The European Bank for Reconstruction and Development (EBRD), the Ministry of Finance and the National Bank of the Kyrgyz Republic have signed a Memorandum of Understanding to launch the EBRD’s Local Currency Lending Programme in Kyrgyzstan.
Under the Programme the EBRD can provide local currency loans of up to the equivalent of €10 million (US$ 14 million) to eligible banks, microfinance institutions and private sector local enterprises at interest rates that aim to catalyse the local currency loan market in Kyrgyzstan.
The Memorandum of Understanding sets out the framework for boosting the availability of local currency financing in the Kyrgyz Republic as part of the EBRD’s major Local Currency and Local Capital Markets Development Initiative to develop local currency and local capital markets in the region where it invests, which ranges from central Europe to central Asia.
The EBRD’s Board of Directors approved the signing of the current Memorandum in February 2011 to help reduce foreign currency risk and dependence on external financing, which emerged as key vulnerabilities in the EBRD region during the recent global financial and economic crisis.
The Initiative aims to promote the use of local currency both through increasing the use of transactions in local currency and through policy dialogue so as to ensure long-term, sustainable and liquid local currency and local capital markets. This approach is developed by drawing on IMF and World Bank assessments, in consultation with IMF and World Bank staff.
Acting Chairwoman of the National Bank of the Kyrgyz Republic Baktygul Jeenbaeva confirmed that Kyrgyz authorities will continue implementing reforms aimed at reducing dollarisation and strengthening the country’s capacity to intermediate savings and investments through the use of local currency – the Kyrgyz Som.
“We are very pleased that we can support the objectives of the Finance Ministry and the National Bank of the Kyrgyz Republic to reduce dollarisation and promote the use of local currency, in line with the EBRD’s Initiative,” Olivier Descamps, EBRD Managing Director for Turkey, Eastern Europe, the Caucasus and Central Asia, said. “We will support the authorities not only by providing local currency loans, but we are also ready to offer technical cooperation and policy advice, particularly in the legal and regulatory area and on debt and equity capital market infrastructure.”
The programme for Kyrgyzstan forms part of a targeted local currency risk-sharing programme for the Early Transition Countries (ETC), supported by the EBRD and international donor countries through the ETC Local Currency Risk-Sharing Special Fund which will participate in the loans. The EBRD Shareholders Special Fund (SSF), the US Treasury and the ETC multi-donor fund have already committed to contribute to the ETC Local Currency Risk-Sharing Special Fund to support this programme, while discussions with other bilateral donors are underway.
In the Kyrgyz Republic, the EBRD focuses its activities on supporting micro, small and medium-sized enterprises and developing key infrastructure projects. In 2010 the EBRD’s investments amounted to a total of US$ 112.5 million.
To date, the EBRD has committed about US$ 450 million in various sectors of the Kyrgyz economy, mobilising additional investments of about US$ 650 million in over 70 projects. Some 80 per cent of the projects have been investments into the development of the country’s private sector.