The first Development Finance Assessment is taking place in Kyrgyzstan

August 3, 2022

Today, new global challenges, such as the COVID-19 pandemic, have reversed progress and affected all segments of the population, especially the most vulnerable groups. Achieving sustainable development in the post-pandemic period requires constructive dialogue, partnership, and decisive action at all levels. All stakeholders in all countries - the state, business, civil society, academia, and international organizations - have a role to play in ensuring that the necessary and timely measures are taken to achieve sustainable development. Many countries, including Kyrgyzstan, are working on developing a financing strategy to attract additional investment, manage risks and achieve sustainable development priorities through an integrated national financing framework (INFF) that helps countries strengthen strategic planning and budgeting processes and overcome challenges in financing sustainable development priorities in the country.

To support governments in this process of building forward better with greater sustainability, resilience and inclusivity, UNDP has developed a tool that provides sets of recommendations for changes to policy, regulations and financing instruments and modalities, in order to improve resource flows to meet the 17 SDGs. the tool is INFF, within which the Development finance assessment (DFA) is being conducted to identify opportunities in mobilizing additional finance sources and use existing financial resources more efficiently to achieve the Sustainable Development Goals (SDGs). Through a process of informed dialogue, a DFA offers support for governments and their partners in identifying and building consensus around priority solutions to address the key financing challenges.

This July the President’s Administration of the Kyrgyz Republic initiated the first activities on DFA that allowed the formative stages of Kyrgyzstan’s INFF to be initiated, forging critical consensus on key processes and subject-matter issues. For this purpose, UNDP hired Dr. Peter Middlebrook and Mr. Temir Burzhubaev, who led a DFA inception mission to Kyrgyzstan.

Describing the key objectives of the mission Dr. Middlebrook highlights the following: “We worked on identifying and confirming the most optimal INFF building block Process and further steps as well as understanding primary sustainable and innovative financing challenges and opportunities. To do so, we met with key stakeholders including the government, private sector, local NGOs and UN agencies, which established a common understanding of the INFF process etc. and identified priority sectors, target regions and current conditions for the development of financing instruments”.

Why it is important to conduct DFA in the context of Kyrgyzstan?

“Like many governments, the Kyrgyz Republic faces macro-economic, fiscal and debt challenges, all of which limit access to finance to meet the SDGs.  The INFF - which emerged from the Addis Ababa Action Agenda - not only looks at how public and private flows can be integrated, but it also looks directly at how sustainable and innovative financing solutions and partnerships can fundamentally change the way sustainable development is executed. Given the ongoing impact of the COVID-19 pandemic, the crisis in Ukraine and high levels of inflation and exchange rate uncertainty, the Kyrgyz Republic DFA takes a complete stock of domestic and international public and private flows, allowing the government to broaden the set of financing instruments used, crowding in private capital in key priority sectors. The DFA leads to a road map of corrective measures, identifying instruments that will fundamentally change the way sustainable development policy is transacted and resourced” – he explains.

What are the most urgent financing challenges in Kyrgyzstan?

The Kyrgyz Republic has been running a budget deficit, undermining fiscal space for the SDGs. Although the private sector plays an important role in achieving SDGs, gaps in governance, proper access to finance, lack of qualified workforce are holding back private sector growth in Kyrgyzstan and adding up to key challenges on the country’s way to strong and sustainable development. 'Creating the right incentive framework to crowd-in private capital will be necessary to introduce new sustainable financing instruments. Increasing discretionary finance for the SDGs can be achieved both through reforms in strategic budgeting and public investment planning, but also by introducing new ways of financing both existing, and green and circular economies. Getting the regulatory framework and setting standards is the first priority, following which hundreds of other instruments can be developed.

“The first DFA will be assessing the country’s SDG financing architecture. It addresses critical knowledge gaps around the volume and trends of available development finance in the country considering current SDG progress and the impact of the unfolding COVID-19 crisis. It will also propose a roadmap towards accelerating SDG financing in Kyrgyzstan” – says Zhanybek Ybraiym Uulu, INFF project coordinator from UNDP.

Liberalizing the market to allow the financial ecosystem to operate based on market forces will take time, given the structure of the economy, state-owned enterprises, and historical dependence on the state. “The INFF and DFA are in effect as many processes of engagement as they are strategic documents. Dialogue therefore between all players is the first stage of strengthening financing policy, including the private sector, chambers of commerce, commercial banks, foreign direct investors, micro-financing institutions and regional authorities, allows challenges to be identified, a guiding coalition to be established, to adopt a common vision for change and to target high value and quick impact reforms” says Dr. Middlebrook.

According to Dr. Middlebrook the leadership of the process by the President's Administration and Cabinet are key in creating the most optimal INFF building block for Kyrgyzstan, as is oversight and support by the parliament. “Creating incentives for sustainable financing and sending signals through market pricing, all require a stronger and more transparent institutional environment, and all INFF countries have therefore focused on open and transparent processes because private capital will not be attracted otherwise. The DFA provides the description, whereas the other building blocks provide the proposed prescriptions, for the financing strategy, governance and coordination arrangements and monitoring and review. Government ownership, leadership, stakeholder dialogue and evidence-based findings are critical to success”.

What are the next steps?

Further steps will include finalizing DFA and INFF with a clearly established Road Map of suggested SDG financing measures, laying the foundation for the financing strategy and execution phase that will give the start for the new instruments, mechanisms, and partnerships.

“We will be working on developing the concept note of the DFA, work plan, stakeholder engagement strategy and finalizing the terms of reference for the INFF Technical Working Group. In September SDG localization priorities to be identified through data collection and regional discussion. In addition, dialogue with key informants will allow the team to drill down and identify critical issues” – says Dr. Middlebrook.

Also, the National Bank of the Kyrgyz Republic will be establishing a unit in the Central Bank responsible for sustainable and innovative financing, linked to the Network of Central Banks and Supervisors for Greening the Financing System (NGFS) leading to new green financing taxonomies. A new and broader taxonomy for Public-Private Partnerships can be developed through improved public investment planning. Various thematic bonds (gender, blockchain, mountain, etc.) can also be developed, supported by catalytic first loss finance. Environmental, Social and Corporate Governance (ESG) goals can also be introduced, alongside changes to Islamic financing (zakat, takaful etc.) and apex financing structures can be established to increase lending to micro, small and medium enterprises. Greater use of diaspora funds through bankarization for example, can all be developed within the existing financing ecosystem.

DFA findings and recommended SDG financing reforms are closely interlinked with the implementation of the newly launched two-year joint programme of the UN Joint SDG Fund “Establishment of the Integrated National Financing Framework (INFF) for Sustainable Development in Kyrgyzstan”. The DFA provides context analysis for the joint programme and informs progress towards adopting an INFF in support of a cohesive, nationally owned sustainable development strategies, as per the Addis Ababa Action Agenda.

Dr. Middlebrook at the meeting with the National partners during his mission to Kyrgyzstan.

UNDP