Kyrgyz Republic: The World Bank approves US$10 million grant to help the government respond to the food price crisis

Contacts: 

In Washington: Michael Andrew Jones

(+1-202) 473 2588  

mjones2@worldbank.org

WASHINGTON , June 16, 2008 – The World Bank’s Board of Directors has approved a US$10 million grant to the Kyrgyz Republic under the Global Food Crisis Response Facility.  The grant will help provide an urgent response to the current food price crisis and address immediate to longer-term food challenges.

The grant is part of the Fast-Track Facility for Food Crisis launched by the World Bank on May 29^th, which would support global efforts to overcome the global food crisis with a new US$1.2 billion rapid financing facility, including US$200 million in grants targeted at the vulnerable in the world’s poorest countries.

Part of the grant funds to the Kyrgyz Republic in the amount of US$4 million will be provided as additional financing for the Agricultural Investments and Services Project approved by the Board a month ago.  The project objective is to improve the institutional and infrastructure environment for farmers and herders, with a strong emphasis on the livestock sector.  More specifically, the project will increase farmers’ productivity, particularly of livestock farmers, in the project areas and reduce animal diseases that have a public health impact (e.g., brucellosis). 

Within the scope of the Global Food Crisis Response Facility, these objectives will now include reduction of domestic grain price volatility, and supporting grain productivity growth to ensure an adequate food supply response.  The project will attempt at a rapid increase in production capability through application of improved seeds, fertilizer and integrated production management techniques and, increasing grain storage capacity to mitigate immediate food security risks and reduce supply and price volatility. 

The approach represents a rapid-results initiative which is expected to produce measurable results within the next two years.  Some of the proposed interventions such as system development, management training and storage facilities will address short-term needs but also contribute to more medium and long-term sustainability of the investments.

The rapid increase of food prices severely undermines the food consumption of the population, the poor in particular.  It also increases the risks of under-nutrition, caused by inadequate intake of calories and protein as well as by insufficient micronutrient intake.  To address this, US$6 million of the new grant funds will support the ongoing Health and Social Protection Project.  The additional grant funds will help provide nutritional supplements and nutrition education to pregnant/lactating women and infants/young children; and a temporary scale up targeted cash transfers during the upcoming 2008/2009 winter season.

As a small and open economy, the Kyrgyz Republic is vulnerable to price fluctuations, including food and gas prices.  Between 2006 and 2007, the Kyrgyz economy faced a significant 20.1 percent increase in consumer prices.  In 2007, food inflation in Kyrgyzstan was 31.5 percent, and on main food items, including flour and bakery products, the price escalation has reached 62.6 percent.  In addition to food items, electricity, gas and other fuels price increases are up 30 percent in the Kyrgyz Republic. 

The current crisis has negatively affected terms of trade as the country is a net importer of both wheat and fuel.  The two problems are interconnected, and the Kyrgyz Republic has to deal with both.  Moreover, the rising food prices generated significant distributional and poverty impacts in urban and rural areas, especially among the most vulnerable.  Described as a silent tsunami, the food crisis could reverse some of the progress achieved in development. 

The World Bank is one of the largest sources of development assistance to the Kyrgyz Republic.  The Kyrgyz Republic borrows from the World Bank on highly concessional terms – no interest, and only a 0.75 percent service charge.  Credits are repayable in 40 years, including a 10-year grace period, while grants require no repayment.  From 2003 to mid-2005, half of the World Bank’s assistance to the Kyrgyz Republic was in grant form. Since July 2005, the Bank has provided all funding to the Kyrgyz Republic on a grant basis.