Mr. Ilahi issued the following statement at the conclusion of the mission:
“The political turmoil in Bishkek in April 2010 and the outbreak of ethnic conflict in the south in June 2010 have been significant shocks to the Kyrgyz economy. Economic activity is expected to contract significantly this year. While inflation is expected to remain in single digits, the external current account could swing to a deficit from a small surplus in 2009.

“The authorities discussed with the mission their plans for responding to these shocks by providing a strong fiscal stimulus targeted at overcoming the effects of the crisis—the overall fiscal deficit is expected to rise significantly this year. Revenues are expected to fall moderately in the face of a weakening economy, despite administrative measures to support tax collection. Crisis-related spending increases will be focused on the costs associated with rehabilitation, reconstruction and resettlement and addressing financial sector problems. The authorities are also aware of the need to avoid excessive borrowing and to adjust the pace of spending in line with the economy's absorptive capacity.

“As a result of these discussions, the mission reached a staff-level agreement with the authorities on a set of macroeconomic policies that could be supported by a disbursement under the RCF, which is designed to provide financial assistance to low income countries facing an urgent balance of payments need, without requiring program-based conditionality.

“In the aftermath of the crisis, the authorities have taken prompt actions in the banking sector to stabilize the situation. With the economy weakening and business activity suffering in the south, non-performing loans are rising and credit is expected to remain sluggish. The authorities' monetary and exchange rate policies are designed to support the post-crisis economic recovery while preventing any resurgence of inflation.

“A Donor Conference in Bishkek on July 27, 2010 confirmed support for the authorities' strategy and economic policy response. External financing for the budget will be critical in allowing the authorities to overcome the consequences of the crisis and sustain essential public expenditures throughout 2010. Fiscal and balance of payments pressures are likely to continue for some time, requiring sustained international support over the medium term.”