Republic of Kazakhstan and the IMF
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The International Monetary Fund (IMF) today approved a three-year credit for Kazakstan equivalent to SDR 309.4 million (about US$446 million) under the extended Fund facility (EFF)1 to support the Government's medium-term economic reform program for 1996-98. Of the total approved, credits equivalent to SDR 37.2 million (about US$54 million) will be available to Kazakstan in 1996.
1995 was the most successful year for the Kazak economy since independence. Under the authorities' program, supported by a stand-by credit from the IMF, inflation was reduced significantly, and the balance of payments performed consistently better than expected. Progress was made in privatization and public enterprise restructuring, and the decline in output began to level off. Tight financial policies laid the ground for renewed domestic and external confidence. Fiscal policy bore the brunt of the adjustment effort, as the overall deficit was reduced to 2.3 percent of GDP. Revenue performance remained weak, however, which squeezed expenditures and led to the accumulation of budgetary arrears.
Medium-Term Strategy and the 1996 Program
The program seeks to consolidate and deepen the progress made to date, while simultaneously moving ahead with structural reforms that have lagged behind. Key macroeconomic targets over the medium term include reducing annual inflation from 60 percent in 1995 to 26 percent in 1996, and to 10 percent or less by 1998. The decline in output is expected to stabilize in 1996 before rebounding to at least 2 percent of positive growth a year in 1997-98. The external current account deficit is projected to stay in the range of 4-5 percent of GDP and is expected to be covered without recourse to exceptional financing after 1997. Gross international reserves are targeted to rise to the equivalent of about 4 months of imports of goods and nonfactor services during 1996-98 from 3.2 months in 1995.
Continued fiscal restraint is a key component of the program, supported in 1996 by a sizable revenue package designed to yield approximately 1.1 percent of GDP. Revenue measures for the program period include increases in selected indirect taxes, further reductions in tax exemptions and benefits, increased contribution from the natural resources' sector, and improvements in tax administration. Expenditures are expected to increase somewhat as a share of GDP, due to additional outlays associated with the restructuring process.
The medium term program provides for an acceleration of systemic reforms, focussing on (i) the completion of privatization programs and enterprise restructuring; (ii) the reform of the financial sector, by enhancing the financial position of banks, improving banking supervision, and restructuring part of the banking system; (iii) the overhaul of civil service and state structures; and (iv) sector specific reform measures aimed at the health, education, energy, transportation, and agricultural sectors.
Addressing Social Needs
Under the program, the social security system and the social safety net will be reformed with the dual objective of increasing cost effectiveness and enhancing the targeting of benefits. Important measures include developing a minimum subsistence level to serve as an anchor for social benefits, and streamlining the unemployment benefit system. In addition, the pension system will be modified to improve its financial position while introducing voluntary, privately managed pension schemes.
The Challenge Ahead
Full implementation of Kazakstan's ambitious and complex program will place a significant burden on the authorities' existing administrative capacity. Well-designed and carefully targeted technical assistance from the IMF and other multilateral institutions and bilateral donors will be essential for the success of the program.
Kazakstan joined the IMF on July 15, 1992; its quota2 is SDR 247.5 million (about US$357 million); and its outstanding use of IMF credit currently totals SDR 384 million (about US$553 million).
Sources: Kazak authorities and IMF staff estimates and projections.
1. The EFF is an IMF financing facility that supports medium-term programs that seek to overcome balance of payments difficulties stemming from macroeconomic imbalances and structural problems. A program generally runs for three years and up to four years in exceptional circumstances.
2. 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.
IMF EXTERNAL RELATIONS DEPARTMENT