Financial Stabilization

The primary task of the Government and the National Bank of Kyrgyzstan (NBK) is financial stabilization, which includes:

Effective management of money circulation, stabilization of monetary emission and inflation processes, and maintaining the exchange rate of the national currency at a necessary level against the ruble and the dollar.

Creating a modern banking system with balanced development of all major banking functions, such as savings and credit, commercial and investment; eliminating the deficit of banking services.

Ensuring strict control over compliance with tax legislation, the accuracy of tax calculations, and the completeness and timeliness of contributions to the budget of state taxes and other payments to ensure budget stability and funding for urgent economic and social programs.

Let’s take a closer look at the problems of each of these components of financial stabilization.
The most important issue is the stabilization of money circulation, for which it is necessary to:

a) reduce inflation to single digits and keep it there;
b) adhere to strict, yet reasonable limits on money emission.

How to combat inflation?

One of the main causes of inflation is the budget deficit. Therefore, transitioning to a balanced budget by eliminating subsidies and grants, preferential state financing of sectors, and generally reducing unproductive expenditures is the primary method of combating inflation in the civilized world.

We must cultivate such an approach to budget formation, as the attitude towards the budget is an indicator of the economic literacy of society.

The Government and the NBK must make it a rule to implement strict budgetary and credit policies. It is necessary to abandon all unplanned subsidies to enterprises and sectors that cover unproductive and non-productive costs. The legislative independence of the NBK allows it to resist any inflationary financing of the state budget deficit.

If Kyrgyzstan manages to stabilize inflation, trust in the som will increase both within the republic and abroad. A real economic assessment of enterprise performance will become possible, forecasting their profitability will improve, and economic activity will increase.

Thus, the stability of money is the cornerstone for the future dynamic development of the economy. Full-value money is the most necessary market tool, a powerful incentive for production development and more productive labor.

The Government and the NBK must take measures against the artificial maintenance of the som's exchange rate and move towards unifying the exchange rate regime by gradually lifting all restrictions on participation in currency auctions. However, even today, it is necessary to ensure that the difference between the official exchange rate of the national currency and the parallel market rate does not exceed 10%.

To strengthen trust in the som, it is very important to encourage the population to deposit their savings in banks. This will serve as an additional stabilizing factor. The growth of bank deposits, in turn, will provide anti-inflationary investment resources for the structural restructuring of the economy. But for this, banks must pay sufficiently high interest rates on citizens' deposits, which the state could compensate by conducting a liberal tax policy towards banks.

The question of the amount of money in circulation, the so-called level of monetization, is also significant. The growth of the money supply undoubtedly leads to inflation. It is necessary to achieve a balance between the money supply and commodity resources at every stage.

In Kyrgyzstan, the level of monetization is naturally low due to the underdevelopment of financial relations. Apparently, we should not rush to increase the level of monetization and do this gradually, along with the increase in commodity mass and the improvement of the functioning of the financial machine - the banking system, tax, and customs services. Otherwise, the state will lose control over operations in the trade and services sector, and the budget will lose a significant portion of tax revenues.