IMF Executive Board Concludes 2010 Article IV Consultation with the Republic of Kazakhstan

Public Information Notice (PIN) No. 10/98
July 27, 2010

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 12, 2010, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Republic of Kazakhstan.1


The sudden stop in capital inflows in the early stages of the global financial crisis exposed the underlying vulnerabilities in the banking system. The combination of weak economic growth, currency induced credit exposure, and increased uncertainty led to a sharp worsening of banks’ balance sheets. Four financial institutions were forced to restructure their external liabilities.

Drawing upon savings in the National Oil Fund, the authorities responded with a large scale and timely policy package that helped stabilize banks. This support, alongside enhanced deposit insurance and the external nature of the debt restructuring, mitigated deposit withdrawals. Nevertheless, the banking system continues to face significant difficulties. Nonperforming loans have risen sharply, increasingly driven by non-restructuring banks. Capital adequacy excluding restructuring banks remains above the minimum requirement, but the capital base has declined, and bank profitability is under pressure. Although banks’ aggregate liquidity position is comfortable, credit dynamics remain weak, with annual credit growth plummeting into negative territory.

Most macroeconomic indicators worsened in 2009. Real GDP growth slowed sharply, although a strong rebound in the last quarter helped it reach 1¼ percent for the year as a whole. Exports fell significantly, reflecting lower oil prices and a decline in non-oil sales abroad. Notwithstanding the fall in imports from weaker demand, the current account shifted into a deficit of about 3 percent of GDP. Average annual inflation slowed in 2009 and has remained relatively contained at around 7½ percent (the end-of-period inflation was 6 ¼ percent).

Countercyclical fiscal policy helped limit the economic slowdown, but resulted in an expansion of the deficit and public debt. Monetary policy was accommodative as the economy remained weak and inflation pressures declined. The devaluation of the tenge in February 2009 helped stabilize market pressures, and was followed a year later by a widening of the trading band. Since then, the tenge has gained about two percent and the central bank has accumulated international reserves.

Staff projects real GDP growth of around 4 percent in 2010, driven mainly by the oil, gas, and mining sectors. The external outlook is expected to recover, with an improvement in the current account position, led by a strong rebound in exports (in particular oil) combined with a relatively slow recovery in import growth. Average inflation is projected to remain around the current level of 7½ percent.

Executive Board Assessment

Executive Directors agreed with the thrust of the staff appraisal. They commended the authorities for their prudent macroeconomic policies and swift response to the financial crisis. Large-scale, coordinated public support—backed by ample resources accumulated in good times—had helped stabilize the banking system and stimulated the economy. The near-term growth outlook has improved, driven by tradable sectors, and inflation is expected to remain under control. Directors observed, however, that broader economic activity remains constrained by stagnant credit growth and banking sector difficulties. The key policy priorities are to restore financial sector health and to gradually unwind support to both banks and economic sectors, while ensuring sufficient liquidity and promoting more balanced growth.

Directors stressed the urgency of implementing a comprehensive and transparent bank resolution strategy, aimed at reducing nonperforming loans. This should be accompanied by a full assessment of recapitalization needs, and by improvements in the regulatory and supervisory frameworks to address key underlying vulnerabilities, notably excessive reliance on foreign funding, weak governance, and risky lending practices. Directors encouraged the authorities to formulate contingency plans should a need for additional public support arise. They also stressed that actions to restore bank soundness should take precedence over specific measures to promote credit growth in the short term.

Directors supported the plans to withdraw the fiscal stimulus gradually, while prioritizing expenditures and strengthening tax administration. They recommended that the authorities weigh carefully the costs and benefits of borrowing vis-à-vis using oil savings to finance the deficit. Directors encouraged the development of a well-defined medium-term plan for fiscal consolidation, allowing for increased savings of oil revenues and steadily reducing the non-oil deficit.

Directors noted the staff assessment that the exchange rate is broadly aligned with long-run equilibrium. However, they considered that greater exchange rate flexibility, once conditions in the banking system have stabilized, would enhance the economy’s ability to absorb external shocks and provide additional monetary policy leverage. They agreed that real interest rates should be kept positive to maintain depositor confidence, and cautioned against the use of subsidized interest rates. The plans to develop domestic capital markets are a welcome step to complement de-dollarization efforts.

Directors noted that Kazakhstan is set to benefit from its mineral resource wealth over the long term. The government’s medium-term development strategy appropriately focuses on reducing dependence on commodities and increasing productivity and competitiveness in the non-oil economy. Directors highlighted the important role of a well-capitalized and well-regulated financial system in facilitating economic diversification, and urged sustained efforts to improve governance, transparency, and the business environment. They also encouraged the authorities to continue to pursue WTO accession.

Kazakhstan: Selected Economic Indicators, 2007–11

        Proj. 1/ Proj. 1/


2007 2008 2009 2010 2011
  (Changes in percent)

Real economy


Real GDP

8.9 3.2 1.2 4.1 4.8

CPI (end-of-period)

18.8 9.5 6.2 8.0 6.8
  (In percent of GDP)

Public finance


Government revenue and grants

29.3 27.9 23.7 23.9 25.3

Government expenditures

24.5 26.5 25.0 26.9 27.2

General government balance 2/

4.7 1.1 -1.5 -3.2 -2.1

General government non-oil balance

-4.8 -11.3 -11.3 -14.4 -14.3

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

5.9 6.6 10.9 15.7 19.0
  (Changes in percent)

Money and credit


Base money

-2.5 4.2 60.7 22.7 16.7

Broad money

25.9 35.4 19.5 16.5 14.7

Banking sector credit to the economy

55.2 5.2 7.3 3.4 6.0

NBK refinance rate (eop; percent)

11.0 10.5 7.0 ... ...
  (In percent of GDP)

Balance of payments


Trade balance

14.6 24.7 14.1 22.4 22.4

Current account balance

-8.1 4.6 -3.2 2.6 2.5

External debt

93.9 79.5 103.7 96.1 93.4

Excluding intra-company loans

64.8 49.9 58.5 52.6 50.4

Gross international reserves


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

17.6 19.9 23.1 32.1 44.5

In months of imports of goods

4.3 6.1 6.8 7.9 9.6

and nonfactor services

  (Changes in percent)

Exchange rate 4/


Tenge vs. U.S. dollar (end of period)

5.3 -0.4 -22.9 ... ...

Tenge vs. Russian ruble (end of period)

-2.1 16.5 -19.7 ... ...

Real effective exchange rate (p.a)

2.2 7.0 -6.2 ... ...

Sources: Kazakhstani authorities; and IMF staff estimates and projections.
1/ Staff projections.
2/ Privatization revenues are treated as a financing item.
3/ Gross domestic and external government 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. An explanation of any qualifiers used in summings up can be found here:


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