Press Release No. 23/207

IMF Staff Concludes Visit to Kazakhstan

June 14, 2023

Washington, DC: A team from the International Monetary Fund (IMF), led by Nicolas Blancher, conducted a mission during May 31–June 7, 2023, to discuss recent economic developments, the economic outlook, and risks, as well as policy priorities, including to further reduce inflation and mitigate the risk of secondary sanctions.

At the end of the visit, Mr. Nicolas Blancher issued the following statement:

“Kazakhstan’s economy and financial sector have remained resilient in recent months. In 2022, high oil prices supported Kazakhstan’s fiscal and external accounts, while strong non-oil revenue collections contributed to a reduction in the non-oil fiscal balance. For 2023, GDP growth is projected to accelerate to 4.8 percent (from 3.3 percent in 2022), driven by strong activity particularly in the non-oil sector. Inflation, while still elevated, is declining, reflecting a large base effect, lower food prices, exchange rate appreciation, and the impact of recent monetary policy tightening. Considering the increasing domestic fuel and utility tariffs, strong economic activity, and growing government spending, it should ease gradually to about 12 percent for 2023 (against 20 percent at the end of 2022). Lower international oil and metal prices should lead to a weaker external position and reduced oil fiscal revenues this year.

“The outlook is still subject to high uncertainty. Slower growth of trading partners could affect exports and growth in Kazakhstan, including through further oil price declines, while sustained disruptions to the CPC pipeline would be a major external shock. Inflation pressures could require maintaining the tight monetary stance for longer than is currently anticipated. Spillovers from the war in Ukraine could escalate through trade, foreign investment, and exchange rate channels, while secondary sanctions, if imposed on domestic entities, could affect domestic and international investor confidence. Finally, social tensions may surge again and delay fiscal consolidation and reforms. There are also upside risks, such as a continuation of the strong growth momentum or a reversal of the recent oil price decline.

“Monetary policy tightening, especially in late 2022, helped avoid an adverse spiral of exchange rate, inflation, and dollarization pressures. Monetary policy should remain tight in 2023 until inflation is firmly on a downward trend and inflation expectations are re-anchored. The National Bank of Kazakhstan’s continued commitment to inflation targeting and efforts to improve its communications on monetary policy decisions are commendable. Continued efforts are needed to further strengthen the NBK’s credibility and independence and plans to fully eliminate the NBK’s subsidized lending programs by early 2024 are welcome. A removal of capital flow management measures is also recommended.

“The expansion of public spending in the revised 2023 budget is substantial. With the economy already experiencing strong growth in the initial months of the year, the additional stimulus risks delaying fiscal consolidation and undermining efforts to contain inflation. High expenditure growth, coupled with increased transfers from the National Fund, also appears to undermine the recently introduced fiscal rules, with a negative impact on the credibility of the government’s medium term fiscal commitments. Notwithstanding this, continued progress in improving revenue administration and non-oil revenue collection, the ongoing work to revise the tax and budget codes, and the government’s plan to follow up on recent recommendations from the Fiscal Transparency Evaluation, are welcome.

“Continued efforts by the Agency for Regulation and Development of the Financial Market (ARDFM) to implement risk-based financial supervision have helped strengthen the resilience of Kazakhstan’s banking sector despite multiple shocks. Further progress is needed to address the remaining vulnerabilities and ensure the system is prepared to deal with future economic and financial shocks, including by strengthening the resources and operational independence of the ARDFM, by completing the implementation of the Basel II/III frameworks, and by strengthening the bank recovery and resolution regime. The ongoing Financial Sector Assessment Program for Kazakhstan will provide a comprehensive assessment and roadmap for reforms in this sector. Regarding the risks of secondary sanctions, the authorities should continue to closely monitor risk management practices of financial institutions.

“The team is grateful to the authorities and other counterparts in Kazakhstan for their cooperation and hospitality. The next IMF mission to Kazakhstan for the 2023 Article IV consultation is expected to take place in late October.