth in 2011 assuming continuation of economic and political stability. Growth in 2011 is projected at 6 percent and is expected to remain around 6 percent over the medium term with an expanding demand both domestic and external as the international economy rebounds (especially if Kazakhstan and Russia maintain high growth), and with an upturn in private and public investment, focusing on energy and mining.
22. The economic program for 2011 and over the medium term is being supported by the
extended credit facility of the IMF and by budget support operations by IDA and other development partners. Following a sharp rise in 2010, inflation is projected to decline to around 13 percent by end- 2011 and to average at 7-8 percent over the medium term. However, the risks to low inflation, sustained growth over the medium term are significant: a plan of fiscal consolidation will need to be put in place and implemented from 2012 against uncertain political and social conditions, the financial sector firmly stabilized with stronger supervision and resolution of problem banks, and political stability with greater security will need to be attained. Risks to growth also arise from external factors: commodity (especially
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food and fuel) prices and an assumed continuation of demand growth in the major trading partners.
23. The government’s counter-cyclical stance in 2010 supported the economy and the authorities
decided to add to the fiscal stimulus in 2011 in view of the risks of a renewed economic weakening. In 2011, public wages were raised: education and health workers were awarded a two to three-fold wage rise on social grounds – the public sector wage bill will rise by 3 percentage points of GDP. The fiscal deficit will reach 7.7 percent of GDP. Tax revenues are expected to rise by 0.8 percent of GDP in 2011 on account of improved tax and customs administration, removing exemptions, and fighting corruption. There is however a risk that the fiscal stance may turn out to be even looser, with attendant risk of macroeconomic instability: acceleration of inflation (especially given external price shocks and domestic wage and pension increases), a higher external account deficit, and greater accumulation of external public debt. To safeguard against risks, the authorities will need to be prepared with a fiscal package of revenue and spending measures in 2011 in the event of slippages in performance and monetary policy will need to be tightened further.
24. The strong fiscal stimulus imparted to the economy over 2009-11 is to be withdrawn rapidly
from 2012 onwards in the interests of medium term fiscal and debt stability. The sharp rise in public external debt over this period has eaten into the fiscal space and public sector wage and pension increases make the task of consolidation difficult. Consistent with fiscal stability, the non-energy-projects-related deficit is to be limited to around 6 percent of GDP in 2012 and to be brought down to around 4.4 percent of GDP by 2014.
25. On revenues, the focus will be on tax simplification, a broadening of the tax base and
removal of exemption for both direct and indirect taxes, a change in customs valuation from weight-based to value-based, and corruption fighting measures. At the same time, tax administration reforms focusing on strengthening the large taxpayer unit and introducing self assessment needs to be continued. Expenditure restraint will have to take two forms: reducing the share of current spending in GDP on wages and pensions in the light of the very sharp real increases over 2010-11, and a fall in capital spending as reconstruction projects in the south are completed, and only partly offset by rising energy and transport investments.
26. The fragile political, social and security environment clearly affects the ability of the
authorities to pursue a fiscal consolidation strategy as expenditure restraint, possible gradual cost-recovery in energy services, and revenue efforts could meet social resistance. At the same time a unified government with parliamentary support will be necessary to stabilize the economy.
27. The announced intention of the government to join the customs union formed by Belarus,
Kazakhstan, and Russia will raise uncertainty for investment and trade over the medium term, thereby affecting domestic production and export performance. Membership of the customs union will improve trade relations with the members of the customs union whilst potentially raising tariffs with other countries. As a WTO member, the Kyrgyz Republic may have to provide compensatory measures for other WTO members as the common external tariff of the customs union will be higher than those currently negotiated by the
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country. If the Kyrgyz Republic joins the Customs Union, it may be required to improve controls on informal trade.
Fiscal and External Debt Sustainability
28. The latest joint Bank/Fund debt sustainability analysis showed that the country faces a moderate risk of debt distress, provided medium term fiscal adjustment is achieved. Stress tests reveal vulnerability to a combination of exogenous shocks, as well as vulnerability to growth shocks. Importantly, however, the debt sustainability ratios that have deteriorated over the recent past are projected to improve significantly over the medium term. The external public debt to GDP ratio increased sharply between 2009 and 2010, but will fall in 2011 and decline over the medium term. (Table 3). The government intends to prepare a new medium-term debt management strategy covering 2012-2015. The key elements of the new strategy are to maintain the share of grant financing to GDP at the same high level and to pursue the planned fiscal adjustment.
Table 3: External Debt and Debt Service, 2009-16 2009 2010 2011 2012 2013 2014 2015 2016
External public debt outstanding (in percent of GDP) 52.8 57.3 51.2 50.5 50.7 50.2 49.6 49.0
External public debt service-to-export ratio (in percent) 3.2 3.6 2.9 2.5 2.4 2.3 2.2 2.3
Source: Kyrgyz Government and WB calculations.
II. COUNTRY NEAR-TERM PRIORITIES
A. Response to the Crisis
29. The interim government that took office amidst political and social turmoil in early April 2010 declared its intention to concentrate on stability, security, and a transition to a new constitution, with major economic decisions to be left to its elected successor. It quickly reasserted central control over the country, achieved social peace and faced the task of satisfying the high expectations of a liberated population, who demanded high standards in governance and public services. It achieved legitimacy through the successful constitutional referendum of mid-year.
30. The civil violence of June 2010 in the south was a severe blow to the confidence of the
government and a challenge to its authority. Though peace was rapidly established, a bitter residue of inter-community tension remained, and, as noted, central control over the south continues to be highly tenuous. The major burden of social reconciliation was added to the responsibilities of the government. The interim government adopted four key priorities in the wake of the April and June events:
Supporting growth. The authorities believed that the shock to domestic demand would
affect fiscal revenues, reducing the capacity of the state to undertake vital expenditures. They relaxed the original fiscal deficit targets and sought external support for essential reconstruction and rehabilitation needs.
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Protecting essential public spending. The authorities took prompt action to define a category of public expenditures – outlays on wages and salaries, social assistance, pensions, utilities, and procurement of medication and food – as protected expenditures. These were accorded priority and indeed have been paid in full. The authorities showed the capacity to manage expenditure priorities with flexibility and skill.
Addressing the needs of internally displaced persons and the vulnerable. The government responded to the June events by establishing a Commission for the Assessment of Damages to prepare for comprehensive reconciliation, recovery and reconstruction in the south. The official strategy consists of reconstruction of destroyed housing, rehabilitation of damaged infrastructure, restoration of businesses and livelihoods, cash transfers to the vulnerable and public works, in addition to inter-community reconciliation.
Strengthening governance. The interim government took a number of steps to improve governance, create the conditions for higher standards in public accountability, and enforce assured control over budget expenditures and management of public assets.
o First, the shift to a cabinet system of government headed by a prime minister answerable to parliament was an innovation for the Kyrgyz Republic. Clearly, institutions have to be built and governance practices re-engineered in order to make a parliamentary democracy work. Both parliament and the government would need strengthening, thereby increasing the burden on the civil service for analysis and policy advice. It would be vital to strengthen local governance as well.
o Second, the interim government has placed importance on reforms in public financial management. Specifically, improvements in the Treasury system within the Ministry of Finance are being implemented and the coverage of the budget has been extended to include all investment spending. Thus, the management of public investments was made rules based, transparent with full reflection in the budget. This is a significant change from the practice of extra-budgetary spending without ministerial control or parliamentary accountability.
o Third, the authorities reversed the privatizations of two electricity distribution companies and the telecommunications company that were carried out at end-2009 in violation of rules and procedures, and which fell short of international good practices. The role of the State Property Commission in the management of public assets was fortified so that proper standards are applied in any transactions of state assets. The government is drafting revisions to the law of privatization and to supporting regulations to modernize practices.
B. Priorities in 2011
31. The elected, coalition government that came into power in December 2010 developed a one-
year Plan of Actions for 2011, retaining security and governance reforms at the core of its agenda. In addition, macroeconomic policy, financial and private sector development, social sector, food and energy security, mining, post-conflict recovery and reconstruction of the south are areas of activity. The re-attainment of macro-stability with low inflation and an exit from the fiscal stimulus towards medium term consolidation of the budget is a high priority and one that is being supported by arrangements with the Fund (external credit facility) and the Bank (budget support operations).
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32. The Plan aims to improve governance standards and transparency of public assets management, with particular emphasis on the energy and the mining sectors. Supervisory Councils have been created in these and other ministries, through which civil society organizations monitor the work of ministries. The government also envisages reforms in public financial management, specifically, improvements in the Treasury system ensuring stronger links between the budget and policies, and strengthening internal controls and audit.
33. The ambitious plan for private sector development consists of measures (i) to ensure
financial stability through strengthening the legal, regulatory and supervisory framework; (ii) to enhance access to finance through developing deposit services and new financial products, enhancing the credit information infrastructure, modernizing the registry for moveable collateral, reforming the post office, and privatizing a major bank, Aiyl Bank, and the finance company that provides funding for the credit unions; (iii) to improve the business environment in order to stimulate private sector led growth through making the rules, laws and regulations (particularly in the sphere of taxes) predictable.
34. In mining, the government intends to consolidate on its achievement of certification under the Extractive Industries Transparency Initiative, focusing on disclosure and reconciliation of mineral revenues and engagement with civic society. Transparent and effective administration of mining tenders (especially in regard to several potentially high-value gold deposits) has been identified as a key priority, to bring new investment to the country. More recently, social aspects of mining sector management and engagement with local communities in mineral-rich regions have become important factors for the authorities.
35. In the response to recent food price increases, the government plans to address constraints to
the importation of food, domestic production, and competition in the food sector, and improve the efficiency of public services to increase agricultural productivity.
C. The Country Medium Term Development Strategy
36. The government has been tasked by parliament to formulate the 2012-2014 Country Medium Term Development Strategy (CMTDS), which will be closely linked to a Medium-Term Budget Framework. The major objectives of the strategy flow from the near-term priorities outlined above: ensuring growth averaging 5 percent per annum so as to re-establish fiscal and debt stability and fight poverty; social sector measures to build human capital; and investments in infrastructure to strengthen the supply base of the economy. The strategy will underpin recovery and reconciliation in the south and bridge to a period of sustained growth.
37. The authorities have initiated the technical and policy work and requested donor technical
support. Attention will have to be paid to costing strategic programs and investments fully and to developing tight linkages between sector activities and the medium term budget. Moreover, a careful poverty analysis and the impact of interventions proposed on poverty will be required. The authorities have been advised to utilize a process of participation to cover preparation, monitoring and results measurements. The government has set itself an extremely demanding timetable for completing the strategy by summer 2011. Looking beyond the CMTDS, a strengthening of capacities within the government – for example, in poverty impact analysis or to build a robust monitoring and results framework – will require donor engagement over several years.
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38. The wide-ranging reform agenda out of which the CMTDS will craft a sequenced strategy
consists of the following elements. The strategy will aim at sharpening economic competitiveness and building human capital. In fiscal policy and governance, changes in the tax structure to broaden the base and reduce the distortions of a cascading turnover tax as well as eventually raise the rate of Value Added Tax (VAT) to bolster revenues should be priorities. Current expenditures such as wages, pensions and other transfers need to be rules-based; capital expenditures would benefit from a stronger system of public investment planning and project evaluation. Governance will be supported by a reform program on public financial management, public procurement and conflict of interest rules.
39. Investment in human capital through decentralization programs in education and building up
of primary health care have taken place, but sector strategies are under preparation to take them much further. Sharper targeting in social protection is necessary within a revision of the system itself that today has large gaps in coverage. Moreover, pension reforms have stalled with a premature and ill-advised introduction in 2009 of a second pillar (mandatory contributions that were to be invested in capital markets); furthermore, both contributions to and the pension increases within the public pillar have to be placed on a rules-based footing.
40. Public enterprises are not structured or managed on commercial lines with clear financial
and performance targets; they are run by ministries as departments. Thus, serious efficiency losses occur and business decisions and choices of investments are based inadequately on economic criteria. Independent regulation of utilities based on international good practice will be essential if private capital (including foreign investment) is to be attracted to the capital-starved utility and infrastructure sectors.
41. Financial sector. Robust frameworks for bank resolution and for prompt and remedial
action for dealing with banks in difficulty are reform priorities. Moreover, the deposit insurance system needs to be strengthened, bank supervision brought to modern standards, new capital in banks attracted, and the microfinance industry re-invigorated. The establishment of genuine independence for the central bank is essential if it is to be shielded from the political interference that largely caused the banking crisis of 2010.
42. Investment climate. The Kyrgyz Republic has seen impressive improvements in business
simplification, but arbitrary actions by tax and regulatory authorities, particularly in inspections and licenses, and uncertainties in property rights as well as an insecure framework for lending hamper private investment, notably in small and medium enterprises. Business surveys cite the unpredictability in the application of rules and a corrupt judiciary as additional factors.
43. Infrastructure. The country enjoys a strong comparative advantage in hydro-power
generation and is potentially a significant exporter to its neighbors and to south Asia, but the energy sector has been micro-managed by the government, with companies enjoying little autonomy, governance standards are very weak, maintenance has been neglected to a dangerous degree and large projects need to be scrutinized and evaluated to modern standards. In road transport, the government’s focus is on rehabilitating six strategic road corridors that have regional and national importance and which carry the majority of the
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traffic on the republican road network. However, financing road maintenance at the required level remains a challenge and funding modalities need to be revisited in order to move towards predictable financing flows. Telecommunications has private participation and mobile services are efficient with a broad choice, but allocation of the radio frequency spectrum to the private sector would revitalize a large range of services and reap potentially large budget revenues.
