Kyrgyz National Bank Addresses Use of Reserves for External Debt Repayment
The National Bank of Kyrgyzstan has responded to proposals from Parliament deputies regarding the use of the country’s gold and foreign exchange reserves to repay external debts and finance government programs. The bank emphasized that these reserves are crucial for national security and macroeconomic stability. They prevent economic destabilization and protect against various external shocks.
According to the constitutional Law on the National Bank, the international reserves are owned by the National Bank and primarily used to ensure price stability, maintain the purchasing power of the national currency (the Kyrgyz som), and ensure financial stability in the country. Additionally, these reserves are used to fulfill the obligations of the Cabinet of Ministers in foreign currency.
The bank has warned that misusing the reserves carries significant risks for the state and the people. One of the most significant risks is the loss of control over maintaining stability in the foreign exchange market, which can lead to uncontrolled inflation growth.
Given the openness of the Kyrgyz economy, the development of exchange rate volatility will have negative effects on various aspects of the economy. These include an increase in the price level for goods and services, a decrease in the purchasing power of the Kyrgyz som, an increase in the servicing of the public external debt, and an intensification of social and political tension.
To prevent such catastrophic consequences, the National Bank has operational independence in conducting monetary policy and managing international reserves. The bank independently forms, owns, and manages the reserves, considering liquidity priorities and ensuring their safety. It is also prohibited from providing loans and guarantees to the Cabinet of Ministers to finance the republican budget deficit.
The National Bank stressed that proposals to use the reserves for purposes not related to its objectives pose enormous risks to price and macroeconomic stability. These proposals also contradict the norms of the constitutional Law on the National Bank.
The central bank also clarified that it purchased all of its gold on the domestic market as part of its priority right. The gold belongs to the National Bank and not the Cabinet of Ministers. The bank is not responsible for the obligations of the Cabinet of Ministers, and this is essential for macroeconomic and financial stability in the country.
The National Bank serves the interests of the whole society and not just a particular group. It highlighted that crude and irresponsible interventions, such as using the reserves for personal or group goals, can threaten macroeconomic stability, accelerate inflation, depreciate the national currency, deplete reserves, and make it difficult to service external debts. Instead of increasing incomes, the government may be forced to direct money towards servicing more expensive external debts.
In conclusion, the National Bank of Kyrgyzstan warns that the misuse of gold and foreign exchange reserves will lead to economic instability, high inflation, impoverishment of the population, and a threat to the existence of the state. It emphasizes the importance of preserving the reserves for national security and maintaining macroeconomic stability.
