JUNE 2013 - FEAS

FEDERATION OF EURO-ASIAN STOCK EXCHANGES ANNUAL REPORT JUNE 2013KYRGYZ STOCK EXCHANGEThe government forecasts its budget deficit at5.1% of GDP in 2010. The widening deficit is aresult of the increased budgetary allocations forthe development budget (mainly infrastructureprojects), monetization of benefits, higherpensions, and increased compensation tovulnerable groups (to offset an increase inelectricity and heating tariffs). The National Bankof the Kyrgyz Republic (NBKR) followed anexpansionary monetary policy. It reduced banks’reserve requirement from 10% at the start ofthe year to 9.5% from June; and lowered thediscount rate from 14.4% in January to a recordlow 0.9% at year-end. Although the commercialbanks’ lending rate remained almost unchanged(at about 20%), credit to the private sectorsurged by 46.5%. For the year, money supplyrose by 20.4%, carried by increased net foreignassets (reflecting the budget assistance) andthe expanded credit to the private sector.Among financial reforms, a deposit insurancescheme was launched in April 2009, coveringdeposits up to Som100,000 ($2,290). All banksare required to participate. A new law underwhich agricultural land can be used as collateralfor loan receipts was adopted on 29 June2009. In the energy sector, the governmentbelieves that the new tariff will bring the sectorto cost-recovery levels and attract privateinvestment. It has no plans for any further tariffincreases this year. The PRC made a preliminaryagreement to grant a $342 million loan for apower transmission line, which would help thecountry ensure energy security. Construction isexpected to start in 2011 and finish 2 years later.In October 2009, the country embarked ona government sector reform under which thenumber of ministries and agencies has beenreduced. The reform also envisages cutting thenumber of government employees by 30% andaims to streamline the work of government andcut other costs.Economic prospectsGDP is projected to grow at 5.5% and 6.0% in2010 and 2011, respectively. The expansionis mainly due to the expected recovery ofKazakhstan and the Russian Federation,boosting demand for exports, foreign directinvestment inflows, and migrants’ remittances—the last of which will directly bolster privateconsumption. Foreign-financed hydropowerprojects should carry on underpinningstrong construction growth, but until all thoseprojects are brought into commission (thefirst is scheduled for May), power shortfallswill continue to hamper manufacturing. Thegovernment will also provide impetus to growthas it is planning to raise spending on wagesand pensions and on infrastructure, the latterwith financing assistance from developmentpartners.The expected increase in global food and oilprices will exert upward pressure on prices,though the contracted import price for naturalgas will fall by about 10%, as will strongerworkers’ remittances. These forces will pushup inflation in 2010 and 2011, to 8.5% and9.0%, respectively. Given the large import sharein the consumer basket, the NBKR will usethe exchange rate to mitigate inflation. Creditgrowth will remain subject to the bottlenecksthat face Kazakh banks (which account for halfthe banking sector) in supplying capital to theirsubsidiaries in this country. However, increasedforeign exchange inflows may allow the NBKR toadopt an accommodative credit policy.Information obtained from the Exchange.Key Information ContactsNational Bank of the Kyrgyz Republic www.nbkr.kgMinistry of Finance www.minfin.kgThe Service of Supervision and Regulations of Financial Market of Kyrgyz Republic www.nsc.kgMinistry of Foreign Trade and Industry of the Kyrgyz Republic www.mvtp.kgCONTACT INFORMATIONContact Name Mr. Kumushbek Shamkanov E-mail kse@kse.kg Website www.kse.kgPAGE 59