III. THE FOUNDATIONS OF THE INTERIM ASSISTANCE STRATEGY
44. The ISN is informed by the key insights of the World Development Report on Conflict, Security and Development (2011), and it applies the operational principles that have been developed to shape strategies in countries facing fragility, conflict and violence.4 It is also guided by the need for continuity in the sector reform processes underway before 2010.
45. Identification of stresses. The ISN identifies the two principal stressors of the 2010
conflicts as (i) weak governance, deep-rooted corruption, and lack of voice and accountability in the functioning of key public institutions; and (ii) ethnic and social tensions with historic origins, poor social and social service indicators and incomplete authority of the state in the south of the country in a context of crime, narcotics smuggling and criminal-political links. Moreover, (iii) the fiscal correction effort over the medium term will require budgetary austerity and will put an additional stress upon society, although it is clear that in the absence of fiscal adjustment, the ensuring economic and social instability will add to the risks of renewed conflict.
46. Institutional analysis. Conflict results when deep societal stresses are not resolved through
the workings of institutions that are responsive to public voice and are accountable. Through its work on governance and public management, the Bank identified the longstanding
deficits in the capability of institutions: absence of check and balances together with accountability to parliament; lack of a comprehensive budget and leakage of public resources into extra-budget funds; and lack of independence of regulatory bodies. However, the recent dispersal of power and strengthening of accountability in the new constitution and steps taken to fight corruption are notable stabilizing developments. In security and justice, the Bank is informed by work done by international and domestic commissions of inquiry into the conflict, the government response to the reports of these commissions as well as the work of the OSCE, and the UN.
47. Transition opportunities. The ISN is based on a continuum of transition possibilities lying
between two polar cases: A continued transition towards political stability, economic adjustment and social
stabilization. A stalled or failed transition, perhaps with deterioration in political and social conditions.
This could be characterized by frequent changes in government or questioning of the constitutional division of powers, fitful advances in fiscal consolidation or even a reversal
4 See Operationalizing the 2011 World Development Report: Conflict, Security and Development (DC2011-0003, April 4, 2011).
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of prudent economic management, little progress in peace and reconciliation or even a breakdown of social stability.
48. At present, the authorities have created the conditions for transition to sustained growth and
social peace, though the risks to steady implementation remain high. The adoption of a constitution with devolved powers, the setting up of a coalition government, firm governance measures, the pursuit of an economic stabilization program with IMF and IDA support, social reconstruction and reconciliation policies in the south with accompanying political and security reforms characterize the path to transition. IDA has developed a strategy in support, as detailed in Chapter V. However, should transition falter, the needs for basic service and livelihoods support would become even more urgent and IDA strategy will be re-focused towards basic human needs.
49. Thus, IDA strategy is based on countervailing the conflict stressors, through its focus on
governance and accountability, support for social services and infrastructure, and protection of essential spending during fiscal consolidation. The strategy places governance at its centre: IDA projects will contain explicit stakeholder analysis as a part of preparation and design; IDA is structuring dialogue with parliament, civic organizations as a part of its advisory and lending activities; a ―conflict filter‖ (details in para 79) will be applied to all projects to identify and address possible stress factors.
50. Although a conflict affected country, the Kyrgyz Republic should not be seen as one in
which mainstream development assistance cannot be effective. It enjoys reasonably well- functioning institutions capable of devising and pursuing a coherent economic and social agenda, preparing a medium term development strategy, delivering broad based social services, and successfully implementing a large portfolio of donor funded projects, with a high disbursement ratio. The Country Policy and Institutional Assessment (CPIA) exercise yields an overall score for the Kyrgyz Republic of 3.7 – the highest in central Asia, and one notably high for a post-conflict country – but reveals that key weaknesses lie in rules-based governance, transparency and accountability in the public sector, and the quality of public administration. The ISN proposes interventions to address these weaknesses.
51. Strengthening partnerships. IDA is only one part of the large aid architecture for the
Kyrgyz Republic. The ISN envisages deeper partnerships with agencies with complementary mandates and capabilities – the UN in security analysis and promotion of the political and judicial aspects of social reconciliation, the OSCE on police reforms and security, and an array of Non-Governmental Organizations (NGOs) on community level peace-building. IDA diagnostics on judicial reforms will contribute to the work of partners.
52. Seeking reduced volatility in financing. The ISN supposes a significant volume of support
over IDA-16 amounting to about $200 million.5 IDA will contribute to the assuredness and predictability of funding by committing this amount across all transition possibilities, but the form of commitment and the speed of disbursements will be transition-dependent, since rapidly disbursing budget support operations will be deployed only in the event of encouraging progress with economic and social stabilization. As a part of the medium term budget and balance of payments financing exercise contained in the Fund’s and IDA’s
5 The exact amount will depend on CPIA-determined allocations.
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budget-support programs, efforts will be made to hold donors to their pledges for budget and project support in the JEA and to extend their support throughout the medium term in an assured and predictable way. The Bank will also seek additional resources from eligible trust funds to support critical projects and analytical work.
IV. JOINT COUNTRY ASSISTANCE STRATEGY 2007-2010:
PROGRESS AND LESSONS
A. Background
53. The Kyrgyz Republic joined the World Bank Group in 1992. Throughout its membership, it has been an IDA-only country and has received commitments of $974 million covering 47 projects. In the early years of Bank engagement, the portfolio focused on supporting ambitious structural reforms. The record was mixed owing to low government capacity and persistent weak governance. In light of lessons learned, particularly from CAS and Implementation Evaluation Group (IEG) evaluations, projects were re-directed towards poverty-fighting investment operations, whilst the reform agenda, including governance, was pursued through dialogue and technical assistance with increasing coordination with donor partners.
54. The Joint Country Assistance Strategy for the Kyrgyz Republic, 2007-2010 (JCSS) was one
of the first in the Bank Group. The five development partners constituting the JCSS were the Asian Development Bank, Switzerland, the United Kingdom, the United Nations and the World Bank Group. The JCSS supported the Kyrgyz Country Development Strategy (PRSP equivalent). The partners built their program around four areas identified as major objectives of the Country Development Strategy:
Economic management consistent with the strong and sustained pro-poor growth; Reducing corruption, improving governance and effective public administration; Building sustainable human and social capital; Insuring environmental sustainability and natural resources management.
55. Thus, the donors made a strategic decision to focus on poverty-fighting operations that would
support institutional change building on the lesson that complex reforms needed to be phased over long periods and supported by intensive dialogue. IDA concentrated its efforts on generating rapid and visible results for the population, particularly the poor, by financing basic social services in health, education, water and sanitation, and helping develop institutions to ensure sustainability in gains. The International Finance Corporation (IFC) focused on reforms which led to improvements in the business environment, such as licensing, permits and inspections.
56. Although the IDA lending program envisaged no development policy or budget support operations, a three year series of programmatic development policy operations was added to the country program in late 2009. The government’s request for budget support was based on a reform program it had adopted to counter the effects of the international financial crisis, the food price shocks and a domestic weather-related energy shortage – all factors
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contributing to a severe strain to the fiscal accounts. The first development policy operation was appraised in spring 2010, but further processing was interrupted by the April 2010 events; and funds were redirected to the Bank’s response to the crisis (see below).
B. IDA Response to the Internal Conflict
57. The internal conflicts of April and June 2010 occurred at the tail-end of the JCSS period. With the forcible change of government in early April 2010, the Bank structured its response in line with OP7.30, Dealing with De Facto Governments, and the Board was briefed as to developments. The Bank initiated a needs assessment immediately following the economic shock and the relatively mild physical destruction of April, but this work was supplanted by a government-requested Joint Economic Assessment (JEA), prepared in the light of the additional shock to the economy and the budget and the huge loss of life and damage to infrastructure caused by the civil violence of June.
58. The JEA was led by the Bank together with the European Bank for Reconstruction and Development, the Asian Development Bank and the International Monetary Fund, with the participation of three other donors. It followed the principles of the European Commission-United Nations-World Bank agreement Joint Declaration on Post-Crisis Assessments and
Recovery Planning, 2008. The JEA identified the need for external support in three major areas: (i) essential public expenditures and service; (ii) social needs, principally the resettlement and integration of the internally displaced; and (iii) critical investments, related to destroyed private commercial and public buildings as well as in energy and transport. It found that the total external financing need amounted to $1 billion over a 30-month period. It provided the basis for a donor conference in July 2010, when donors pledged an aggregate of $1.1 billion for this period.
59. The JEA also provided the strategic framework for the Bank’s activities in the remainder of
FY11. Within this framework, IDA delivered two emergency operations as early as September 2010. The Economic Recovery Operation, an investment project, extended financing for post-conflict critical rehabilitation needs in the energy sector and through a large element of retroactive financing of general government expenditures provided resources to the budget for essential post-conflict social spending. About 70 percent of the project will be disbursed by the close of the FY11 fiscal year. The objective of the National Road Rehabilitation Project was to repair and rehabilitate roads in and around the southern cities of Jalalabad and Osh, thereby creating temporary employment.
60. The Kyrgyz Republic was allocated an additional $56 million of IDA for FY11, bringing
total IDA commitments to $136 million. Three further operations, each additional financing focusing on the south -- a Health and Social Protection SWAp, an On-Farm Irrigation Project and National Road Rehabilitation (Osh-Batken-Isfana) Project (Second Additional Financing)-- were presented to the Board in June 2011. The Health SWAp additional financing supports sector reforms, public recurrent spending, and capital expenditures, with an emphasis on the south through investments in mental health care to deal with post-conflict trauma involving communities and hospital rationalization in Osh city and oblast. The Irrigation Additional Financing supports agricultural livelihoods in the south, and emphasizes socially equitable mechanisms of water management and access to irrigation. The Second
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Additional Financing for the National Road Rehabilitation (Osh-Batken-Isfana) Project will rehabilitate an additional section of the Osh-Batken-Isfana road corridor which is in dire need of repair and improve road asset management, thereby reducing travel time, lowering vehicle operating costs, and providing reliable access to social services and economic activities in the south.
61. Thus, the JEA laid the foundation for strong donor coordination and mutual accountability in the post-crisis response, set a strategic framework for the Bank’s interventions in FY11 and has also provided the basis for this document – Interim Strategy Note (FY12-13). The analysis and the prioritization contained in the JEA influenced the elected government’s plan for 2011 that was discussed earlier.
C. Lending and Exposure
62. Delivery of the FY2007-FY2010 CAS. The planned interventions under the last CAS were
delivered (see Annex B3: IBRD/IDA Program Summary), but with changes in the light of circumstances, particularly the internal conflict. As noted, resources earmarked for the development policy operation, together with those for an education Sector-Wide Approach (SWAp), were re-directed to the post-conflict emergency recovery operations. The Judicial Reform Project was removed from the program as it was found that other donors had stepped in. The Statistical Capacity Building Project was dropped due to unavailability of co-financing from other partners.
63. In addition to the planned CAS program new commitments in FY07-10 included the Energy Emergency project ($11 million) in response to the energy crisis, Additional Financing for Agricultural Investment and Services Project ($4 million), Additional Financing for Health and Social Protection SWAp ($6 million) in response to the food price crisis. Additional Financing for a community development, rural infrastructure project, the Village Improvement Project ($5 million) so as to maintain the momentum and complete the four year support cycle in all local self-government territories, and Additional Financing for Small Town Infrastructure Project ($4 million) to finalize subprojects were also provided.
64. Trust Funds (PHRD, IDF, co-financing grants). The Active Trust Fund Portfolio consists of 30 trust funds totaling $73 million out of which 14 trust funds are Stand Alone Trust Funds (TFs) and 16 trust funds are Co-financing IDA projects. The portfolio includes a large variety of trust funds for project preparation, supervision, technical assistance and co-financing. Major donors providing financing for the Kyrgyz Trust Funds portfolio are the Japanese Government, UK Department for international Development (DFID), Swiss Agency for Development and Cooperation (SDC), Swedish International Development Agency (SIDA), and the European Union (EU). The main sectors benefiting from these funds are agriculture, health and community development.
65. Bank portfolio exposure to Kyrgyzstan is low representing less than 1 percent of IDA total portfolio. As of February 2011 the total outstanding debt owed to IDA amounted to $658 million.
66. The Analytical and Advisory Assistance was designed to support policy and institutional change in key areas with a major impact on poverty. The AAA program also provided the
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basis for lending interventions. Thus, IDA concluded a two-year programmatic ESW in the social protection sector, which provided a comprehensive analysis of the social protection system and guidelines for reforms and also, through a Pension Policy Note and a Social Safety Net Review, provided policy advice on social protection. Similarly, a comprehensive Agricultural Sector Review provided a diagnostic of farm-level inefficiencies and suggested poverty-fighting reforms. An Organization for Economic Co-operation and Development (OECD)/World Bank Education Sector Review provided the government with the basis for designing its new Education Sector Strategy whilst underpinning preparation for the Education SWAp. A programmatic poverty assessment and additional poverty and social impact analyses were completed. A Legal and Judicial Sector Review financed by the Swiss government was presented in June 2011. A study of the effects of the global financial crisis on the local banking industry was conducted, and various policy notes (such as in infrastructure policy) written in the context of preparing the budget support operations.
