After independence, the Kyrgyz Republic embarked on a comprehensive reform program to transition to a market economy. Despite these efforts, this landlocked, mountainous country has remained one of the poorest in the CIS, with a per capita GDP of about US$308 in 2001. This is partly due to its geographical isolation. Forty percent of the population still lives below the poverty line. Almost 75 percent of the poor live in the rural and mountainous regions.

Debt sustainability remains an outstanding issue over the medium term with the net present value of public debt remaining over 180 percent of exports and over 370 percent of budget revenues – well above the HIPC threshold. In 2002, the Paris Club agreed on a debt-rescheduling package that will reduce debt service burden in the next three years. The debt rescheduling terms are close to Naples Terms. Paris Club members will revisit the issue. Debt stock reduction may be considered then.

The country’s National Poverty Reduction Strategy (NPRS) was completed in January 2003. The draft was formally discussed with external partners at the in-country Consultative Group (CG) meeting held in October 2002. The NPRS represents the medium-term strategy for the implementation of the Krygyz Comprehensive Development Framework (KCDF) which is the country’s long-term vision. The NPRS presents a matrix with pro-poor policies and actions to meet the objectives of the KCDF, and includes 100 indicators to monitor progress. It also envisages a monitoring and evaluation system to collect data. The Government presented its progress on the three year NPRS and its next steps in poverty reduction at the 2004 CG meeting.

The Kyrgyz Republic faces a problem of endemic corruption despite efforts of the Government in instituting an anti-corruption law. Transparency International Corruption Perceptions Index for 2005 ranks the country 165 out of 194 countries in terms of perceived corruption.

Of the development partners, the AsDB, IMF and the World Bank accounted for 65% of total ODA in the Kyrgyz Republic in 2001. Germany, Japan, Switzerland, UK, and USA are the major bilateral partners.

The Kyrgyz Republic joined the WB in 1992, IsDB in 1993 and AsDB in 1994. It became a partner country of KfW in 1993. AsDB, IsDB, KfW and the WB contribute a substantial part of the country's public investment program. Since 2005, these IFIs have been providing a larger share of their assistance in the form of grants (e.g. about 50%, 42% and 100% for AsDB, KfW and WB respectively).

The harmonization program in the Kyrgyz Republic is being defined based on a joint AsDB - World Bank Portfolio Assessment. Development partners are exploring the applicability of the Vietnam harmonization model. More specifically the program is likely to focus around four elements: procurement, financial management and accountability, social and environmental safeguards, and non financial monitoring and reporting.

The EC is involved in the implementation of the NPRS and the KCDF. DFID, EC and the World Bank are operationalising the framework for donor coordination in support of effective linkages between the EC agenda and the World Bank-led work on poverty reduction and social and economic reform developed in the NPRS. External partners (Germany, UK, the WB, and possibly Sweden and Switzerland) are supporting the Government's Manas Taalimi Health Reform Program with a SWAp in health and social protection.

The Government and four international financial institutions (IFIs) – AsDB, IsDB, KfW and the WB concluded their third Joint Country Portfolio Review (JCPR) on March 27, 2006 with each of the representatives signing a Memorandum of Understanding (MoU). The JCPR began on March 6th.

A Joint IMF - World Bank Financial Sector Assessment was completed in April 2003. UNDP 2003 Program Framework and World Bank CAS FY03-06 are compatible with the NPRS priorities.

A Joint Country Support Strategy (JCSS) is being prepared with AsDB, DfID, SDC, UN and WB. The findings of the JCPR would provide useful input for this task.

OECD/DAC Working Party has developed indicators (in a survey instrument) to monitor progress on harmonization and alignment. These indicators were field-tested in 14 countries (including Kyrgyz Republic). A draft report has been prepared.

The 2004 CG meeting (co-chaired by the Government and the World Bank) was held on November 3 in Bishkek. This CG focused on stock-taking and dialogue on the way forward. Harmonization and alignment of external development assistance was also discussed. However, there was no pledging session on the agenda.

AsDB, DFID and EBRD sponsored, and the Government of Kyrgyz Republic hosted the Eastern Europe and Central Asia Regional Workshop on Harmonization and Alignment for Development Effectiveness and Managing for Results in Bishkek on October 28-29, 2004. The workshop prepared participants for the Second High-Level Forum (HLF-2) on Harmonization and Alignment in Paris, Feb. 28-March 2, 2005. The country was represented at the HLF-2 and was a signatory to the Paris Declaration.