Since the collapse of the Soviet Union, the Kyrgyz Republic has made significant progress in adopting market-based reforms, with private sector development as the key engine of growth. Nevertheless, growth has occurred largely from natural resource exploitation and remittances-backed private consumption. To diversify the economy and stabilize its growth, the government has undertaken several initiatives, in support of which, the Asian Development Bank (ADB) financed two successive programs to improve the investment climate and assist private sector development.
The earlier Investment Climate Improvement Program, helped the government address constraints in regulation, access to finance, workers’ skills development, and public–private partnerships (PPPs). Despite progress under the program, significant policy and institutional deficiencies and market constraints had remained, in response to which, a follow-on intervention was developed and implemented.
The Second Investment Climate Improvement Program, consisting of three policy-based subprograms, envisaged increased private sector investments, as impact; and anticipated an improved business and investment climate, as outcome. It aimed to deliver four outputs ─ (i) access to finance increased, (ii) PPP program enhanced, (iii) trade and investment diversified, and (iv) transparency and ease of doing business increased ─ through 21 policy actions each under subprograms 1 and 2, and 15 policy actions under subprogram 3.
All the policy actions were successfully implemented, as planned. Under output 1, the State Guarantee Fund and legal and regulatory framework for e-payments and mobile financial services were established; the Internet Payment Gateway project to enable online (noncash) payments for key public services was piloted; and innovative financing products for small and medium enterprises (SMEs) were introduced. Under output 2, the PPP policy, legal and regulatory, institutional, and financial framework was strengthened, and PPP pre-feasibility studies were conducted.
Under output 3, the program helped implement the country’s open trade and investment policies, with a focus on providing dedicated trade and investment facilitation services to Kyrgyz exporters and prospective foreign investors, developing national product quality infrastructure, addressing investors’ grievances, and aligning workers’ skills with market demand. Under output 4, transparency in government procurement was advanced through the establishment of an e-procurement system, and ease of doing business was enhanced by providing incentives to businesses to expand and join the formal economy.
Successful output deliveries enabled the program to achieve its outcome targets. Banking sector lending to the private sector increased at an annual growth rate of 11% in 2015 to 2018, reaching 23% of gross domestic product (GDP) by the end of the period. Bank loans became more affordable and the amount of loans with a tenor above 1 year more than doubled. The government signed two PPPs during the program period; and the e-procurement system had been introduced in all government offices, by end-2018.
Two external factors also helped increase the volume and affordability of bank loans: (i) the establishment of the Russian–Kyrgyz Development Fund and (ii) the government’s program of subsidized lending to agriculture. In similar vein, successful establishment of PPPs was helped by close coordination among development partners, particularly between ADB and the International Finance Corporation and KfW, which provided advisory transaction support. TA from the World Bank on computer-based self-learning modules also effectively complemented ADB policy actions to implement government e-procurement.
The program had the Ministry of Economy (MOE) as executing agency. The implementing agencies were the MOE, the Ministry of Finance, the Ministry of Justice, the National Bank of the Kyrgyz Republic, and the Agency for Vocational Education.
