Press Release: IMF Approves Stand-By Credit for Kazakhstan
June 5, 1995The International Monetary Fund (IMF) today approved a 12-month stand-by credit for Kazakhstan totaling the equivalent of SDR 185.6 million (about $290 million) or 75 percent of quota in support of the Government's economic reform program.
Kazakhstan made some progress in 1994 in macroeconomic stabilization under an economic program supported by an IMF stand-by credit (see Press Release no. 94/2). Monetary and fiscal policies were drastically tightened from midyear onwards and efforts were made to impose some financial discipline on enterprises. The Government's efforts to reduce the fiscal deficit and to tighten credit and monetary policy were, however, impeded by enterprises avoiding their payments commitments, leading to unbudgeted outlays to cover the domestic and external debt of enterprises. Accordingly, the overall budget deficit (including quasi-fiscal operations) widened to close to 7 percent of GDP, compared with a program target of 4.6 percent of GDP. In early 1995, the authorities substantially reinforced their economic reform policies by tightening the macroeconomic stance, and performance through the first four months of this year has been very good.
Overall, progress in structural reforms was mixed in 1994; after a slow start, efforts were mainly concentrated on establishing an appropriate regulatory environment for the reform of state enterprises. The pace of structural reform was accelerated early in 1995 as a number of major structural, legal, and institutional policy actions were taken.
The Program for 1995
The Government's 1995 economic program, which is supported by the stand-by, has as its two major objectives a continued sharp reduction in monthly inflation to very low single digits by July and a breakthrough in structural reforms. Specifically, the 1995 program aims to lower the end-period annual inflation rate to 40 percent; restrain the decline in output to around 11 percent while encouraging export growth; and limit the external current account deficit to around 7 percent of GDP.
To achieve these targets, fiscal policies are being directed toward an overall budget deficit of 3.5 percent of GDP, and monetary and credit policies are targeted toward growth rates of base money and broad money of no more than 37 percent and 40 percent, respectively, compared with 1994 growth of 699 percent and 559 percent, respectively. Although Kazakhstan's balance of payments position in 1995 will continue to be difficult, the external current account deficit is projected to narrow slightly in 1995. This will be due largely to an ongoing recovery in exports of nonferrous metals and other minerals, and the assumption that oil pipeline access will allow at least the same volume of exports as in 1994. At a Consultative Group meeting in Paris, on May 26th, bilateral and multilateral donors have pledged $930 million in financial assistance to support Kazakhstan's reform efforts.
Structural Reform Policies
Experience has shown that progress in macroeconomic stabilization is inextricably linked to enterprise reform, and the attainment of the objectives of the 1995 program will, to a significant extent, hinge upon the progress made in enterprise restructuring and privatization. The privatization program is being accelerated by increasing the number of enterprises to be privatized; by signing performance contracts with the management of a number of enterprises; and by the start-up around mid-1995 of the Rehabilitation Bank, the main vehicle for the restructuring of loss-making enterprises. Equally important will be the establishment of the necessary regulatory environment in which enterprise restructuring is to proceed.
Addressing Social Costs
In an important effort begun last year, budgetary allocations for the social safety net will increase to around 4 percent of GDP, with improved benefits and targeting. The minimum wage, in dollar terms, should remain broadly unchanged throughout the year.
The Challenge Ahead
Kazakhstan has made very good progress in recent months toward macroeconomic stabilization, but these gains are still fragile. Further progress will require that the financial polices being implemented be supported by strong efforts to impose discipline on the enterprise sector. The significant strengthening of Kazakhstan's reform effort, represented by the objectives and policy package of the 1995 program, deserve the support of the international community.
Kazakhstan joined the IMF on July 15, 1992; its quota1 is SDR 247.5 million (about $386 million), and its outstanding obligations to the IMF are SDR 198 million (about $309 million) or 80 percent of quota.
Sources: Kazakh authorities; and IMF staff estimates
a. From 1994, includes formerly unbudgeted quasi-fiscal operations.
1. A member's quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its allocation of SDRs.