67. The major unplanned AAA was the Joint Economic Assessment, prepared by the Bank and six development partners immediately following the 2010 crisis events to identify needs and provide a strategic framework for external support during 2010-2012 (see below).
D. IFC and MIGA Program under last CAS in 2007- 2011
68. International Finance Corporation (IFC) engagement expanded during 2007-2011 and was
chiefly directed at long-term financing and advisory services to local financial institutions and direct financing to small enterprises. New IFC commitments in 2007-2011 amounted to $37.7 million in eleven projects – a notable increase from $12 million in six projects during the previous five year period. As of June 15, 2011, IFC’s committed portfolio stood at $37 million and included investments in seven companies from banking, microfinance and real sectors. However, IFC’s success in increasing its financing for manufacturing and agribusiness companies has been hampered by the challenging business environment, difficult economic conditions, low inflows of Foreign Direct Investment (FDI) into these sectors, and the poor financial disclosure practices and under-reporting of revenues and income by companies.
69. IFC Advisory Service projects have contributed significantly to the overall technical assistance provided to the government and private sector. The Investment Climate project launched in 2009 identifies and removes the regulatory barriers to business entry and operations. Specific project activities include inspections and tax administration reform as well as outreach and advocacy work. The tax administration reform supported by IFC helps the State Tax Service to reduce the number of audits and concentrate its resources on companies with higher tax evasion risk profile.
70. In 2009, IFC also launched a new Azerbaijan-Central Asia Financial Infrastructure Project
(ACAFI) which focuses on strengthening credit information sharing systems, financial intermediaries’ credit underwriting practices, and risk management education. The achievements of IFC advisory work in the leasing sector, which concluded in 2009, include amendments in legislation to allow lease finance to be treated as loan finance for tax purposes. IFC advice on mortgage lending led to improved National Bank of the Kyrgyz Republic (NBKR) regulation in this area. Other areas of engagement include corporate
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governance advisory project, which started in 2008, and microfinance development transformation work, which started is 2009, for IFC’s prospective and existing clients.
71. The current net exposure of the Multilateral Investment Guarantee Agency (MIGA) as of Dec 31, 2010 amounted to $9.2 million in two projects, both related to the cargo handling and storage services at Manas International Airport. MIGA’s continuing support to these projects signals its efforts to continue to underwrite projects in the country, encourage inward FDI, and encourage private sector development by addressing bottlenecks in the operating environment.
E. Lessons Learned
72. A comprehensive discussion of the lessons learned from the JCSS experience will be
presented in a Country Assistance Strategy Completion Report. But one key observation can be made at this stage: the risks posed by the stress factors were not adequately appreciated in the JCSS; their impact on economic and social developments turned out to be profound. First, corruption resulted inter alia in the reversal of gains in public financial management, including budget reforms and proper investment budgeting, misappropriation of public assets and fraudulent losses in a major bank, apart from its contribution to the build-up of social tensions. Second, social tensions erupted in extreme violence and large scale destruction. The 2010 JEA provided a structured strategic response to the new realities. The ISN embodies deepened dialogue with parliament and structured dialogue with civil society organizations, builds in stakeholder analysis in its projects, and through a conflict filter takes explicit account of conflict-related stress factors in portfolio management and new project design.
73. The main lessons are consonant with the paradigm shift proposed in the World Development
Report 2011 – to deepen political economy analysis and social stress analysis, to examine institutional deficits and devise ―inclusive-enough‖ strategies for addressing these factors through institutions that can break cycles of violence and wider partnerships.
74. A further set of preliminary conclusions could be drawn at this stage
Flexibility in the Bank’s response through advisory work and lending to changing political and social circumstances. As risks – political, economic and social – grow, in-depth analysis of the operating environment and the implications for Bank operations will be critical.
Balance between budget support operations to support basic, feasible policy reforms and simple-structure investment operations to fight poverty and promote institutional change to embed the gains in poverty. Firm commitment by the government will be a pre-condition for proceeding.
A sharper strategic focus will lead to greater selectivity, a portfolio shift towards fewer projects of larger size to optimize impact, and savings on internal budget costs.
Effective partnerships will greatly add to the prospects for overall success. The JCSS provided a useful platform, but agreement on assistance objectives, support areas and instruments has to be deepened.
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V. WORLD BANK GROUP INTERIM ASSISTANCE STRATEGY
A. Rationale for the Strategy
75. The JCSS is being succeeded by an interim strategy in light of the post-conflict circumstances of the country as provided for under OP/BP 2.30. As discussed in this document, the security conditions in the south continue to be fragile and the short term political and policy outlook is uncertain. In this phase of political transition, any medium or long term economic strategy is subject to significant revision. The technical and policy work for a medium term development strategy has begun, but the final direction will depend upon political direction and prioritization from the government that is expected to take office in early 2012 following the presidential elections.
76. The urgency of fiscal stabilization and the need to fund high priority social expenditures in the budget have led the authorities to seek support from the international financial institutions. They have prepared a three-year macroeconomic framework that will provide the basis for budget support arrangements from IDA, the Fund and other donors. The Bank has a solid basis for engagement through the work of the JEA and sector work (as detailed above). It will carefully watch the evolution of the political economy and associated risks; and coordinate closely with the principal donors. Efforts will be made to build on the disbursement rate of IDA credits, which is one of the highest in the ECA region.
77. The proposed ISN provides a framework for FY12-13 advisory and lending activities. The
ISN will cover the two years to June 2013, in order synchronize with the Bank’s financial year and to allow the possibility of beginning full CAS preparation in fall 2012. The ISN is built on three key objectives that constitute the pillars of the strategy:
Improving governance, effective public administration, and reducing corruption; Economic stabilization to support recovery, reconstruction and sustained growth; and Social stabilization, through social services, community infrastructure, and
employment, with emphasis on the south.
78. These pillars closely correspond with government main priorities, which are governance, macroeconomic stability, post-conflict economic recovery, social reconciliation, and sustained peace building. They are also in line with the preliminary thinking of the medium term development strategy team.
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Box 1: Link of ISN Pillars to Government Priorities
Government priorities ISN Pillars
Governance reforms and transparency of public assets management, with the emphasis on public financial management and energy and mining sectors.
Improving governance, effective public administration and reducing corruption.
Post-conflict economic recovery, macroeconomic stability, fiscal and budget sustainability.
Economic stabilization for economic recovery, reconstruction and growth.
Sustained peace-building and post-conflict social stabilization with the emphasis on improvement of basic state and social services.
Social stabilization, through social services, community infrastructure, and employment.
79. It is important for IDA engagement to be conflict-sensitive, i.e., to take every opportunity to address the causes and consequences of the conflict within the limited IDA program and to minimize reputational risks to the Bank. A conflict filter consisting of questions that will ensure that Bank advisory and project work has identified relevant conflict-generated needs, detected social risks, if any, and established with appropriate mitigation measures, provided for gender-disaggregated stakeholder consultations, designed grievance redress mechanisms; and provided for inter-community sensitization within project management. This filter will be applied to new activities.
80. Thus, the proposed ISN focusing on governance and post-crisis economic and social
stabilization with a cross-cutting conflict-filter provides a strategic basis for operations in FY12-13 to support the recovery and reconstruction efforts of the government, until such time as the country’s trajectory is clearer.
B. Proposed Program
81. The proposed program is structured around the continuum of transition possibilities
outlined in Chapter III, ranging from a successful transition towards political, economic and social stability to a stalled or even a failed transition.
82. In the event of adherence to a successful transition, the program will embody a gradual shift in focus from the emergency response in FY11 to stabilization efforts and the continuation of longstanding sector reforms, a process described in the chart below. The program outlined in the chart and paragraphs 83 to 94 below is based on IDA support for stabilization in FY12 followed by continuation of support for sector reforms. The duration ascribed to each phase is purely illustrative, stabilization could take longer, but some elements of long term reforms will be pursued from FY12 onwards. As noted, the strategy envisages fewer projects but of larger grant or credit amounts. If events tend towards a successful transition, the ISN will build on ongoing operations with the following new projects:
24
RECOVERY STABILIZATION STABILIZATION/REFORM
FY11 FY12 FY13 Emergency Recovery Operation (single tranche) AF for Health and Social Protection SWAp, with the focus on conflict-affected populations. AF for On-Farm Irrigation Project, focused on south. AF for Osh-Isfana Road Ongoing portfolio
Economic Recovery Support Operation (self standing DPO with the focus on governance) Financial Sector SIL AF and restructuring of Bishkek-Osh Urban Infrastructure Project Agricultural Productivity Assistance Health Results Based Financing Ongoing portfolio
DPO Health SWAp-2 Education SWAp Ongoing portfolio
83. Policy based lending. Together with this ISN, a single budget support operation – the
Economic Recovery Support Operation – in the amount of $30 million is being presented to the Board. This operation will provide much-needed resources to the budget to ensure that critical programs, particularly in the social areas, are fully funded. It will support the economic stabilization effort of the authorities and the first steps towards medium term fiscal consolidation. The post-conflict conditions, political uncertainties and the absence of a medium term development program offer justification for this self-standing IDA operation. In parallel, the authorities have agreed with the Fund to tap into the extended credit facility in the amount of $105 million, with a variable portion of this amount to be used on an as-needed basis for the budget; and the EU and the Eurasian Development Bank (Anti-Crisis Fund) are also expected to provide budget support.
84. The Emergency Recovery Support Operation (ERSO)/ Development Policy Operation (DPO)
instrument is considered to be particularly suitable under current circumstances. The Fund-Bank budget support program has already proved a framework around which different stakeholders can converge as it ensures adequacy of financing for a budget that reflects the priorities of the whole government. It is hoped that budget support will therefore prove conducive to ―coalition building‖, which the 2011 World Development Report has identified as a critical determinant of stabilization. The budget financing requirements will be heavy over the medium term even under the planned fiscal consolidation and it will be important to assure adequate funding for high priority social spending. A lesson of the World
Development Report is the importance of assured, predictable financing for the government as a key mitigant of the risk of renewed violence. Finally, IDA made commitments in the JEA donor burden-sharing framework to assist with the budget over the medium term, and IDA will lead by example.
85. The fiscal surveillance exercised through the DPO program will provide incentives for
staying the course on medium term fiscal consolidation and ensure that the composition of public spending remains well-directed to poverty-fighting objectives that are expected to lie at the heart of the CMTDS. Support for governance reforms is expected to be at the core of the DPO-supported reform strategy. Other instruments being deployed by IDA and donor partners to support governance reforms are technical assistance through generously resourced trust funds in public finance management and capacity building initiatives within the government. The donors will consider engagement with the just-established official anti-
25
corruption commission headed by a deputy prime minister. In other areas of reform supported by the DPO program such as privatization, energy pricing and management, public enterprise management, financial sector strengthening or social sector targeting, IDA, together with other donors, will seek to supplement the reform thrust of the DPO program with focused technical assistance or institution building through investment projects such that a holistic approach to reform design and implementation is achieved.
86. On the assumptions that political stability is re-established following the late 2011
presidential elections, an adequate medium term development strategy put into effect, and sound progress made with economic stabilization and continued governance reform, IDA will provide another Development Policy Operation in FY13. This could either be another stand-alone operation or the first in a series of programmatic Development Policy Operations, depending on the state of the policy reform dialogue. It is expected that (i) a strengthening of governance reforms (including the participation of civic society in the design and monitoring of reforms); (ii) the introduction of commercial principles in the management and regulation of public enterprises and utilities, above all energy; (iii) financial sector strengthening inter alia to reduce the opportunities for fraud and corruption, and improved access to finance; (iv) regulatory reforms and improvements in the business climate; (v) policy adaptations to reinforce the building of human capital; and (vi) bolstering the adequacy of social protection will form the policy content. Other elements will also be drawn from the competitiveness agenda of the authorities’ medium term development strategy.
87. Investment lending. The Financial Sector development project (FY12) proposes to (i)
bolster financial sector stability through strengthening the legal, supervisory, and regulatory framework, and resolving problem banks, and (ii) increase access to financial services by underserved segments of the market. This project has a strong dimension of governance: political interference in the supervision operations of the central bank enabled large scale fraud by the deposed political leadership in a major systematically-important commercial bank. Whilst the central bank handled the insolvency of this bank in 2010 reasonably well, some of the factors that caused the 2010 financial sector crisis are still in place, and it is clear that a major effort towards bolstering the independence of the banking supervision function and modernizing its technical capacities is a high priority. The Bank and the IMF will provide technical assistance on the legal aspects of bank resolution, with the IMF providing assistance on bank-specific action plans and the Bank on banking regulations and supervision. The Bank and the Fund will continue to coordinate carefully on all aspects of their assistance.
