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Limited access to finance and its high cost have contributed to relatively low levels of private investment and subpar growth in the Kyrgyz Republic. Interest rate spreads have moderated in recent years, but remain high from both a regional and global perspective. At the same time, collateral requirements applied by banks are onerous and also constrain the quantity of credit supplied. This paper identifies a range of factors that could lower spreads in the Kyrgyz Republic: more competition, higher capital, lower credit risk, larger loan size, lower deposit rates and external funding costs, as well as a stronger legal framework. Lower operating costs appear critical to reduce relatively higher spreads for small and medium-sized banks. At the same time, a stronger legal framework and greater transparency on borrowers’ creditworthiness would help reduce the high collateral requirements. Reforms in all these areas would support greater financial inclusion in the aftermath of the pandemic, and could thus be a key source of sustainable and inclusive growth in the Kyrgyz Republic.

Banks and Banking --- Money and Monetary Policy --- Industries: Financial Services --- Public Finance --- Interest Rates: Determination, Term Structure, and Effects --- Financial Markets and the Macroeconomy --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Economywide Country Studies: Latin America --- Caribbean --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Taxation, Subsidies, and Revenue: General --- Finance --- Banking --- Monetary economics --- Public finance & taxation --- Loans --- Collateral --- Credit --- Bank credit --- Financial institutions --- Money --- Legal support in revenue administration --- Revenue administration --- Banks and banking --- Revenue --- Kyrgyz Republic

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Developing and low-income economies face the challenge of increasing public spending to address sizeable infrastructure and social gaps while simultaneously restoring the fiscal discipline weakened to countervail the effect of the global recession. Increasing the efficiency of social spending could be the key policy to address the dilemma as it allows the optimization of the existing resources by reducing spending inefficiencies. This paper quantifies the efficiency gap in the health and education sectors for a large sample of developing and emerging countries and proposes measures to reduce these gaps for the specific cases of El Salvador, Guatemala, and Honduras.

Public Finance --- National Government Expenditures and Health --- National Government Expenditures and Education --- Health: Government Policy --- Regulation --- Public Health --- Education: Government Policy --- National Government Expenditures and Related Policies: General --- Education: General --- Health: General --- Public finance & taxation --- Education --- Health economics --- Education spending --- Expenditure --- Health --- Expenditure efficiency --- Health care spending --- Expenditures, Public --- El Salvador

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This paper estimates the neutral interest rate in the Kyrgyz Republic using a range of methodologies. Results indicate that the real neutral rate is about 4 percent based on an average of models and 3.7 percent based on a Quarterly Projection Model. This is higher than in many emerging markets and is likely explained by higher public debt and an elevated risk premium, low creditor rights and contractual enforcement, and low domestic savings. The use of an estimate of the neutral interest rate provides useful guidance to monetary policy and enhances transparency and independence of the central bank. Our estimate provides a quantitative benchmark for the monetary policy stance in the context of a central bank that is building analytical capacity, integrating additional insights in its decision-making process, and working to improve its communication. Strengthening the monetary transmission mechanism will be critical to enhance the effectiveness of monetary policy, including by allowing more exchange rate flexibility to support the transition to a full-fledged inflation targeting regime, and reducing excess liquidity to enhance the credit channel, reducing dollarization and high interest rate spreads that adversely affect the transmission of the policy rate to the economy.

Banks and Banking --- Foreign Exchange --- Inflation --- Production and Operations Management --- Money and Monetary Policy --- Econometrics --- Monetary Policy --- Central Banks and Their Policies --- Interest Rates: Determination, Term Structure, and Effects --- Price Level --- Deflation --- Macroeconomics: Production --- Computable and Other Applied General Equilibrium Models --- Macroeconomics --- Finance --- Banking --- Currency --- Foreign exchange --- Monetary economics --- Econometrics & economic statistics --- Real interest rates --- Central bank policy rate --- Output gap --- Exchange rates --- Prices --- Financial services --- Production --- Inflation targeting --- Monetary policy --- Interest rates --- Economic theory --- Econometric models --- Kyrgyz Republic

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The COVID-19 crisis raises the risk of renewed financial sector pressures in the Caucasus and Central Asia (CCA) region in the period ahead. Bank distress and its economic and fiscal fallout have been recurring features of many CCA countries, as seen after the global financial crisis and the 2014–15 oil price shock. Strong policy responses have delayed the full impact of the COVID crisis so far, but financial sector risks will increase once public support is phased out. If these risks are not preemptively addressed, banks’ ability to lend during the recovery phase could be impaired and there may be a need for costly public interventions, as in the past.

COVID-19 (Disease) --- Banking --- Banks and Banking --- Banks and banking --- Banks --- Budgeting & financial management --- Capital and Ownership Structure --- Commercial banks --- Communicable diseases --- Corporate governance --- Credit risk --- Currency --- Depository Institutions --- Diseases: Contagious --- Finance --- Finance: General --- Financial Crises --- Financial Institutions and Services: General --- Financial Institutions and Services: Government Policy and Regulation --- Financial institutions --- Financial regulation and supervision --- Financial Risk and Risk Management --- Financial Risk Management --- Financial risk management --- Financial sector policy and analysis --- Financial sector risk --- Financial services industry --- Financial services law & regulation --- Financing Policy --- Foreign Exchange --- Foreign exchange --- General Financial Markets: Government Policy and Regulation --- Goodwill --- Health Behavior --- Industries: Financial Services --- Infectious & contagious diseases --- Law and legislation --- Loans --- Micro Finance Institutions --- Mortgages --- Nonperforming loans --- Role & responsibilities of boards & directors --- State supervision --- Value of Firms --- Georgia

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This paper estimates the neutral interest rate in the Kyrgyz Republic using a range of methodologies. Results indicate that the real neutral rate is about 4 percent based on an average of models and 3.7 percent based on a Quarterly Projection Model. This is higher than in many emerging markets and is likely explained by higher public debt and an elevated risk premium, low creditor rights and contractual enforcement, and low domestic savings. The use of an estimate of the neutral interest rate provides useful guidance to monetary policy and enhances transparency and independence of the central bank. Our estimate provides a quantitative benchmark for the monetary policy stance in the context of a central bank that is building analytical capacity, integrating additional insights in its decision-making process, and working to improve its communication. Strengthening the monetary transmission mechanism will be critical to enhance the effectiveness of monetary policy, including by allowing more exchange rate flexibility to support the transition to a full-fledged inflation targeting regime, and reducing excess liquidity to enhance the credit channel, reducing dollarization and high interest rate spreads that adversely affect the transmission of the policy rate to the economy.

Kyrgyz Republic --- Banks and Banking --- Foreign Exchange --- Inflation --- Production and Operations Management --- Money and Monetary Policy --- Econometrics --- Monetary Policy --- Central Banks and Their Policies --- Interest Rates: Determination, Term Structure, and Effects --- Price Level --- Deflation --- Macroeconomics: Production --- Computable and Other Applied General Equilibrium Models --- Macroeconomics --- Finance --- Banking --- Currency --- Foreign exchange --- Monetary economics --- Econometrics & economic statistics --- Real interest rates --- Central bank policy rate --- Output gap --- Exchange rates --- Prices --- Financial services --- Production --- Inflation targeting --- Monetary policy --- Interest rates --- Economic theory --- Econometric models