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IMF Executive Board Concludes 2019 Article IV Consultation with the Republic of Kazakhstan

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Via IMF (Den Internationale Valutafond)

IMF Executive Board Concludes 2019 Article IV Consultation with the Republic of Kazakhstan







January 29, 2020















On January 27, 2020, the Executive Board of the International Monetary
Fund (IMF) concluded the 2019 Article IV consultation

[1]

with the Republic of Kazakhstan.

Kazakhstan’s recovery has continued, with growth in the first nine
months of 2019 reaching 4.3 percent. High domestic demand driven by
major oil and gas investments and government and household consumption
supported by wage increases and consumer lending has underpinned the
economy’s strong performance. Headline inflation picked up but has
remained within the National Bank of Kazakhstan’s target band of 4–6
percent and stabilized in recent months. Lower oil prices and higher
imports have weakened the external position, and the current account
balance has deteriorated. The exchange rate depreciated in the second
half of 2018 but has been relatively stable since then in the absence
of large shocks. Over the next few years, growth is expected to slow
down, largely reflecting flat oil production; non-oil growth is
expected to remain robust. Risks are on the downside, reflecting trade
tensions and commodity price volatility.

In response to demand pressures and inflationary risks, the NBK raised
the policy rate by 25 basis points in September. Liquidity in the
banking sector remains ample and credit growth is concentrated in the
retail sector. Efforts have continued to clean up the banking sector,
including through additional financial support from the state.
Notwithstanding strong non-oil revenue performance, a looser fiscal
stance is expected in 2019, due to new spending initiatives, including
higher public sector wages, financial support to the vulnerable, and
regional development initiatives.

Progress is being made with structural reform implementation, with many
of the flagship “100 Concrete Steps” completed and the remaining ones
broadly on track. The first public offering of a blue-chip public
company took place in late 2018, KazAtomProm, and preparations for
privatization of other large state-owned enterprises are underway.
Steps have been taken to improve governance and address corruption
vulnerabilities, but challenges remain.

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Executive Board Assessment

[2]

Executive Directors agreed with the thrust of the staff appraisal. They
noted Kazakhstan’s robust economic growth performance in 2019 supported
by strong consumption and investment. They also welcomed the progress
made in addressing long-standing financial sector issues and
implementing structural reforms aimed at promoting private sector
development and inclusive growth. At the same time, Directors
recognized the challenges and risks the economy of Kazakhstan is
facing, including from commodity price volatility.

Directors noted the pick-up of inflationary pressures in 2019 and
concurred that the focus of monetary policy should remain on inflation.
They noted that inflation targeting, and exchange rate flexibility have
helped to absorb shocks. Directors encouraged the National Bank of
Kazakhstan to continue to strengthen its monetary and exchange rate
framework, including through greater independence, better coordination
with the government, reducing dollarization, and improved effectiveness
of monetary policy transmission. Increasing the transparency of policy
and operations and further strengthening communications would boost
credibility.

Directors supported the recently completed asset-quality review, which
will help understand better the financial situation in the banking
sector and identify corrective measures. Such measures could help lead
to a strengthening of the sector. Directors underscored that any
additional state support should go only to large and viable banks,
subject to robust safeguards and in line with international best
practices. Directors noted that Kazakhstan’s banks need to adopt a new
business model with less reliance on state programs and funding and
improved risk management and lending practices. Directors welcomed the
formation of the new Agency for Regulation and Development of the
Financial Market of the Republic of Kazakhstan. They noted that
reorganization of the financial supervisory architecture could entail
risks in the transition period, which should be managed carefully.
Independence and adequate resourcing are key to establishing a strong
financial regulator. Directors encouraged the authorities to request an
FSAP assessment.

