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Ala-Too Square, Kyrgyz Republic

The institution’s executive board agreed this week to make available US$120.9 million to the the Kyrgyz Republic to meet the urgent balance of payment needs relating to the coronavirus.

To absorb the shock of the pandemic, the Kyrgyz government is implementing a temporary loosening of macroeconomic and financial policies.

Kristalina Georgieva, managing director and chair, said: “The Covid-19 pandemic has been hitting the Kyrgyz economy very hard and created an urgent balance of payments need.

“All sectors are being impacted with extreme severity as measures are being taken to stop the spread of the virus.”

The IMF package will see a purchase under the Rapid Financing Instrument (RFI) equivalent US$80.6m and a disbursement under the Rapid Credit Facility (RCF) equivalent to US$40.3m.

Georgieva said: “Given the unprecedented high level of uncertainty, IMF emergency support under the Rapid Financing Instrument and the Rapid Credit Facility helps provide a backstop and increase buffers and shore up confidence.

“It also helps to preserve fiscal space for essential Covid-19-related health expenditure and catalyze donor support.”

She said that a temporary widening of the budget deficit is appropriate to safeguard health spending.

However, she warned: “In the medium run, the budget deficit will need to be reduced to lower levels once the crisis abates.

“Banks’ capital and liquidity buffers need to be used to absorb credit losses and the liquidity squeeze.

“Once these buffers are exhausted, the central bank needs to show flexibility on the timing of bringing capital and liquidity above the minimum required, considering the length of the crisis.”

She also called on “expeditious donor support” to close the remaining balance of payments gap and ease the adjustment burden.