Joining efforts towards sustainable development: INFF implementation in the Kyrgyz Republic

October 3, 2023

Sustainable development goals are often associated with public goods, and as a result, their achievement is considered entirely a government obligation. According to the IMF's assessment, the additional resources needed to achieve these goals in five areas are estimated at 27.5% of GDP. The analysis undertaken during implementation of the INFF (Integrated National Financing Framework) revealed a potential fiscal space around 4% of GDP, while potential for rechanneling of tax expenditures is around 5% of GDP. With proper coordination of efforts with the private sector, this deficit no longer seems unattainable.

Figure 1 The Projected Financing Gaps to Achieve the SDGs in the Kyrgyz Republic. Source: Draft financing strategy using data from the IMF SDG Financing Tool website.

The Kyrgyz Republic’s development priorities and efforts to achieve Agenda 2030 demand the country authorities to substantially increase the volume of development finance for funding its strategies and programs. The long-term National Development Strategy 2040 and Mid-term Development Program 2021-2026 are designed to enhance the well-being of its citizens, guided by the fundamental principle of "leave no one behind" in pursuit of the SDGs. To assist the countries in mobilizing a sufficient amount of development finance for achieving the Agenda 2030, UNDP, in its Strategic Plan 2021-2025, prioritized development finance as one of the enablers in aligning public and private capital flows with the SDGs and mobilizing finance at scale.

During 2020-2023, UNDP and UNICEF in partnership with the Presidential Administration and with the financial support of the Joint SDG Fund, implemented the Joint Programme “Enhanced financing opportunities and alignment with national sustainable development goals through an INFF for Kyrgyzstan”. As an initial step of the JP, the Development Finance Assessment analyzed a breakdown of key development finance variables. The total measured amount of development finance in 2021 reached USD 15.637 billion. Among these variables, a significant feature is the country's heavy reliance on remittances, which constitutes a substantial proportion of the GDP at 34.4%. The volume of remittances is higher than the total state budget revenue, which accounts for 29 % of GDP. 

Figure 2 The main financial variables measured by the DFA.

Draft financing strategy.

Mapping of the remittances revealed that there are practices when migrants financially support their communities by providing financial support for the implementation of local development priorities. This is true for the southern regions, where most of the migrants originate. According to the estimates, the volume of remittances that could be channeled to the local projects might reach USD 60 million dollars annually. 

To maximize the use of public funds, the Joint Programme assisted the Ministry of Finance in developing methodologies for public expenditure review, fiscal space analysis, debt restructuring options and development of a methodology for assessing the efficiency of tax incentives. The piloting of fiscal space analysis revealed potential expenditures of 41 billion Soms that could be directed towards priority development areas. Furthermore, the Joint Programme has played a central role in enhancing the efficiency of tax incentives and supported the integration of specific articles into the New Tax Code, providing a legal basis for the regular assessment of tax incentive efficiency. This transformative measure involved the development and enactment of a new methodology for routinely examining the effectiveness of tax incentives. The development of policies for channeling the remittances for local development along with the improvement of public finance management will facilitate the achievement of the Agenda 2030.

The current financing strategy, developed by the support of the Joint Programme, aims to implement an integrated approach to mobilize and manage the required financing and contains a comprehensive list of potential interventions across three policy domains, as shown in Figure 4. Significant improvements are required in the area of public finance management. Ensuring inclusive growth entails providing access to quality services, particularly for the poor, which remains a challenge despite substantial public spending in certain areas. It is crucial to enhance the alignment between budgeting and strategic planning, implement policies to improve the efficiency of public expenditure, and establish effective monitoring mechanisms to track expenditure outcomes. Another important focus area is exploring opportunities to expand the public-private investment domain. This necessitates a thorough analysis of the state's role in the economy and a shift from a producer towards becoming an enabler, facilitator, and prudent regulator.

Figure 3: Pillars and Intervention Areas of the Financing Strategy

The government is already carrying out or has plans to intervene in various areas proposed by the strategy. This formulation proposes to consolidate these actions with a planning horizon for 2030. This is because achieving definitive results in most of the proposed areas requires sustained implementation across at least two successive terms. In this way, the strategy will act as a bridge between two planning cycles and secure support from national and international partners, enhancing the prospects for medium-term continuity.

The implementation of the Joint Programme has encountered challenges stemming from the COVID-19 restrictions, political changes in 2020-2021, and the need to establish an integrated approach for mobilizing and managing the necessary financing. Currently, the  Presidential Administration is currently in the process of integrating the governance functions of the INFF into the existing government structures. The effective implementation of this approach will ensure the sustainability of the JP achievements and bolster the authorities' capacity to execute the integrated planning and financing approach.

It is expected that the implementation of the financing strategy will establish an integrated planning and deliver sustainable development financing. In turn, the integrated approach and mobilization of a sufficient amount of development financing will facilitate the achievement of the Agenda 2030.