PROJECT FACTS

Timeframe: 2006-2009
Budget: USD 1.92 mln
Location: Kyrgyzstan, Tajikistan, Azerbaijan
Implementing Agency: International Monetary Fund (IMF)
Donor: The Swiss State Secretariat for Economic Affairs (seco)

Domain of cooperation: Public Institutions and Services

BACKGROUND

The main office of this regional project is located in the Ministry of economy and finance of the Kyrgyz Republic

Financial markets in Kyrgyzstan are in an early stage of development. This is also true in case of the government securities’ market, although a small part of the budget deficit is already financed domestically by issuance of treasury bills and bonds. Nevertheless the secondary market for government securities is still very shallow, turnover is minimal and the investor basis has to be broadened. The rudimentary state of the government securities’ market also hampers the effectiveness of monetary policy and the lack of clear price signals prevents the financial sector from an optimal allocation of funds for public and private projects.

Economic development in Kyrgyzstan poses new challenges to and the the Ministry of Economy and Finance and National Bank. They managed to contain the inflation by tightening both fiscal and monetary policy. The next task for them is to stimulate future economic growth via development of financial markets. The government of Switzerland decided to assist Kyrgyz authorities in this domain with a new macroeconomic project. In August 2006 seco started financing the regional project on public debt management, development of government securities markets and improving coordination between fiscal and monetary policy under the technical assistance program of the International Monetary Fund.

PROJECT DESCRIPTION

The project builds on experience and achievements of the previous regional project on External Debt Management and extends its scope further to developing the framework conditions for government securities market. External Debt Management Project (2000-2006) financed by seco helped to organize information on all foreign loans and guarantees, provided necessary software and hardware, as well as training for the staff of the involved financial institutions. The project prepared Kyrgyz authorities for Paris Club negotiations and led them to a successful restructuring of the external debt repayments. This should also help the country in the ongoing discussions on the external debt to the international financial institutions.

The overarching goal of the new project is to improve monetary management in the region and promote sound financing strategies through the development of domestic public debt markets.

The main objectives of the project include:

• Strengthen management of fiscal and monetary policies through improved coordination between the Ministry of Economy and Finance and the National Bank;
• Provide technical advice on how to improve the liquidity and deepness of government securities market;
• Review securities legislation in place and provide advice on the appropriate legal framework;
• Prepare the National Bank to conduct monetary policy as financial markets develop.

The project supports authorities in a number of areas including the review of the institutional and legal settings, providing advice to the Ministry of Economy and Finance on the development of a debt strategy, strengthening the technical competences of staff at the Ministry of Economy and Finance and at the National Bank, and other financial institutions involved in the market, upgrading of the technical infrastructure and the development of the market infrastructure.

At the institutional level the project focuses on reviewing the role and responsibilities of institutions, increasing coordination between the Ministry of Economy and Finance and the National Bank on fiscal and monetary policy. Assistance is also provided for the development of a proper strategy for the issuance of government securities consistent with the fiscal and monetary policy requirements.

The project improves professional knowledge of staff at the Ministry of Economy and Finance and National Bank on securities market, functionality of the market and the typology of securities. In addition to hands-on exposures the project guides and advises local staff through on-site seminars, regional workshops and study missions to Central Banks, Ministries of Finance, Government Debt Management Agencies and other relevant financial institutions in two or three countries that have undergone the transition to a developed securities market.

Technical assistance to the Ministry of Economy and Finance and the National Bank also includes procurement and installation of hardware and software for tracking and analysing data on domestic securities and making projections.

OUTLOOK

In the best case scenario the project will effectively contribute to the government’s efforts in developing the government securities market which is a driving force of the whole financial market. As a result, it will lead to an improved investment climate and economic growth in the country.