88. Despite substantial growth in bank credit to the private sector in recent years, access to
formal financial services remains limited. Credit and deposit penetration are amongst the lowest, and interest rates are amongst the highest in ECA. While nonbank financial institutions fill some of the gaps in access to finance for smaller borrowers, the poor, and the agricultural and rural areas, they remain small and face operational and funding costs, as well as legal, regulatory, and institutional constraints that inhibit their expansion. The project will therefore promote increased access to finance by supporting reforms in the Kyrgyz Post Office to expand its range of financial services; modernize the moveable collateral registry to expand the range and use of moveable collateral to secure loans; enhance deposit services by
26
Aiyl Bank and prepare it for privatization; and prepare the Financial Company on Supporting and Developing Credit Unions for privatization and improve its governance and services to its member credit unions.
89. Additional Financing for the ongoing Bishkek and Osh Urban Infrastructure project (FY12)
will contribute to social stability in urban areas, notably in the south. It will (i) provide adequate essential basic infrastructure services, (ii) ensure sustainability of the physical improvement, and (iii) strengthen the management of service delivery, thorough better accountability and governance of the municipalities and local utilities. It is envisaged to expand the project funding to small towns.
90. In recent years, many households have resettled in self constructed settlements surrounding
Bishkek and Osh, where services are often grossly inadequate. Inhabitants of these settlements are poor. The lack of basic infrastructure and services makes them vulnerable to political manipulation. In part, the 2010 civil violence fed off tensions between better-off residents of the city centers and poorer residents of outlying settlements. Thus, the proposed interventions to improve basic services will contribute to the peace building process. At the same time, adequate essential services will foster livelihoods and economic recovery and growth at the local level.
91. Health and Social Protection SWAp (FY13). The second sector wide operation (SWAp 2)
aims to introduce a second generation of reforms, addressing efficiencies, access and quality of health care and improve the various determinants of health. In the current unstable environment, the continuance of the multi-donor SWAp will be essential to maintain the state’s credibility as a provider of a critical public service.
92. The additional finance approved in June 2011 has two main goals: (i) rebuilding healthy
communities through improved maternal and child health and nutrition in the affected areas in the south, and provision of community based mental health activities, and (ii) support MOH's budget to reduce the gap of the State Guaranteed Benefit Program and enhance policy reforms. The Health SWAp-II, planned for FY 13 will support the next stage of reforms to be implemented by the new government over 2012-2016 focused on removing barriers in key impact areas through a patient-centered and results-focused approach. A health sector strategy is currently being finalized by the Government and will serve as a basis for the next health SWAp.
93. Education SWAp (FY13): The project development objective is to improve the quality of basic education for all through enhanced school accountability, incentives, and resources for results. The project will support ongoing education reforms designed to improve the quality and outcomes of education through improved accountability mechanisms and school-based management, enhanced incentives for teacher effectiveness and performance, strengthened sector capacity for monitoring and evaluation and reformed curricula, and assessment and provision of learning resources. These reforms are aligned with the Education Development Strategy 2020 and its priority action plan. Thus the project will help build sustainable human and social capital, and improve governance.
27
94. A contribution from the Kyrgyz Republic national IDA allocation to a regional Central Asia / South Asia electricity transmission project is possible. However, World Bank participation in such a project remains unconfirmed.
95. In the event of disappointing progress on transition, however, the projects above will be
reconsidered and IDA engagement could be refocused towards sustaining basic services and households’ livelihoods. Community level livelihood programs could be funded through scaling up of some of the existing projects: the Village Investment Project, activities in the urban, agriculture, and microfinance sectors, with a strong anti-poverty focus and supported by appropriate institutional reinforcement. Basic services would be provided through these interventions with necessary adaptations to fit political and fiscal circumstances. There will be no basis for proceeding with development policy operations given likely macroeconomic instability under this scenario and lack of reform efforts.
96. If the transition stalls to the extent that macroeconomic, fiscal and policy predictability is
impaired, the conditions for proceeding with SWAp operations in the education and health sectors might not be met, and interventions in the social sectors could consist of simple projects with the aim of ensuring basic services. Efforts will be made to preserve the institutional improvements achieved thus far through SWAps so that reforms could be revived once conditions permitted.
Advisory and Analytical Assistance
97. The AAA program is designed to be flexible to respond to emerging needs and help in policy
formulation for the government administration which is experiencing constant change. It will address the sources of major economic and social risks and propose policy responses. A central theme of the 2012-3 AAA program will be to support government’s analysis of the fiscal and social dimensions of budgetary adjustment. Of particular importance is advice on the development of the Country Medium Term Development Strategy (CMTDS). The Bank’s inputs will focus on the linkages between the Medium Term Budgetary Framework and sector strategies, via the framework of the CMTDS.
98. The Bank’s Advisory and Analytical assistance will focus upon sources of stress and
potential instability. The Bank intends to undertake a public expenditure review, with support from a multidonor trust fund for public financial management from DfID, the EU and Switzerland. This exercise has begun with deployment a spreadsheet-based analytical tool for multi-level expenditure analysis. The public expenditure review will provide critical advice on expenditure adjustment during the accelerated deficit-reduction program of 2012-13.
99. In FY12-13 the Bank plans to continue to support analytical poverty work through the
preparation of a number of short policy notes that monitor changes in living standards and poverty, and analyze the distributional impact of key government policies and economic shocks, such as food and fuel price shocks as well as adjustments in public spending. Additional trust fund financing provided by the United Kingdom (DfID) will allow IDA to help local capacity development, improve local access to data, and improve the data quality. The policy based lending team will deepen analysis in governance, public enterprise management and selected social sector topics to develop reform options. The Bank will
28
support a South-South exchange of experiences on social reconciliation, including the establishment of truth and reconciliation commissions. If requested by the government and contingent on the availability of resources, the Bank will consider preparing policy notes on: (i) trade policy options in the light of the Belarus, Kazakhstan, Russian custom union, and Kazakh and Russia WTO accessions, (ii) food security, (iii) health policy analysis, (iv) public expenditures review, (v) transport strategy, with focus on road asset management, (vi) fiscal decentralization and municipal financing, and (vii) regulation and management of state enterprises as well as expanding the frontiers for private participation in infrastructure. A decision on prioritization of such additional AAA work will be taken in late-2012. In addition, the Bank plans to undertake a gender assessment to identify the binding constraints to men and women achieving parity in economic opportunities and the policy notes will use where appropriate a gender lens.
100. In the event of a stalled or failed transition (the second scenario), the AAA agenda will shift
from deep work on reforms to the management of short term risks and design of stabilization measures with some prospects of adoption.
Trust Funds
101. Demand for Good Governance. Two TFs currently aim to enhance governance and accountability at the local level: These are: (i) Information Matters: Transparency and Accountability in the Kyrgyz Republic (IMTAK), financed by the Governance Partnership Facility (GPF), US$700,000; and (ii) Building Demand-side Capacity for Effective Local Governance (DCELG), financed by the Japanese Social Development Fund (JSDF), US$1.756 million. Both activities will work at the local level to strengthen the capacity and accountability of local self governments (LSGs) to citizens. IMTAK provides training on budget transparency and budget literacy to the executive and elected branches of LSGs and representatives of civil society. The DCELG enhances the decision-making and transparency of LSGs by strengthening citizen involvement in local government investment planning for local infrastructure and service delivery. These activities are complementary. Budget literacy improves the capacity of local officials to understand budgeting, and is a precondition for strengthening the capacity of citizens and local civil society to engage with LSGs on prioritization. The participatory tools introduced through DCELG help LSGs to open the planning and budgeting process to citizens, and create space for dialogue on the prioritization of local investments and services.
102. Mining sector interventions (FY12 and FY13) will be focused on providing advisory work on
legal and regulatory reforms in the minerals sector and a presentation and support in best practices in conducting mineral tenders. The work will be financed through the Extractive Industries Technical Advisory Facility (EI-TAF) and its expected successor. The focus of Extractive Industries Transparency Initiative (EITI) will be on the post-compliance phase and communication with local communities, including both men and women separately, and CSOs in remote mining communities.
103. Support from the TF for Statistical Capacity Building is envisaged for the preparation of a
statistical master plan by the government that would lead to improvements in the quality of
29
data and hence to the ability to monitor and evaluate the medium term development strategy as well as strengthen the basis for policy analysis.
104. In the social sectors, support from the TF for results-based financing will incentivize
improved performance in primary and maternal health facilities as well as health promotion. The Russian TF for education and development (READ) will finance the design and implementation of nationwide testing arrangements for schoolchildren. The lessons from the implementation of these activities will feed into the health and education sector dialogues under the SWAps to be funded in FY13. It is also expected that the Kyrgyz Republic will apply to the Fast Track Initiative for education.
C. IFC interventions for FY12-13 under proposed ISN
105. IFC aims to increase its investments to the private sector and sub-national companies in the Kyrgyz Republic from the current level of $10-15 million annually to up to $20-40 million annually by FY12. However, the upper range of this target would only be achievable with (i) the greater opening of the infrastructure sector to private sector and foreign investments, and (ii) improved disclosure standards in the corporate sector. Focus sectors for investments include banking, manufacturing, mining, and agribusiness sectors. Specifically in the financial sector, subject to financial condition of the bank which will emerge after restructuring of Asia Universal Bank, IFC, together with other IFIs, will consider supporting its institutional development through a pre-privatization investment. In addition, IFC is planning to participate in financing investment programs of privatized entities if privatization is undertaken in an open and transparent manner and in line with international best practice. In infrastructure, IFC is exploring opportunities, primarily on a sub-national basis, in power transmission, hydropower plants, and municipal utilities. An IFC Infrastructure Advisory program is being implemented in the Central Asia region and IFC is seeking to engage with the Kyrgyz government to assist with privatizations and concessions.
106. Ongoing advisory work will continue. The ACAFI project is aiming to complete its work on
the Code of Conduct, strengthen the institutional capacity of the private credit bureau, and possibly work on the special law on credit bureaus. Jointly with the World Bank, the project may also engage in improving the operations of the movable collateral registry in the country. IFC Investment Climate project will continue working with the government on ensuring higher transparency standards by helping introduce and promote the amendments to the Law on Inspections and working with inspectorates on introducing risk-based criteria for inspections in each sector and using checklists during inspections. On tax administration reform, the project focuses on the introduction of risk-based audits, helps to develop electronic filing of taxes and to simplify tax reporting system. Some of these measures are the milestones for the ―Fostering Competitiveness‖ component of the planned DPO. In order to address the revenue transparency and financial disclosure challenges, a new Project on Regulatory Reform and Tax Transparency has been launched in 2011 to identify the main policy constraints and root causes of low formalization and poor tax compliance by real sector companies (with a focus on agribusiness) and define a set of actionable policy options for client governments to increase compliance and formalization. The project is expected to complement the efforts of the ongoing Investment Climate work and facilitate an increase in IFC investments in the real sectors of the economy.
30
107. There are strong complementarities between the IDA and IFC approaches: IFC’s work on the
business environment will feed into the policy matrices of the IDA DPOs, while, as noted above, the governance improvements such as those supported by IDA DPOs are a prerequisite for long-term growth in IFC investment.
D. Sources of Financing and IDA Instruments
108. The ISN covers the period FY12-FY13, i.e., the first two years of IDA 16. The overall size of the IDA envelope during the ISN period is assumed to be about $120 million equivalent. These estimates for FY12-13 are indicative only and can change. Actual allocations in these years will depend on: (i) total IDA resources available, (ii) the country’s performance rating; (iii) the performance and assistance terms of other IDA borrowers; (iv) the terms of IDA's assistance to country (grants or credits) (v) the number of IDA-eligible countries. Since country is at a moderate risk of debt distress, it will receive roughly half its IDA 16 allocations in the form of credits, and the other half as grants in FY12, with the grant share to be reassessed annually. The Bank will also continue to mobilize trust funds and co-financing to leverage IDA resources and also to support the Bank’s budget for work on the country. To this end, the Bank will work with such main development partners as EU, GEF, governments of Japan, UK, and Switzerland on mobilization of funds. Beyond traditional donors, the Bank will seek to deepen its exchange of information with such emerging donors as China, Kazakhstan, Turkey and Russia.
E. Consultations
109. A number of meetings were held with various stakeholders, including civil society, government and donors during February and March 2011 to obtain feedback on the main elements on this proposed Interim Strategy. The subjects that received the most attention were energy, governance, community reconciliation, health and education reforms. Some implementation issues, notably the need to monitor budget support, adequate attention to inclusion of all communities and close monitoring of procurement under investment projects, were also at the forefront of the discussion. This consultation led to the proposal to include, resources permitting, a number of policy notes - Health Sector Review and Gender Assessment - during this two-year interim period to better position the Bank to respond to these issues in the next CAS. Conclusions and suggestions from the consultations are found in Annex E.
F. Partnerships: aid coordination and harmonization
110. The Kyrgyz Republic enjoys strong support from a large number of development partners, including two active regional development banks, the European Union and the major bilateral donors. However, the government’s capacity and continued high staff turnover hinders its donor coordination efforts. Recognizing the need to better coordinate and harmonize development aid, donors established the Development Partners Coordination Council in 2001. Since then, as noted, the major donors formulated a Joint Country Support
31
Strategy covering 2007-2010. The process of putting the JCSS together proved to be burdensome, overly focused on the text of the document, and was highly time-consuming. The donors now intend to follow the JCSS up with a Kyrgyz Republic Development Partnership that focuses on principles, with the common objective of supporting the CMTDS and ensuring that country assistance strategies would be fully aligned with the CMTDS. Monitoring arrangements with respect to these principles would be agreed and implemented.
