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

IMF News, January 29, 2020

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

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• Published: January 29, 2020

Economic performance and outlook

• Growth estimated at 4.5 percent in 2019 (preliminary).
• Strong domestic demand driven by major oil and gas investments and government and household consumption supported by wage increases and consumer lending.
• Headline inflation picked up but 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 weakened the external position; the current account balance deteriorated.
• Exchange rate depreciated in the second half of 2018, but has been relatively stable thereafter in the absence of large shocks.
• Over the next few years:
  • Growth expected to slow largely reflecting flat oil production.
  • Non-oil growth expected to remain robust.
• Risks are on the downside, reflecting trade tensions and commodity price volatility.

Monetary and financial sector assessment

• Inflation targeting and tenge flexibility have helped absorb shocks.
• National Bank of Kazakhstan (NBK) actions:
  • Raised the policy rate by 25 basis points in September.
  • Kept the policy rate at 9.25 percent in December.
• Banking sector:
  • Liquidity remains ample.
  • Credit growth concentrated in the retail sector.
  • Continued cleanup through additional state financial support and a recently-concluded asset quality review.
• Executive Directors’ views and recommendations:
  • Monetary policy focus should remain on inflation.
  • Encourage NBK to strengthen monetary and exchange rate framework via greater independence, better coordination with the government, reducing dollarization, and improved monetary policy transmission.
  • Increase transparency of policy and operations and strengthen communications to boost credibility.
  • Support for the asset-quality review to better understand banks’ financial situations and identify corrective measures.
  • Any additional state support should go only to large and viable banks, subject to robust safeguards and in line with international best practices.
  • Banks need to adopt a new business model with less reliance on state programs and funding and improved risk management and lending practices.
  • Welcome formation of the new Agency for Regulation and Development of the Financial Market; manage transition risks carefully and ensure independence and adequate resourcing.
  • Encourage authorities to request an FSAP assessment.

Fiscal policy and public finances

• Despite strong non-oil revenue performance, a looser fiscal stance occurred in 2019 due to new spending initiatives: higher public sector wages, financial support to the vulnerable, and regional development initiatives.
• Directors’ fiscal recommendations:
  • Return to growth-friendly fiscal consolidation is necessary following the easing in 2019.
  • Improve spending and investment efficiency.
  • Increase revenue collections through tax and customs administration reforms; consider tax policy changes to broaden the tax base and enhance progressivity.
  • Upgrade Kazakhstan’s fiscal policy framework guided by principles of simplicity and clarity, broad coverage, flexibility, and enforceability.
  • Support public financial management (PFM) reforms and greater transparency.
  • A PFM assessment and a fiscal transparency evaluation would be useful.

Structural reforms and governance

• Progress noted on the “100 Concrete Steps” with many flagship measures completed and remaining steps broadly on track.
• Market-opening actions:
  • First public offering of a blue-chip public company (KazAtomProm) took place in late 2018.
  • Preparations for privatization of other large state-owned enterprises are underway.
• Governance and corruption:
  • Steps taken to improve governance and address corruption vulnerabilities, but challenges remain.
  • Directors emphasized continuing improvements in the business climate, investing in infrastructure, strengthening property rights, enhancing competition, and streamlining state support to promote private-sector-led inclusive growth.

Executive Board assessment summary

• Directors agreed with the thrust of the staff appraisal.
• Noted robust economic growth in 2019 supported by consumption and investment.
• Welcomed progress on financial sector issues and structural reforms aimed at private sector development and inclusive growth.
• Recognized challenges and risks, including commodity price volatility.
• Recommended further actions across monetary, fiscal, financial, and structural policy domains as outlined above.

Key statistics (selected indicators from 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

• Output
  • Real GDP growth (%): 2017: 4.1, 2018: 3.6, 2019 (proj.): 3.8
  • Real oil: 2017: 8.7, 2018: 8.4, 2019: -0.3, 2020: 0.0, 2021: 1.4
  • Real non-oil: 2017: 2.7, 2018: 5.6, 2019: 4.8, 2020: 4.5
  • Crude oil and gas condensate production (million tons): 2017: 86, 2018: 90, 2019: 91
• Employment
  • Unemployment (%): 2017: 4.9
• Prices
  • Inflation (%): 2017: 7.3, 2018: 5.3, 2019: 5.5, 2020 (proj.): 5.0
• General government finances 1/
  • Revenue (% GDP): 2017: 19.8, 2018: 21.4, 2019: 19.9, 2020: 20.1, 2021: 20.4
  • Of which: oil revenue: 2017: 5.9, 2018: 7.4, 2019: 6.8, 2020: 6.4, 2021: 6.1
  • Expenditures (% GDP): 2017: 24.1, 2018: 18.9, 2019: 19.7
  • Fiscal balance (% GDP): 2017: -4.3, 2018: 2.5, 2019: -0.2, 2020: 0.1, 2021: 0.6
  • Non-oil fiscal balance (% GDP): 2017: -10.2, 2018: -4.9, 2019: -7.0, 2020: -6.4, 2021: -5.4
  • Gross public debt (% GDP): 2017: 20.3, 2018: 20.7, 2019: 21.0
• Money and credit
  • Broad money (% change): 2017: -1.7, 2018: 7.0, 2019: 0.8, 2020 (proj.): 5.8
  • Credit to the private sector (% GDP): 2017: 25.8, 2018: 22.7, 2019: 21.5, 2020: 21.8
  • NBK policy rate (%, eop): 2017: 10.3, 2018: 9.3
• Balance of payments
  • Current account (% GDP): 2017: -3.1, 2018: -2.8, 2019: -3.2
  • Net foreign direct investments (% GDP): 2017: -2.3, 2018: -2.7, 2019: -3.6
  • NBK reserves (in months of next year's imports of G&S): 2017: 8.0, 2018: 7.5, 2019: 7.2
  • NFRK assets (in months of next year's imports of G&S): 2017: 15.1, 2018: 14.1, 2019: 14.7, 2020: 14.9, 2021: 15.2
  • External debt (% GDP): 2017: 100.2, 2018: 88.5, 2019: 91.2, 2020: 87.0, 2021: 82.5
• Exchange rate
  • Exchange rate (y-o-y percent change; Tenge per U.S. dollar; eop): 2017: 15.6

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

Source: IMF Executive Board Concludes 2019 Article IV Consultation with the Republic of Kazakhstan (Press Release No. 20/24), January 29, 2020.

References

• https://www.imf.org/-/media/images/imf/bios/imfboard.jpg
• The Executive Board
• Republic of Kazakhstan and the IMF
• IMF Policy Advice -- A Factsheet
• Press Releases
• PRESS CENTER
• http://www.imf.org/external/np/sec/misc/qualifiers.htm
• https://www.imf.org/en/home