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Directors agreed that a return to growth-friendly fiscal consolidation
is necessary—following an easing of the fiscal stance in 2019 to
accommodate social support and regional development outlays—while
underscoring the importance of improving spending and investment
efficiency. They supported the efforts to increase revenue collections
through tax and customs administration reforms and urged the
authorities to consider complementing these measures with tax policy
changes to broaden the tax base and enhance progressivity. The
authorities’ intentions to upgrade Kazakhstan’s fiscal policy framework
are welcome and should be guided by the principles of simplicity and
clarity, broad coverage, flexibility, and enforceability. The revamped
framework would benefit from supporting public financial management
(PFM) reforms and greater transparency. Directors noted that a PFM
assessment and a fiscal transparency evaluation would be useful.

Directors reiterated the importance of decisive structural reform
implementation in the context of the authorities’ economic
diversification agenda. They emphasized the pivotal role of continuing
improving business climate, investing in infrastructure, strengthening
property rights, enhancing competition, and streamlining state support.
Further improvements in governance and reducing corruption
vulnerabilities would help to attract additional investment and promote
private-sector-led inclusive growth.



Kazakhstan: Selected Economic Indicators, 2017-21

Population (2018): 18.4 million

Per capita GDP (2018 – est., US$): 9,401

Quota: SDR 1,158.40 million

Literacy rate: 99.8% (2015)

Main export: crude oil, metals, minerals

Poverty rate: 2.5% (2017)

Key export markets: EU, China, Russia

2017

2018

2019

2020

2021

(proj.)

Output

Real GDP growth (%)

4.1

4.1

4.1

3.6

3.8

Real oil

8.7

8.4

-0.3

0.0

1.4

Real non-oil

2.7

2.7

5.6

4.8

4.5

Crude oil and gas condensate production (million tons)

86

90

90

90

91

Employment

Unemployment (%)

4.9

4.9

4.9

4.9

4.9

Prices

Inflation (%)

7.3

5.3

5.6

5.5

5.0

General government finances 1/

Revenue (% GDP)

19.8

21.4

19.9

20.1

20.4

Of which:
oil revenue

5.9

7.4

6.8

6.4

6.1

Expenditures (% GDP)

24.1

18.9

20.1

20.1

19.7

Fiscal balance (% GDP)

-4.3

2.5

-0.2

0.1

0.6

Non-oil fiscal balance (% GDP)

-10.2

-4.9

-7.0

-6.4

-5.4

Gross public debt (% GDP)

19.9

20.3

20.7

21.0

20.7

Money and credit

Broad money (% change)

-1.7

7.0

0.8

5.6

5.8

Credit to the private sector (% GDP)

25.8

22.7

21.4

21.5

21.8

NBK policy rate (%, eop)

10.3

9.3

Balance of payments

Current account (% GDP)

-3.1

-0.2

-2.8

-2.8

-3.2

Net foreign direct investments (% GDP)

-2.3

-2.7

-3.6

-3.6

-3.6

NBK reserves (in months of next year’s imports of G&S)

8.0

7.5

7.2

7.3

7.3

NFRK assets (in months of next year’s imports of G&S)

15.1

14.1

14.7

14.9

15.2

External debt (% GDP)

100.2

88.5

91.2

87.0

82.5

Exchange rate

Exchange rate (y-o-y percent change; Tenge per U.S. dollar;
eop)

-0.3

15.6

Sources: Kazakhstani authorities and Fund staff estimates
and projections.

1/ The fiscal accounts in 2017 include a state support to
the banking sector of 4 percent of GDP.




[1]

Under Article IV of the IMF’s Articles of Agreement, the IMF holds
bilateral discussions with members, usually every year. A staff
team visits the country, collects economic and financial
information, and discusses with officials the country’s economic
developments and policies. On return to headquarters, the staff
prepares a report, which forms the basis for discussion by the
Executive Board.


[2]

At the conclusion of the discussion, the Managing Director, as
Chairman of the Board, summarizes the views of Executive Directors,
and this summary is transmitted to the country’s authorities. An
explanation of any qualifiers used in summings up can be found
here:

http://www.imf.org/external/np/sec/misc/qualifiers.htm

.


IMF Communications Department
MEDIA RELATIONS

PRESS OFFICER: Randa Elnagar

Phone: +1 202 623-7100Email: MEDIA@IMF.org

@IMFSpokesperson








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