111. Five donors -- DfID, SDC, KfW, WB, SIDA – have worked together to support the SWAp
operation in the health sector. In public sector management, donors (WB, DfID, EU, SDC) have been active with projects and technical assistance across a wide range. Donors have provided co-financing and parallel financing on number of investment projects.
112. The role of China, Kazakhstan, Russia and Turkey as development partners is acquiring
greater salience. China is emerging as a significant financier of infrastructure projects in energy and transport, Kazakhstan has signed an agreement to set up a $100 million investment fund, Russia has provided assistance for the budget and through attractive pricing of fuels, and Turkey has extended budget support.
G. Risk Management
113. The ISN covers a period of high political, economic and social risk faced by the country,
including risk to the World Bank program that in many cases cannot be mitigated. In response, the Bank strategy will be characterized by agility in response to emerging circumstances and by a flexible tailoring of advisory and lending products to best stabilize economic and social conditions.
114. Geopolitical risks. The south of the country is a major conduit for smuggled heroin from
Afghanistan to Europe as well as illicit trafficking in weapons; the huge profits generated have weakened central power, led to the growth of organized crime, and fostered corrupt links between crime and government. As a part of the Fergana Valley, the south is also threatened by religious extremism. The combination of drug and arms trafficking, organized crime and religious fundamentalism pose a threat to the fragile peace in the south. The Bank does not possess specific instruments to address these major geopolitical risks but it can encourage bilateral donors and international security organizations to maximize their efforts.
115. The neighbors of the Kyrgyz Republic could help greatly mitigate geopolitical risks by
opening the borders to trade that are today closed thereby fostering community livelihoods and promoting social stability. Greater cooperation in the Central Asia region on energy and water will help reduce risks.
116. Political risks. The country is still going through a peace and state building process. The
main political risk relates to the durability of the 2010 constitutional settlement, with some hankering for a return to a presidential system. A poorly managed political transition could increase domestic instability and exacerbate regional fragility. Power sharing between the executive and legislative branches is still to be properly defined, and the give and take of coalition government is still to be fully understood. Continued geographical polarization of the country on community lines or the degree of secularism also contributes to political instability.
32
117. Risk of macroeconomic and financial instability. As a small, open, and landlocked
economy, the country remains highly vulnerable to economic destabilization through external shocks – prices, foreign demand, interest rates and capital flows – especially those emanating from Kazakhstan and Russia. In addition, the current high inflation and the need for fiscal consolidation whilst safeguarding essential social spending pose risks to economic stability. Banking sector risks have diminished considerably, but bank supervision needs to be vigilant and the financial sector reforms are urgent. The government scheme to subsidize interest rates for agricultural loans distorts financial markets and carries the risk of misdirection of credit as well as corruption. IDA involvement in financial sector reforms will help address such risks.
118. Vital reforms for sustaining growth have been outlined in this document; they require steady
pursuit as destabilizing consequences could arise. Close monitoring and support provided by the Fund under its program, together with the periodic reviews carried by the Bank under the development policy loan series, will to identify potential problems early on and assist the government in taking corrective measures promptly. Follow up actions to implement the recommendations of the financial sector assessment program, the 2010 banking sector vulnerability assessment and ongoing TA should gradually reduce the risks posed by residual weaknesses in the banking system.
119. Social Risks. The fragility in the south – wounds left behind from the civil violence of a year
ago, the incomplete government response to the need for reconciliation and peace-building, inadequate security, existing ethnic biases in public administration and the security services, the enveloping environment of drug and arms related crime with political linkages, the dangers of rising religious extremism – pose serious social risks. A more determined and speedier implementation of post-conflict programs by the authorities would greatly dampen risks. Donors are providing technical and financial support in these areas. The Bank will gauge risks in its activities through the use of the conflict filter, and will maintain a structured dialogue with national and regional Civil Society Organizations (CSOs) in order to be sensitive to potential social tensions.
120. Risks related to institutional capacity and governance. Shortcomings in capacity at all
governmental levels, partly the result of political changes and rapid staff turnover, sometimes hamper efficient program implementation. As noted, governance weaknesses and corruption also constitute dangers to the proper use of public funds. The buildup of human capital and knowledge in the public services is a major focus of donor assistance in central government, the line ministries and the financial sector with large trust funds being used for public financial management, governance, central bank supervision and surveillance of the financial industry, standards in mining and health. Governance will be the major focus of the development policy series.
H. Beyond ISN
121. This document has analyzed in some detail the near-term political, economic and social risks
that would need to be addressed by skilled and determined political leadership, with the ISN being structured around two scenarios, a steady progress on transition and a stalled/failed transition.
33
122. The Bank will prepare a Country Assistance Strategy (in close consultation with development
partners) under the first scenario. It is expected that the country would embark upon implementing its Medium Term Development Strategy thereby providing the foundation for development policy operations and the CAS, and that progress towards economic stabilization will be characterized by adherence to the extended credit facility of the Fund. The authorities will focus on key structural reform priorities as discussed in this note. The Bank’s support for both improved governance and the socioeconomic stabilization required as a platform for sustained governance reforms will help lower the potential for future conflict. Bank technical assistance will concentrate, first, on preparation of the Medium Term Development Strategy and, subsequently, on its implementation.
123. It is expected that other JCSS development partners would proceed towards developing a
coordinated set of assistance plans.
124. In the event of a prolonged stalled transition, a successor ISN will be presented to the Board.
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Annex A1: Country at a Glance
Kyrgyz Republic at a glance 5/24/11
Europe &
Key D evelo pment Indicato rs Kyrgyz Central Low
Republic Asia income
(2010)
Population, mid-year (millions) 5.5 404 846
Surface area (thousand sq. km) 200 23,549 17,838
Population growth (%) 1.1 0.3 2.2
Urban population (% of to tal population) 35 64 29
GNI (Atlas method, US$ billions) 4.7 2,746 431
GNI per capita (Atlas method, US$) 880 6,793 509
GNI per capita (PPP, international $) 2,200 12,609 1,220
GDP growth (%) -1.4 -5.8 4.6
GDP per capita growth (%) -2.4 -6.1 2.4
(mo st recent est imate, 2004–2010)
Poverty headcount ratio at $1.25 a day (PPP, %) <2 4 ..
Poverty headcount ratio at $2.00 a day (PPP, %) 29 9 ..
Life expectancy at birth (years) 68 70 57
Infant mortality (per 1,000 live births) 27 19 76
Child malnutrition (% of children under 5) 6 .. 28
Adult literacy, male (% of ages 15 and o lder) 100 99 69
Adult literacy, female (% of ages 15 and o lder) 99 97 55
Gross primary enro llment, male (% of age group) 102 100 107
Gross primary enro llment, female (% of age group) 101 98 100
Access to an improved water source (% of population) 86 95 64
Access to improved sanitation facilities (% of population) 24 89 35
N et A id F lo ws 1980 1990 2000 2010 a
(US$ millions)
Net ODA and official aid .. 24 215 315
Top 3 donors (in 2008):
United States .. 1 25 52
European Union Institutions .. 0 15 29
Germany .. 0 5 24
Aid (% of GNI) .. 1.0 16.7 7.0
Aid per capita (US$) .. 5 44 58
Lo ng-T erm Eco no mic T rends
Consumer prices (annual % change) .. 1208.8 18.7 8.0
GDP implicit deflator (annual % change) .. 7.9 27.2 6.9
Exchange rate (annual average, local per US$) .. 0.0 47.7 46.0
Terms of trade index (2000 = 100) .. 112 100 80
1980–90 1990–2000 2000–10
Population, mid-year (millions) 3.6 4.4 4.9 5.5 1.9 1.1 1.1
GDP (US$ millions) .. 2,674 1,370 4,617 .. -4.1 4.4
Agriculture .. 34.2 36.7 20.7 .. 1.5 0.0
Industry .. 35.8 31.4 28.0 .. -10.3 1.1
M anufacturing .. 27.7 19.5 17.8 .. -7.5 -0.6
Services .. 30.0 31.9 51.3 .. -4.9 9.6
Household final consumption expenditure .. 71.1 65.7 84.0 .. -6.5 8.1
General gov't final consumption expenditure .. 25.0 20.0 19.0 .. -8.8 1.0
Gross capital formation .. 24.2 20.0 28.4 .. -3.9 9.1
Exports of goods and services .. 29.2 41.8 57.7 .. -1.6 5.9
Imports o f goods and services .. 49.6 47.6 89.2 .. -8.2 11.4
Gross savings .. 3.8 14.7 23.7
Note: Figures in italics are for years other than those specified. 2010 data are preliminary. Group data are for 2009. .. indicates data are not available.
a. A id data are for 2009.
Development Economics, Development Data Group (DECDG).
(average annual growth %)
(% of GDP)
6 4 2 0 2 4 6
0-4
15-19
30-34
45-49
60-64
75-79
percent of total population
Age distribution, 2009
Male Female
0
10
20
30
40
50
60
70
80
1990 1995 2000 2009
Kyrgyz Republic Europe & Central Asia
Under-5 mortality rate (per 1,000)
-25
-20
-15
-10
-5
0
5
10
15
95 05
GDP GDP per capita
Growth of GDP and GDP per capita (%)
35
Kyrgyz Republic
B alance o f P ayments and T rade 2000 2010
(US$ millions)
Total merchandise exports (fob) 511 1,837
Total merchandise imports (cif) 559 3,354
Net trade in goods and services -81 -1,614
Current account balance -75 -98
as a % of GDP -5.5 -2.1
Workers' remittances and
compensation of employees (receipts) 9 1,398
Reserves, including gold 263 1,719
C entral Go vernment F inance
(% of GDP)
Current revenue (including grants) 18.5 31.3
Tax revenue 15.1 23.2
Current expenditure 20.8 32.2
T echno lo gy and Infrastructure 2000 2009
Overall surplus/deficit -9.6 -6.5
Paved roads (% of to tal) 91.1 ..
Highest marginal tax rate (%) Fixed line and mobile phone
Individual .. .. subscribers (per 100 people) 8 94
Corporate .. .. High technology exports
(% of manufactured exports) 17.7 5.0
External D ebt and R eso urce F lo ws
Enviro nment
(US$ millions)
Total debt outstanding and disbursed 1,717 3,163 Agricultural land (% of land area) 56 56
Total debt service 190 199 Forest area (% of land area) 5.3 5.3
Debt relief (HIPC, M DRI) – – Terrestrial protected areas (% of land area) .. ..
Total debt (% of GDP) 125.4 68.5 Freshwater resources per capita (cu. meters) 9,803 9,351
Total debt service (% of exports) 30.0 5.1 Freshwater withdrawal (billion cubic meters) 10.1 ..
Foreign direct investment (net inflows) -2 234 CO2 emissions per capita (mt) 0.94 1.2
Portfo lio equity (net inflows) 0 103
GDP per unit o f energy use
(2005 PPP $ per kg of o il equivalent) 3.1 3.8
Energy use per capita (kg of o il equivalent) 489 542
Wo rld B ank Gro up po rtfo lio 2000 2009
(US$ millions)
IBRD
Total debt outstanding and disbursed 0 0
Disbursements 0 0
Principal repayments 0 0
Interest payments 0 0
IDA
Total debt outstanding and disbursed 379 656
Disbursements 34 8
P rivate Secto r D evelo pment 2000 2010 Total debt service 3 17
Time required to start a business (days) – 10 IFC (fiscal year)
Cost to start a business (% of GNI per capita) – 3.7 Total disbursed and outstanding portfo lio 31 18
Time required to register property (days) – 5 o f which IFC own account 31 18
Disbursements for IFC own account 0 6
Ranked as a major constraint to business 2000 2010 Portfo lio sales, prepayments and
(% of managers surveyed who agreed) repayments for IFC own account 5 3
Tax administration .. 33.7
Access to /cost o f financing .. 32.7 M IGA
Gross exposure 75 11
Stock market capitalization (% of GDP) 0.3 1.7 New guarantees 0 6
Bank capital to asset ratio (%) .. ..
Note: Figures in italics are for years other than those specified. 2010 data are preliminary. 5/24/11
.. indicates data are not available. – indicates observation is not applicable.
Development Economics, Development Data Group (DECDG).
