×
×
Advertisement

Jan 15 2013

Krygz's USD13b plan

Krygz's USD13b plan Photo Credit:Reuters/Vladimir Pirogov
Kyrgyz Republic's small economy needs a big boost. And the government is hoping its new USD13-billion will help revive the Central Asian's economy.
Kyrgyz Republic's small economy needs a big boost. The Central Asian country's economy shrank 4.6% in the first nine months of 2012 as the political fallout took its toll and precious gold output fell, hurting its revenues.

"Economic performance in 2012 has weakened, with negative growth in the first nine months because of geological factors leading to temporarily lower gold production," noted the International Monetary Fund in a December note.

But a new coalition government which took office in September 2012, has come up with a USD13-billion plan to lift the economy's fortunes.

President Almazbek Atambayev approved a five-year strategy to attract foreign investment and grants in areas agriculture, mining, power, telecommunications and infrastructure, according to a Reuters report.

The government is trying to diversify from a gold mining operation run by Kumtor, a company controlled by Canada's Centerra Gold, which accounts for 12% of the country's GDP, and is suffering from falling output.

"Amid the poor diversification of the economy - technological problems experienced by gold mining company Kumtor led to a sharp decline in the real sector of the economy, and a significant increase in Kyrgyzstan's foreign trade deficit throughout the first nine months of 2012," said Elvira Kurmanalieva, analyst at Eurasian Development Bank.

Trouble with the company began when government commission that was formed following the issuance of the June 2012 Parliamentary Commission's Report found the company was in violation of operational and environmental standards is examining Kumtor's compliance with those standards. Centerra Gold Inc conducted its own independent assessment of the report's findings and said that the report's allegations were unfounded.

In November, the Toronto-based Centerra Gold said it has increased the gold mines reserves by 58% to 9.7 million and has increased the life of the mine by 5 years to 2023.

"Using a gold price of US$1,350 per ounce and a discount rate of 8%, the new Kumtor open-pit life-of-mine (LOM) has an net present value of approximately US$1.9-billion. The new LOM plan is expected to result in the payment of approximately US$1.5 billion in revenue-based taxes, based on US$1,350 per ounce gold, along with significant other benefits to the Kyrgyz Republic such as continued local employment, extended procurement of local goods and services and continued support for community sustainable development."

The IMF notes that the new revenue-smoothing arrangement with the company and better-than-expected customs revenues related to higher oil imports and improved customs administration have offset the shortfall in revenues from lower gold production and half of the remaining shortfall of some USD2.5 billion related to lower program grants.



MOVING AWAY FROM GOLD
Still, there is a dire need to diversify and shed the doom and uncertainty surrounding one of the poorest Central Asian countries.

Hence, the USD13-billion plan to revive the economy.

The government is hoping that apart from foreign direct investment, the funds will also come from aids and grants.

On December 3, 2012, the IMF executive board completed the third review under the three-year, USD102.3 million extended credit facility that was approved on June 20, 2011. Approval of the review makes US$14.6 million available to the Kyrgyz Republic, bringing total disbursements under the arrangement to US$ 58.5 million.

The republic will need a lot more to bring much needed revenues and unemployment rate down from 8.6%.

Another key area of concern in poverty, which is estimated to have risen in the past three years.

The government's key economic objectives for 2012-14 include:

raising average annual real economic growth to 7.5 percent;

(ii) containing inflation to single digits;

(iii) halving the overall budget deficit by 2014; and

(iv) maintaining foreign reserves at about four months of imports.

But it's a long road ahead before it can attract Kyrgyz to attract foreign direct investment twice its gross domestic product.




In fact, in the short-term the government has been cutting spending.

"Shortfalls in revenues and external financing required expenditure cuts in 2012 but critical social expenditures are being safeguarded," said Zhantoro Satybaldyev, Prime Minister of the Kyrgyz Republic told the IMF in a December letter, adding that fiscal deficit excluding energy infrastructure projects is now forecast at 3.8% of GDP compared to 4.6% expected earlier.

The USD13-billion is in addition to the medium term development program, which is projected to cost USD6.5-billion and feature as many as 40 national infrastructure projects.

The IMF note that while some of these projects could indeed be implemented with private sector participation, the majority will require public sector financing. "However, mobilizing such large funding will neither be feasible nor consistent with fiscal and debt sustainability."

Another key issue is the banking vulnerabilities, which needs to be strengthened and could lead to private savings and more credit growth.

Finally, the IMF worries that Kyrgyz's GDP targets are ahead of historic levels, which depend on the assumption that foreign investors would rush through the doors. And that is the USD13 billion question, few can answer just yet.

© alifarabia.com 2013


© Copyright Zawya. All Rights Reserved.


Be the first to comment

Send This Article To Your Friends

All fields are required.

Use commas for multiple email addresses

We'll use your email address to send the article on your behalf and it will not be collected or used for any other purposes.

X