Second Investment Climate Improvement Program (Subprogram 1) The proposed program aims to create a more attractive climate for private sector development in the Kyrgyz Republic. It will provide budget support to implement reforms to (i) increase and diversify financial products and services that better mobilize domestic savings; (ii) increase efficient private sector participation in physical and social infrastructure; (iii) diversify exports and export markets, and foreign direct investment; and (iv) increase the transparency and efficiency of public procurement, and reduce the costs of doing business. The programmatic approach will comprise three subprograms to be implemented during 2015-2018.

The impact of the Second ICIP will be increased private sector investment. The outcome will be an improved business and investment climate in the Kyrgyz Republic. The Second ICIP will deliver four outputs through various policy actions: (i) financial deepening and access to finance increased; (ii) comprehensive public-private partnership program fostered; (iii) trade and investment facilitated; and (iv) transparency and efficiency of doing business increased.

Through the Second ICIP, ADB will continue to support the National Sustainable Development Strategy, 2013-2017 in removing development constraints. Reforms listed in the policy matrix will facilitate the Kyrgyz Republic's transition to a sustainable economic development path. Budget support is necessary to finance part of the development financing needs, particularly covering the period between the introduction of reforms and the fiscal benefits resulting from the reforms. Although not used as a determinant of the program size, ADB's support can also help finance the direct and indirect fiscal costs to the government of implementing and monitoring the reforms. The government has the ability to implement the reforms effectively, demonstrated by its experience under the first ICIP and with the policy-based programs of other development partners.

The Second ICIP is estimated to cost $63 million equivalent for 2015-2018, to help support a part of the development financing needs from the perspective of the overall projected budgetary financing requirements of the country (para. 14). The development financing needs are projected at approximately $600 million (2015), $517 million (2016), and $424 million (2017). The government has requested a grant not exceeding $20 million from ADB's Special Funds resources to help finance subprogram 1. Subprogram 2 (with an estimated loan amount of $23 million) and subprogram 3 (with an estimated loan amount of $20 million) are subject to further discussion between ADB and the government.

The grant for subprogram 1 will be provided in a single tranche and funds may be withdrawn upon fulfillment of the policy actions. The subsequent subprograms will be submitted for ADB Board consideration upon completion of the policy actions. The proceeds of the grant will be disbursed in accordance with ADB's simplification of disbursement procedures and related requirements for policy-based loans
Note: A country's eligibility for Asian Development Fund grants under the revised grant framework is determined by its risk of debt distress. The outlook for the Kyrgyz Republic has deteriorated markedly since 2014. ADB considers that the Kyrgyz Republic is at moderate risk of debt distress for 2014, and is therefore eligible to receive 100% Asian Development Fund grant allocation.