0 25 50 75 100
Control of corruption
Rule of law
Regulatory quality
Political stability
Voice and accountability
Country's percentile rank (0-100)higher values imply better ratings
2009
2000
Governance indicators, 2000 and 2009
Source: Kaufmann-Kraay-Mastruzzi, World Bank
IBRD, 0IDA, 649
IMF, 177
Other multi-lateral, 640Bilateral, 1,149
Private, 548Short-term, 0
Composition of total external debt, 2010
US$ millions
36
Annex B2: Selected Indicators* of Bank Portfolio Performance and Management
Kyrgyz Republic
As of May 24, 2011
Indicator 2008 2009 2010 2011
Portfolio Assessment
Number of Projects Under Implementation a 17 19 19 19
Average Implementation Period (years) b 3.5 3.3 3.8 4.4
Percent of Problem Projects by Number a, c 5.9 5.3 0.0 15.8
Percent of Problem Projects by Amount a, c 4.0 3.4 0.0 27.4
Percent of Projects at Risk by Number a, d 5.9 5.3 0.0 15.8
Percent of Projects at Risk by Amount a, d 4.0 3.4 0.0 27.4
Disbursement Ratio (%) e 31.0 21.2 30.2 51.4
Portfolio Management
CPPR during the year (yes/no)
Supervision Resources (total US$)
Average Supervision (US$/project)
Memorandum Item Since FY 80 Last Five FYs
Proj Eval by OED by Number 27 8
Proj Eval by OED by Amt (US$ millions) 619.5 138.9
% of OED Projects Rated U or HU by Number 25.9 37.5
% of OED Projects Rated U or HU by Amt 16.4 43.3
a. As shown in the Annual Report on Portfolio Performance (except for current FY).
b. Average age of projects in the Bank's country portfolio.
c. Percent of projects rated U or HU on development objectives (DO) and/or implementation progress (IP).
d. As defined under the Portfolio Improvement Program.
e. Ratio of disbursements during the year to the undisbursed balance of the Bank's portfolio at the
beginning of the year: Investment projects only.
* All indicators are for projects active in the Portfolio, with the exception of Disbursement Ratio,
which includes all active projects as well as projects which exited during the fiscal year.
37
Annex B3: IBRD/IDA Program Summary
Kyrgyz Republic
As of May 24, 2011
Proposed IBRD/IDA Base-Case Lending Program
a
Fiscal year Proj ID US$(M)
Strategic
Rewards b
(H/M/L)
Implementation
b Risks (H/M/L)
2011 Emergency Recovery Operation 70.0
AF-1 National Road Rehabilitation (OBI) 10.0
AF-2 National Road Rehabilitation (OBI) 16.0
AF DISASTER HAZARD MITIGATION PROJECT 1.0
AF-SECOND ON-FARM IRRIGATION PROJECT 15.0
Health & SP AF2 24.0
Result 136.0
2012 Economic Recovery Support Operation 30.0
AF - BISHKEK & OSH URBAN 13.0
KG Financial Sector 13.0
Health Results Based Financing 11.0
Agricultural Productivity Assistance 6.9
Result 73.9
2013 Education SWAp/Sector Support Operation 15.0
Development Policy Operation 30.0
Second Health and Social Protection 15.0
Result 60.0
2014 Development Policy Operation 30.0
SIL-1 15.0
SIL-2 15.0
Result 60.0
Overall Result 329.9
38
Annex B3: IFC Investment Operations Program
Kyrgyz Republic
As of June 15, 2011
2008 2009 2010 2011
Original Commitments (US$m)
IFC and Participants
1.60 14.00 10.00 9.78
IFC's Own Accounts only
1.60 14.00 10.00 9.78
Original Commitments by Sector
(%)- IFC Accounts only
Finance & Insurance
100 100 74
Primary Metals
100
Pulp & Paper
26
Total
100 100 100 100
Original Commitments by Investment Instrument (%) - IFC Accounts only
Guarantee
0
Loan
100 100 100 100
Total
100 100 100 100
39
Annex B4: Summary of Nonlending Services
Kyrgyz Republic
As of May 24, 2011
Product Completion FY
Cost
(US$000) Audience a Objective
b
Recent completions Joint Economic Assessment FY10 258.948 G,D,B KG,PD,PS Judicial Study FY11 121 G,D, B KG,PD,PS Corporate ROSC FY10 82 G, D, B KG,PD Education Sector Review FY10
G, D, B KG, PD,PS
Underway KG Streng Bank Spn & Resolu FY11 179 G,D,B KG,PS Poverty Update FY11 15 G,D,B KG,PD Agriculture Policy, Food security & Rural Poverty FY12 58 G,D,B KG,PD,PS Conflict Filter Study FY12 50 G,D,B KG,PD,PS
Planned Poverty Update F\Y 12 20 G.D,B KG,PD,PS Public Expenditures Review FY12 150 G,D,B KG,PD,PS Gender Assessment Fy13 50 G,D,B KG,PD, TF - READ FY12 31 G,D,B KG,PS a. Government, donor, Bank, public dissemination.
b. Knowledge generation, public debate, problem-solving.
40
Annex B5: Social Indicators
As of April 15, 2011
Kyrgyz Republic Social IndicatorsLatest single year Same region/income group
Europe &
Central Low-
1980-85 1990-95 2003-09 Asia income
POPULATION
Total population, mid-year (millions) 4.0 4.6 5.3 404.2 846.1
Grow th rate (% annual average for period) 1.9 0.7 0.9 0.2 2.2
Urban population (% of population) 38.4 36.3 36.4 64.0 28.7
Total fertility rate (births per w oman) 4.2 3.3 2.8 1.8 4.2
POVERTY
(% of population)
National headcount index .. .. 43.1 .. ..
Urban headcount index .. .. 29.8 .. ..
Rural headcount index .. .. 50.8 .. ..
INCOME
GNI per capita (US$) .. 350 870 6,793 509
Consumer price index (2000=100) .. 28 155 141 141
Food price index (2000=100) .. 31 106 .. ..
INCOME/CONSUMPTION DISTRIBUTION
Gini index .. 53.7 33.4 .. ..
Low est quintile (% of income or consumption) .. 2.5 8.8 .. ..
Highest quintile (% of income or consumption) .. 57.0 42.8 .. ..
SOCIAL INDICATORS
Public expenditure
Health (% of GDP) .. 4.0 3.5 3.9 2.2
Education (% of GDP) .. .. 5.9 4.1 3.5
Net primary school enrollment rate
(% of age group)
Total .. .. 84 92 80
Male .. .. 84 93 82
Female .. .. 83 92 78
Access to an improved water source
(% of population)
Total .. 78 90 95 64
Urban .. 98 99 98 85
Rural .. 66 85 89 56
Immunization rate
(% of children ages 12-23 months)
Measles .. 97 99 96 78
DPT .. 93 95 95 80
Child malnutrition (% under 5 years) .. .. 3 .. 28
Life expectancy at birth
(years)
Total 65 66 67 70 57
Male 62 61 62 66 56
Female 70 70 72 75 59
Mortality
Infant (per 1,000 live births) 75 53 32 19 76
Under 5 (per 1,000) 90 62 37 21 118
Adult (15-59)
Male (per 1,000 population) 296 291 257 286 312
Female (per 1,000 population) 131 143 122 123 275
Maternal (modeled, per 100,000 live births) .. 98 81 32 580
Births attended by skilled health staff (%) .. .. 98 97 41
Note: 0 or 0.0 means zero or less than half the unit show n. Net enrollment rate: break in series betw een 1997 and 1998 due to
change from ISCED76 to ISCED97. Immunization: refers to children ages 12-23 months w ho received vaccinations before one
year of age or at any time before the survey.
World Development Indicators database, World Bank - 15 April 2011.
41
Annex B6: Key Economic Indicators
EstimateIndicator 2004 2005 2006 2007 2008 2009 2010 2011 2012
National accounts (as % of GDP)
Gross domestic producta 100 100 100 100 100 100 100 100 100 Agriculture 33 36 33 31 27 21 21 20 19 Industry 24 22 20 19 24 27 28 29 29 Services 43 41 47 50 49 52 51 51 51
Total Consumption 94 102 113 105 110 97 103 103 101Gross domestic fixed investment 15 16 23 25 27 29 28 28 30 Government investment 5 5 4 5 5 5 6 7 6 Private investment 10 11 19 20 22 24 22 21 24
Exports (GNFS)b 43 38 42 53 54 55 58 56 54Imports (GNFS) 51 57 79 84 93 79 89 87 85
Gross domestic savings 6 -2 -13 -5 -10 3 -3 -3 -1Gross national savings c 15 15 11 21 15 25 25 22 24
Memorandum items
Gross domestic product 2212 2460 2833 3799 5141 4691 4617 5450 6223(US$ million at current prices)GNI per capita (US$, Atlas method) 400 450 500 620 770 870 880 900 1000
Real annual growth rates (%, calculated from 95 prices) Gross domestic product at market prices 7.0 -0.2 3.1 8.5 8.4 2.9 -1.4 6.0 6.0 Gross Domestic Income 6.9 -0.5 3.9 9.6 7.1 2.4 -1.6 6.3 5.7
Real annual per capita growth rates (%, calculated from 95 prices) Gross domestic product at market prices 5.9 -1.1 2.1 7.8 7.3 0.2 -2.4 4.8 4.8 Total consumption 5.9 5.2 15.0 1.9 9.7 -14.2 2.4 2.2 2.0 Private consumption 6.4 7.4 18.0 2.1 11.5 -16.6 3.0 2.6 2.4
Balance of Payments (US$ millions)
Exports (GNFS)b 943 927 1265 2011 3037 2694 2511 3134 3406 Merchandise FOB 733 687 906 1338 2141 1835 1837 2271 2429 Imports (GNFS)b 1127 1413 2319 3206 4747 3682 3980 4955 5402 Merchandise FOB 904 1106 1792 2614 3754 2814 2981 3916 4279 Resource balance -184 -486 -1054 -1196 -1710 -988 -1469 -1821 -1996 Net current transfers 315 500 730 1020 1477 1208 1391 1559 1780 Current account balance 28 -74 -373 -227 -413 30 -98 -460 -467
Net private foreign direct investment 132 43 182 208 265 190 234 219 240 Long-term loans (net) 42 39 67 50 35 283 74 -141 107 Official 82 51 62 41 18 299 265 292 173 Private -40 -12 6 9 17 -16 -191 -433 -66 Other capital (net, incl. errors & ommissions) -37 85 317 297 216 -211 -107 549 164 Change in reservesd -164 -93 -193 -327 -103 -291 -102 -167 -44
Memorandum items
Resource balance (% of GDP) -8.3 -19.8 -37.2 -31.5 -33.3 -21.1 -31.8 -33.4 -32.1Real annual growth rates ( YR95 prices) Merchandise exports (FOB) 12.8 -11.0 8.9 25.8 9.1 -1.1 -4.2 2.8 3.1 Primary .. .. .. .. .. .. .. .. .. Manufactures .. .. .. .. .. .. .. .. .. Merchandise imports (CIF) 16.3 6.5 45.0 11.0 13.6 -19.4 1.6 3.4 3.3
(Continued)
Actual Projected
42
Actual Estimate ProjectedIndicator 2004 2005 2006 2007 2008 2009 2010 2011 2012
Public finance (as % of GDP at market prices)e
Current revenues 22.8 24.0 25.9 30.2 29.0 31.8 31.3 34.1 31.9 Current expenditures 23.0 24.2 25.0 26.4 26.6 28.4 32.2 34.7 32.8 Current account surplus (+) or deficit (-) -0.2 -0.2 0.9 3.8 2.4 3.4 -0.9 -0.6 -0.9 Capital expenditure 4.4 4.3 4.3 4.8 5.2 5.0 5.6 7.1 5.7 Foreign financing 5.1 4.2 3.7 1.3 0.4 7.4 3.2 5.4 3.7
Monetary indicators
M2/GDP 20.5 21.1 28.4 30.3 25.1 28.4 32.6 32.0 32.5 Growth of M2 (%) 32.0 9.9 51.6 33.3 9.8 20.9 21.1 15.7 16.2 Private sector credit growth / -150.3 93.2 99.0 141.3 133.9 284.4 283.6 61.6 85.4 total credit growth (%)
Price indices( YR95 =100)
Merchandise export price index 123.7 130.1 157.6 185.0 271.3 235.0 245.6 295.4 306.4 Merchandise import price index 145.5 159.9 172.6 218.1 323.5 299.5 325.3 403.9 415.6 Merchandise terms of trade index 85.0 81.4 91.3 84.8 83.9 78.5 75.5 73.1 73.7 Real exchange rate (US$/LCU)f 97.7 95.5 91.3 94.9 104.3 109.6 104.7 101.2 100.6
Real interest rates Consumer price index (% change) 4.1 4.3 5.6 10.3 24.5 6.8 8.0 20.0 8.7 GDP deflator (% change) 5.1 7.1 9.4 14.9 22.2 4.0 6.9 11.4 7.7
a. GDP at factor costb. "GNFS" denotes "goods and nonfactor services."c. Includes net unrequited transfers excluding official capital grants.d. Includes use of IMF resources.e. Consolidated central government.f. "LCU" denotes "local currency units." An increase in US$/LCU denotes appreciation.
