IMF Executive Board Concludes 2009 Article IV Consultation with the Republic of Kazakhstan

Public Information Notice (PIN) No. 09/91
July 28, 2009

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On July 8, 2009, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Republic of Kazakhstan.1


At the time of the 2008 Article IV consultation, Kazakhstan’s economy was slowing in response to the tightening of global liquidity conditions that started in August 2007. Domestic banks’ access to international financial markets declined, credit growth stalled, and property prices collapsed following years of rapid gains. High oil prices, however, initially cushioned the impact of the sudden stop in capital inflows, and the economy slowed down to 6 percent by mid-2008 from the double-digit growth rates of earlier years.

The second wave of the global financial crisis and lower oil prices in late 2008 slowed real activity further, and the economy began to contract. A deteriorating current account balance and banks’ large external debt repayments put the currency under pressure, and the central bank devalued the tenge by 20 percent against the U.S. dollar in early February.

The slowing economy and the exchange rate devaluation have added to the pressures on bank balance sheets, and as asset quality inevitably deteriorates further, these pressures will only rise. Several banks are now facing solvency issues; two large banks and one smaller institution have stopped making principal repayments, and the banks are now in negotiations with their creditors to restructure their liabilities. The continuing drop in asset prices has also impacted the assets of the pension funds.

The authorities have responded to the growing economic problems with a $10 billion anti-crisis plan, funded from the National Oil Fund, which focuses on recapitalizing banks and supporting economic activity. The anti-crisis plan is being complemented by additional budgetary measures, liquidity support from the central bank, and regulatory measures by the financial supervisory agency. The large stock of public foreign assets built up during the boom years and low public debt put the authorities in a strong position to respond to the crisis. Central bank reserves have stabilized around $20 billion and pressures on the exchange rate have eased following the devaluation.

The economy is expected to contract by 2 percent this year, recovering modestly in 2010 to grow by 2 percent. Lower oil prices will push the current account balance back into a deficit, although with foreign direct investment remaining strong and new bilateral financing emerging the overall balance of payments will remain robust. CPI inflation will remain contained as the weak demand environment limits the ability of producers to pass on higher import costs from the devaluation earlier in the year. The weakening economy and large “anti-crisis” spending will push the fiscal position into a deficit this year, the first since 2000.

Executive Board Assessment

Executive Directors noted that the Republic of Kazakhstan faces significant challenges from ongoing difficulties in the banking sector and the weak global environment. They commended the authorities for their policy response to help shield the economy from the impact of the global recession, including fiscal stimulus made possible by the prudent saving of windfall profits and eased monetary policy. Directors emphasized that the main challenge ahead is to resolve the weaknesses in the banking sector while maintaining an appropriate policy response to the crisis.

Directors believed that a comprehensive solution to the growing problems in the banking sector was needed in order to restore confidence in the system and improve the investment climate. They urged the authorities to promptly deal with the external debt standstills at Bank TuranAlem and Alliance Bank and called for independent assessments of the other large banks. While supporting recent measures to improve the banking resolution framework, Directors called for further action, including providing the Financial Supervision Agency with the legal authority, independence and resources needed to carry out its mandate to intervene early and forcefully when needed. They also emphasized the need to ensure effective operation of the deposit insurance fund. Looking forward, Directors called for strengthened financial sector regulation and supervision, including through improved on and off site supervision and further restrictions on foreign currency lending to unhedged borrowers.

With inflation pressures abating, Directors viewed monetary policy as appropriately geared toward supporting economic activity, including through the reduction in reserve requirements and policy rates, and provision of adequate liquidity. Going forward, they emphasized the importance of maintaining an appropriate balance between keeping inflation on a downward path and supporting the financial sector and economy.

Directors noted staff’s assessment that the exchange rate is broadly in line with fundamentals. They agreed that in the current circumstances, and following the step devaluation in February, preserving a stable exchange rate is important for regaining depositor confidence, limiting the risks from the corporate sectors’ large foreign exchange exposure, and helping reduce inflation. Nonetheless, Directors saw benefit in moving toward a more flexible exchange rate policy once conditions stabilize.

Directors supported the expansionary fiscal stance for 2009 given the current circumstances. They recommended focusing on effective implementation of spending under the Anti-Crisis Plan, and emphasized the need for transparent monitoring of disbursements through the Samruk-Kazyna Fund. Directors welcomed the intention to maintain a flexible fiscal policy as needed to respond to the crisis, as well as the commitment to return to a fiscal consolidation path in the future.

Directors welcomed the policy initiatives to improve the business climate and promote job creation. They supported the measures to strengthen social safety nets, and recommended directing any additional spending under the Anti-Crisis Plan to these areas, in addition to health, education and infrastructure.

Directors encouraged the authorities to continue working towards meeting their goals under the Extractive Industries Transparency Initiative. They urged the authorities to promptly pass the draft Anti-Money Laundering/Combating the Financing of Terrorism bill to help bring the Republic of Kazakhstan’s legislation in line with international best practice

Kazakhstan: Selected Economic Indicators, 2005–10


Proj. 1/

Proj. 1/









(Changes in percent)


Real economy


Real GDP







CPI (end-of-period)








(in percent of GDP)


Public finance


Government revenue and grants







Government expenditures







General government balance 2/







General government debt non-oil balance







General government debt (end-of-period) 3/








(Changes in percent)


Money and credit


Base money

12.5 131.0 -2.5 0.5 16.5 14.6

Broad money

26.3 78.1 25.9 35.4 12.2 24.4

Banking sector credit to the economy

74.2 80.2 55.2 5.2 13.9 16.6

NBK refinance rate (end-of-period; percent)

8.0 9.0 11.0 10.5
    (In percent of GDP)    

Balance of payments


Trade balance

18.1 18.1 14.4 24.7 13.2 18.2

Current account balance

-1.8 -2.5 -7.8 5.1 -2.1 2.3

External debt

76.0 91.4 92.4 79.5 98.9 92.4

Gross international reserves

In billions of U.S. dollars, end-of-period

7.1 19.1 17.6 19.9 23.9 33.6

In months of imports of goods and non-factor services

2.6 5.1 4.3 6.4 7.1 8.8
    (Changes in percent)    

Exchange rate


Tenge per U.S. dollar (end-of-period)

3.0 -4.4 -5.6 -0.2

Tenge per Russian ruble (end-of-period )

-0.8 3.6 1.4 -15.8

Real effective exchange rate (period average) 4/

3.7 7.5 2.2 6.8

Sources: Kazakhstani authorities; and IMF staff estimates and projections.
1/ Staff projections.
2/ Under this definition of the general government balance, privatization revenue is treated as a financing item and measured from below the line, which includes a statistical discrepancy.
3/ Gross domestic and external debt, including government guaranteed debt.
4/ A positive sign indicates appreciation.

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. 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.


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