43
Annex B7: Key Exposure Indicators
Actual EstimatedIndicator 2005 2006 2007 2008 2009 2010 2011 2012 2013
Total debt outstanding and 2025 2235 2503 2587 3021 3163 3497 3682 3877disbursed (TDO) (US$m)a
Net disbursements (US$m)a 34 136 123 -27 269 214 334 185 194
Total debt service (TDS) 115 86 173 307 364 164 175 162 165(US$m)a
Debt and debt service indicators (%) TDO/XGSb 140.1 108.3 80.5 56.6 79.6 80.7 111.6 108.1 105.3 TDO/GDP 82.3 78.9 65.9 50.3 64.4 68.5 64.2 59.2 55.7 TDS/XGS 8.0 4.2 5.6 6.7 9.6 4.2 5.6 4.8 4.5 Concessional/TDO 73.7 70.1 65.7 63.6 52.9 52.3 54.1 54.8 55.3
IBRD exposure indicators (%) IBRD DS/public DS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Preferred creditor DS/public 99.2 95.1 90.8 90.8 88.5 68.4 77.7 76.6 75.5 DS (%)c
IBRD DS/XGS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 IBRD TDO (US$m)d 0 0 0 0 0 0 0 0 0 Of which present value of guarantees (US$m) Share of IBRD portfolio (%) 0 0 0 0 0 0 0 0 0 IDA TDO (US$m)d 558 612 657 651 656 649 694 729 764
IFC (US$m) Loans 4 10 11 12 15 24 19 Equity and quasi-equity /c 3 3 2 2 2 2 2 0 0
MIGA MIGA guarantees (US$m)
a. Includes public and publicly guaranteed debt, private nonguaranteed, use of IMF credits and net short- term capital.b. "XGS" denotes exports of goods and services, including workers' remittances.c. Preferred creditors are defined as IBRD, IDA, the regional multilateral development banks, the IMF, and the Bank for International Settlements.d. Includes present value of guarantees.e. Includes equity and quasi-equity types of both loan and equity instruments.
Projected
44
Annex B8: IFC Committed and Outstanding Investment Portfolio in the Kyrgyz Republic As of June 15, 2011
In US$ Millions
Committed Outstanding
Commitment FY Company LN ET GT TOTAL LN ET GT TOTAL
2006/ 2009 Bai Tushum 3.57 - - 3.57 2.57 - - 2.57
1997/ 1999/ 2004/ 2009/ 2011 Demir Kyrgyz Int 5.00 0.56 0.00 5.56 - 0.56 - 0.56
2011 Finca Kyrgyzstan 6.00 - - 6.00 - - - -
2001/ 2005/ 2007/ 2009/ 2011 SEF KICB 5.22 2.98 - 8.20 5.22 1.70 - 6.92
2010 UniCredit Kyrgyz 10.00 - - 10.00 10.00 - - 10.00
2007/ 2011 Magic Box 3.25 - - 3.25 0.75 - - 0.75
2000/ 2005/ 2008 SEF Altyn-Ajydar 0.74 - - 0.74 0.74 - - 0.74
Total Portfolio 33.78 3.54 0.00 37.32 19.28 2.26 - 21.54
45
Annex B8: Operations Portfolio (IBRD/IDA and Grants)
Kyrgyz Republic
As Of June 13, 2011
Closed Projects 28
IBRD/IDA *
Total Disbursed (Active) 171.09
of w hich has been repaid 0.00
Total Disbursed (Closed) 185.64
of w hich has been repaid 66.43
Total Disbursed (Active + Closed) 356.72
of w hich has been repaid 66.43
Total Undisbursed (Active) 168.10
Total Undisbursed (Closed) 0.45
Total Undisbursed (Active + Closed) 168.55
Active Projects
Project ID Project NameDevelopment
Objectives
Implementation
ProgressFiscal Year IBRD IDA GRANT Cancel. Undisb. Orig. Frm Rev'd
P049724 AGRIBUSINESS & MARKETING S MS 2005 8.1 3.216169 2.7881451
P096993 AISP S S 2008 13 2.390085 -2.964447 0.735553
P099453 AVIAN FLU (AICHPPCP) S S 2006 4 0.87905 0.5397414
P104994 BISHKEK AND OSH URBAN INFRASTRUCTURE S S 2008 12 6.255884 4.9568676 4.104236
P108525 CAPACITY BLDG ECON MGT MU MU 2009 3 2.549718 1.9377648
P083235 DISASTER HAZARD MITIGATION S S 2004 7.9 4.025217 2.5045817 0.786922
P101392 EMERG ENERGY ASSIST S MS 2009 15 2.4444 -1.329578
P123044 EMERGENCY RECOVERY MS MU 2011 70 42.30193
P071063 GOV TA MS MS 2003 7.775 4.917422 3.5965273 0.496527
P084977 HEALTH & SOC PROT MS MS 2006 45 27.34473 -4.089225 1.910775
P074881 KG Pymnt/Bank Syst Modernizatio MS S 2004 9 4.223703 3.877122 2.03
P087811 KG Redu Tech Barriers for Enterpr & Trad MS MS 2007 5 3.306218 2.7655473 2.208747
P107608 NATL. ROAD REHAB (Osh-Batken-Isfana) S S 2010 35 29.96585 18.59206 20.59206
P096409 OIP-2 MS S 2007 16 7.741089 3.9167958
P110267 RURAL WATER SUPPLY & SAN 2 U U 2009 10 9.627663 4.2741803
P108178 SECOND LAND & REAL ESTATE REGISTRATION S S 2009 5.85 3.318195 1.5797263 -0.09399
P083377 SMALL TOWNS INFRA & CAP BLDG S S 2005 19 1.268194 -3.737959 0.286431
P098949 VIP 2 HS S 2007 23 1.713742 -7.363718
P088671 WATER MGMT IMPRVMT MS MS 2006 19 10.61012 7.9208843 3.337651
Overall Result 327.63 168.0994 8.928513 36.39492
Original Amount in US$ Millions Disbursements a/
Difference Between
Expected and Actual
Supervision Rating
Last PSR
46
Annex C: Active Trust Fund Portfolio
As of April 16, 2011
# Fund Fund Name Donor Program Disb USD
Grant Amount USD
Project Co-financing Trust Funds Total 24,439,400.67 33,984,101.63
1 TF091994 KYRGYZ REPUBLIC - AVIAN INFLUENZA CONTROL AND HUMAN PANDEMIC PREPAREDNESS AND RESPONSE PROJECT
EU-Commission of the European Communities
Avian and Human Influenza Trust Funds
341,688.82 352,000.00
2 TF091995 KYRGYZ REPUBLIC - AVIAN INFLUENZA CONTROL AND HUMAN PANDEMIC PREPAREDNESS AND RESPONSE PROJECT
Multiple Donors Avian and Human Influenza Trust Funds
715,429.44 798,000.00
3 TF090072 SECOND VILLAGE INVESTMENT PROJECT IN THE KYRGYZ REPUBLIC
DFID FS-7SD 12,361,679.21 13,622,463.16
4 TF055171 GEF MSP-KYRGYZ REPUBLIC : DISASTER HAZARD MITIGATION PROJECT
Multiple Donors GEFIA 932,322.88 1,000,000.00
5 TF053554 PHRD-KYRGYZ REPUBLIC: AGRIBUSINES AND MARKETING PROJECT
Japan- Ministry of Finance
PHRD Fund - Technical Assistance TF
3,793,384.34 4,750,000.00
6 TF056157 PHRD-KYRGYZ REPUBLIC: AVIAN INFLUENZA CONTROL AND HUMAN PANDEMIC PREPAREDNESS AND RESPONSE (AIPP)
Japan- Ministry of Finance
PHRD Fund - Technical Assistance TF
724,322.87 1,000,000.00
7 TF056324 PHRD-KYRGYZ REPUBLIC: WATER MANAGEMENT IMPROVEMENT PROJECT
Japan- Ministry of Finance
PHRD Fund - Technical Assistance TF
4,227,452.64 4,400,000.00
8 TF090641 PHRD-KYRGYZ REPUBLIC: REDUCING TECHNICAL BARRIERS FOR ENTREPRENEURSHIP AND TRADE
Japan- Ministry of Finance
PHRD Fund - Technical Assistance TF
173,174.61 299,600.00
9 TF095989 IDF-INTRODUCTION OF QUALITY MANAGEMENT SYSTEMS IN THE ROADS SECTOR PROJECT
IBRD IDF 0 480,000.00
10 TF096043 Eropean union food crisis rapid response Facility, Kyrgyz AISP EU GFCRP 549,084.83 5,758,200.00
11 TF094769 KYRGYZ REPUBLIC HRBF PILOT ACTIVITIES Multiple Donors Health Results-Based Financing
336,103.88 400,000.00
12 TF096039 EU TF Food Security: Global Food Crisis Response EU GFCRP 194,920.30 320,032.59
13 TF096491 Rapid Assistance to Improve Social Safety Nets in Kyrgyzstan in the Face of Energy Tariff Reforms
DFID RAPID SOCIAL RESPONSE CATALYST
36,058.32 50,000.00
14 TF097853 Kyrgyz Capacity Building PFM TF Supervision of Recipient Activities
Multiple Donors FS-7PE 12,265.72 112,357.00
15 TF098284 Kyrgyz Republic Food security Project Gov of Russian Federation
GFCRP 21,544.55 275,000.00
16 TF098542 TF071472-Kyrgyz Rep DFID TA-CO TF for RWSSP-2 DFID FS-7SD 19,968.26 366,448.88
# Fund Fund Name Donor Program Disb USD
Grant Amount USD
Stand Alone Trust Funds Total: 24,480,687.24 39,030,465.34
1 TF094665 READ FUNDING FOR THE KYRGYZ REPUBLIC Gov of Russian Federation
Russia Education Aid for Development
99,387.73 250,000.00
2 TF095028 JAPAN CTF - FY10: GENERAL BBMC (ALL BANK BORROWING MEMBER COUNTRIES/ALL SECTORS AND THEMES)
Japan- Ministry of Finance
Integrated Consultant TF
1,871,899.33 2,014,574.76
3 TF055016 CARBON FINANCE ASSIST (DISBURSING FUND UNDER TF054846)
Multiple Donors Carbon Finance Assist
11,691,072.31 12,688,644.63
4 TF054664 EXTRACTIVE INDUSTRIES TRANSPARENCY INITIATIVE - CHILD TF
Multiple Donors Extractive Industries Transparency Init.
4,089,977.86 5,897,192.50
TF090446
BANK EX.SUPPORT FOR EITI IN COUNTRY IMPLEMENTATION
Multiple Donors
4,566,687.33 6,000,000.00
5 TF091286 KYRGYZSTAN: NBFI CAPACITY BUILDING Multiple Donors Financial Sector Reform & Strength. Init
332,074.99 450,100.00
6 TF094144 W2-INFORMATION MATTERS - TRANSPARENCY AND ACCOUNTABILITY IN THE KYRGYZ REPUBLIC
Multiple Donors GPF 196,974.16 1,351,000.00
7 TF050683 NORWAY/WORLD BANK INSTITUTE (WBI) PROGRAM IN GOVERNANCE - PHASE II
Norway- Ministry of Foreign Affairs
WBI 366,581.98 373,440.45
47
8 TF096647 FIRST #9002 Kyrgyz Republic: Deposit Protection Agency Capacity Building
Multiple Donors FIRST 60,242.87 252,000.00
TF097911
Kyrgyz Republic #10059 Strengthening Bank Supervision and Resolution
Multiple Donors
97,920.39 124,755.00
TF098145 Kyrgyz Republic #9026 Corporate Financial Reporting Multiple Donors
1,650.36 209,600.00
9 TF098716 Kyrgyz Republic: Mining Sector TA Project Multiple Donors ETAF 30,464.21 300,000.00
TF098717 Kyrgyz Republic: Mining Sector TA supervision Multiple Donors
17,591.27 54,000.00
10 TF099115 Kyrgyz Republic Support to Vulnerable Remote Mining Communities
Japan - Ministry of Finance
JSDF 4,597.44 50,000.00
11 TF090545 KYRGYZ REPUBLIC - SUPPORT TO THE EXTRACTIVE INDUSTRIES TRANSPARENCY INITIATIVE
Multiple Donors Extractive Industries Transparency Init.
224,435.90 265,725.00
12 TF095472 Capacity Building in Public Financial Management Multiple Donors FS-7PE 190,279.05 7,491,433.00
13 TF090667 KYRGYZ REPUBLIC: IDF GRANT FOR CAPACITY BUILDING IN PUBLIC SECTOR AUDITING
IBRD IDF 226,018.77 370,000.00
14 TF091980 KYRGYZ (EFA FTI EPDF-ECA): CAPACITY DEVELOPMENT
Multiple Donors EFA-FTI 70,892.63 120,000.00
TF091981 KYRGYZ (EFA FTI EPDF-ECA): MONITORING EVALUATION & KNOWLEDGE SHARING
Multiple Donors 161,171.75 324,000.00
TF091982 KYRGYZ (EFA FTI EPDF-ECA): STRENGTHEN PARTNERSHIPS
Multiple Donors 180,766.91 264,000.00
TF099482 SPN budget for Kyrgyz Fast Track Initiative Catalytic Trust Fund II
Multiple Donors 0.00 100,000.00
TF092574 KRYGYZ EPDF -- EDUCATION SECTOR PLAN Multiple Donors 67,871.32 80,000.00
48
Annex D: Millennium Development Goals
Millennium Development Goals Kyrgyz Republic
With selected targets to achieve between 1990 and 2015(estimate closest to date shown, +/- 2 years)
Go al 1: halve the rates fo r extreme po verty and malnutrit io n 1990 1995 2000 2009
Poverty headcount ratio at $1.25 a day (PPP, % of population) <2 18.6 34.0 <2
Poverty headcount ratio at national poverty line (% of population) .. 43.0 62.5 31.7
Share of income or consumption to the poorest qunitile (%) 7.9 6.2 8.8 12.2
Prevalence of malnutrition (% of children under 5) .. 9.3 6.6 5.7
Go al 2: ensure that children are able to co mplete primary scho o ling
Primary school enro llment (net, %) .. .. .. ..
Primary completion rate (% of relevant age group) .. 103 95 94
Secondary school enro llment (gross, %) 103 87 84 84
Youth literacy rate (% of people ages 15-24) .. 95 100 100
Go al 3: e liminate gender disparity in educat io n and empo wer wo men
Ratio of girls to boys in primary and secondary education (%) 100 110 100 98
Women employed in the nonagricultural sector (% of nonagricultural employment) .. 45 43 62
Proportion of seats held by women in national parliament (%) 8 5 5 26
Go al 4: reduce under-5 mo rtality by two -thirds
Under-5 mortality rate (per 1,000) .. 74 70 35
Infant mortality rate (per 1,000 live births) 30 63 23 27
M easles immunization (proportion of one-year o lds immunized, %) .. 98 98 84
Go al 5: reduce maternal mo rtality by three-fo urths
M aternal mortality ratio (modeled estimate, per 100,000 live births) 50 44 46 55
B irths attended by skilled health staff (% of to tal) .. 98 99 100
Contraceptive prevalence (% of women ages 15-49) .. .. 40 62
Go al 6: halt and begin to reverse the spread o f H IV/ A ID S and o ther majo r diseases
Prevalence of HIV (% of population ages 15-49) 0.1 0.1 0.1 0.3
Incidence of tuberculosis (per 100,000 people) 56 72 151 116
Tuberculosis case detection rate (%, all forms) 37 52 83 66
Go al 7: halve the pro po rt io n o f peo ple witho ut sustainable access to basic needs
Access to an improved water source (% of population) .. 81 86 86
Access to improved sanitation facilities (% of population) 96 81 33 24
Forest area (% of land area) .. 5.2 5.3 5.3
Terrestrial protected areas (% of land area) .. .. .. ..
CO2 emissions (metric tons per capita) 2.4 1.0 0.9 1.2
GDP per unit o f energy use (constant 2005 PPP $ per kg of o il equivalent) 1.5 2.4 3.1 3.8
Go al 8: develo p a glo bal partnership fo r develo pment
Telephone mainlines (per 100 people) 7.1 7.8 7.7 9.4
M obile phone subscribers (per 100 people) 0.0 0.0 0.2 84.3
Internet users (per 100 people) 0.0 .. 1.0 41.2
Personal computers (per 100 people) .. .. 0.5 1.9
Note: Figures in italics are for years other than those specified. .. indicates data are not available. 5/24/11
Development Economics, Development Data Group (DECDG).
Kyrgyz R epublic
0
25
50
75
100
125
2000 2005 2009
Primary net enrollment ratio (..)
Ratio of girls to boys in primary & secondary education
Education indicators (%)
0
10
20
30
40
50
60
70
80
90
100
2000 2005 2009
Fixed + mobile subscribers Internet users
ICT indicators (per 100 people)
0
25
50
75
100
1990 1995 2000 2009
Kyrgyz Republic Europe & Central Asia
Measles immunization (% of 1-year olds)
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Annex E: ISN Consultations with Civil Society Organizations
1. The World Bank office in the Kyrgyz Republic maintains regular contact with civil society organizations. Specific consultations with the civil society organizations were held on April 29, 2011. Invitations to the consultations were issued to a broad-based CSO network, facilitated by the Forum of Women’s NGOs of Kyrgyzstan. In addition to Bishkek-based participants, travel costs were offered for two CSO representatives from each oblast.
2. The objectives of the consultations with the Civil Society Organizations included: (a) to disseminate information about the World Bank Group in the Kyrgyz Republic including an analysis of the current portfolio, as well as the analytical basis for the design of the present Interim Strategy Note; and (b) to receive feedback from the participants with respect to the current program and to the proposed FY12-13 strategy, given their knowledge of the political, economic and social challenges that the Kyrgyz Republic is currently facing.
3. The discussions during consultations were structured around the specific development areas. During the plenary session, participants discussed the proposed World Bank Group Interim Strategy for FY12-13 and its key pillars. During the second part of the consultations participating CSOs formed working groups based on their mandates or interests and identified the critical challenges in their respective areas of expertise, where the proposed ISN envisages interventions:
Governance and Transparency: The theme of poor governance and lack of transparency in times of crisis was recurrent throughout the discussion and it was recognized that the Bank should continue to support governance reforms. The stability in the county and its development depends on the accomplishment of the government’s anticorruption agenda. More specifically, in order to raise the level of trust of CSOs in international aid, it is necessary for project implementation units to be more transparent; and to increase the financial accountability of line ministries; to ensure the participation of beneficiaries at all stages from the preparation to the evaluation of development projects; and widely discuss regional projects.
Infrastructure and energy: with respect to infrastructure projects it was felt that the World Bank investments are most visible and there is a need to continue support with greater involvement of local communities in the stages of planning, implementation and maintenance. Deteriorating infrastructure services require not only physical investment but capacity building activities to ensure proper maintenance by the state and local communities. In the energy sector there is a concern that a significant portion of the World Bank’s support is destined to cover financial gap and emergency needs instead of increasing the efficiency of the sector. It is necessary to promote both public and private investment to the energy sector, where Kyrgyzstan has much potential.
Banking and Financial Sector: the banking and financial sector crisis must be addressed urgently. The expansion of access to financial resources for farmers is crucial for mitigating the impact of the food price crisis and this could be achieved by
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modernization of the existing post offices into a post bank. Public awareness of banking procedures and the transparency of financial institutions are viewed as a critical factor to promote small and medium businesses, especially in rural areas.
Health: while the health sector enjoys strong support from the donor community, CSOs perceived that some key health indicators (the rates of maternal and child mortality, TB prevalence, number of drug users) are not improving. There was much consensus that the financing of the health sector should be a government priority, that an awareness campaign on the ―State Guaranteed Health Benefit Package‖ in rural areas should be launched, and the participation of civil society in health strategy development should be encouraged,
Education: much emphasis was placed on the need for greater accessibility and better quality in education, including pre-school education, especially in rural areas. Participation of civil society and parents’ committees in education reforms, application of innovative education technologies, adequate supply of textbooks and learning materials, and teachers’ capacity building were named as the key elements in modernizing the sector.
4. The World Bank and CSOs agreed the need for more effective and systematic consultations and participation of civil society at all stages of project preparation, implementation and evaluation. It was agreed that:
During the ISN period there would be six-monthly thematic consultations between the Bank and CSOs;
The Bank would provide feedback on the degree to which CSO recommendations could or could not be pursued;
The Bank would provide training to CSOs on accessing documents via its external website; 5. The Bank would translate disclosed Implementation Status Reports into Russian annually, in
order to improve access to information on activities and results.
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Annex F: Update of FY07-10 World Bank CAS Results Framework to reflect ISN (FY12-13)
interventions
The October 2009 Country Assistance Strategy Progress Report (report no. 48300-KG, Annex 10, pp32-49) measured progress towards achieving World Bank CAS results. When the World Bank’s Kyrgyz Republic program graduates from an ISN to a full CAS, a CAS Completion Report will measure progress against the results matrix over the period from the effectiveness of the CAS (FY07-10) to the preparation of the new CAS.
The CAS results framework, as reported on in 2009, remains by and large relevant as an effective measurement tool for the combined CAS and ISN periods, and will be used as such. However, it is necessary to make minor modifications to the CAS Progress Report matrix in order to reflect the evolution of the portfolio. Those CAS outcomes and milestones which are no longer relevant due to changed circumstances will be removed, and new outcomes, which will be achieved by FY13, will be added. Given the length of the CAS results framework, it is not reproduced in the ISN in
extenso. It should be noted that new Sector Investment Loan commitments during the ISN period are unlikely to show significant development results by June 2013.
The following intended outcomes are added: Country
Development
Goals
Outcomes and
milestone
CAS/ISN interventions Selected performance indicators
to be achieved by June 2013
CAS Objective 1. Promoting economic management consistent with strong and sustained pro-poor growth
1.4 Increase productivity and output in agriculture
1.4.1. Improved sustainability of irrigation system Collection rate of
irrigation service fees. Baseline: 80% (2006) Target: 95% (2010)
Financing/projects
On-farm Irrigation Project Additional Financing
In 98 rehabilitated project irrigation systems water distribution in 80% of the system meets crop requirements. 28,000 female water users in project area provided with improved irrigation and drainage services. 75% of project Water Users’ Associations (WUAs) collecting at least 90% of assessed fees. 6,100 man-months of temporary employment created by irrigation rehabilitation works in project area.
CAS Objective 2. Improving governance, effective public administration and reducing corruption
2.1 Improve transparency and accountability in public finance management
2.1.1. Common agreement between authorities and Donors on future steps and benchmarks for PFM Reform 2.1.2. Closer link
Financing/projects Development Policy Operations, Multidonor Trust Fund for Public Financial Management Extractive Industries
Ministry of Finance’s total control over all capital spending maintained. No fund operational outside the budget 2011-13. Strategic decisions in energy sector incorporate public
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between the annual budgets and CDS objectives PEFA indicator PI-12
2.1.1. 2.1.3.
Predictability in the availability of funds for commitment of expenditures PEFA indicator PI-16
Transparency Initiative Analytical work Public Expenditure Review
feedback through Supervisory Council. Power export revenues paid into escrow accounts. Power sector losses reduced from 28.8% (2010) to 23% (2012). Clarification of legal accountability of Deposit Protection Agency. Kyrgyz Republic achieves and maintains EITI certification 2011-13.
CAS Objective 3. Building sustainable human and social capital 3.1. Ensure equitable access to quality health care CDS 2007-10
indicators
3.1.1Improved access to primary health care Number of visits to
Family Group Practice
(FGP) per citizen Baseline: 2.2 Target: 3.0 3.1.2. Adequate financing of basic health as share of total expenditure Baseline: 10.4% Target: 13%
Financing/projects Health and Social Protection Project 2 Additional Financing Development Policy Operations Analytical work Public Expenditure Review
20% women nationwide anemic (2011: 40%). Government spending on non-salary recurrent health costs does not fall as % of GDP. Immunization coverage by age 2+ with basic vaccines 97% (2007: 95.6%)
The following CAS (2007-2010) outcomes and milestones are no longer appropriate and will be removed from the framework: CAS Outcomes and Milestones Remarks
1.6.1 Increased efficiency of the energy sector Reduce
electricity losses and increase cash collection
Baseline: 40% and 58.3% (2006) Target: 14% and 94.3% (2010) Comprehensive nationally-owned energy sector strategy Satisfactory institutional and legal framework for implementation of comprehensive reform Tariffs increased in a step-by-step manner to full cost recovery, excluding cross-subsidization, and with mechanisms for social protection incorporated
The elite capture of the energy sector was a major cause of the lack of policy progress 2007-10, and combined with tariff increases to precipitate the 2010 revolution. The World Bank was therefore unable to support energy sector reforms. However, it is proposed above to retain indicators for energy sector anti-corruption under CAS Objective 2 (Governance).
3.3.1. Improved fiscal sustainability of the pension
system
Long term projection of NPV of expected net receipts of pension system is positive Produce a long-term fiscally sustainable pension system strategy
The previous regime diverted Pension Fund resources into banks controlled by the president’s circle. The new government has not yet determined the way forward. A substantive policy dialogue on contributory pensions is therefore not currently envisaged.
4.1.1.2. Improved sustainability of forestry activities
through carbon trade
The regional Tien-Shan Biodiversity project was dropped due to the failure of Kazakhstan and Kyrgyz Republic to meet effectiveness conditions. In the Kyrgyz Republic, the delay was largely due to the political disruptions of 2010.
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Annex G: Country Financing Parameters (CFPs)
Summary Table
Item Parameter Remarks / Explanation
Cost sharing. Limit on the proportion of individual project costs that the Bank may finance
Up to 100 percent The Bank will still encourage cost sharing, particularly for SWAps, SOEs and sub-national borrowing to demonstrate ownership. On CDD operations, Bank may finance up to 100 percent at central level, while establishing the beneficiary communities’ contribution at a level that will ensure their commitment to sub-projects.
Recurrent cost financing. Any limits that would apply to the overall amount of recurrent expenditures that the Bank may finance
No country level limit on recurrent cost financing
Appropriate justification for recurrent cost financing would be presented at the project-level regarding: (i) the likely sustainability of project achievements; (ii) the implied future budgetary outlays; and (iii) the clear demonstration of sustainability of Bank-financed recurrent costs.
Local cost financing. Are the requirements for Bank financing of local expenditures met, namely that: (i) financing requirements for the country’s development program would exceed the public sector’s own resources (e.g., from taxation and other revenues) and expected domestic borrowing; and (ii) the financing of foreign expenditures alone would not enable the Bank to assist in the financing of individual projects?
Yes The criteria for Bank’s financing of local costs are met. Therefore, the Bank may finance local and foreign costs in any proportions as needed for individual projects.
Taxes and duties. Are there any taxes and duties that the Bank would not finance.
The Bank may finance all taxes and duties except on foreign consultant contracts. In this case, the Bank would finance 90 percent of contracts until the tax law is adjusted to bring the tax charged on foreign consultant services (30percent) into line with that charged on local consultant services (20 percent).
If the revised Tax Code brings taxes on foreign consultants to an acceptable level, the Bank will revisit the financing parameter.