IMF Executive Board Concludes 2014 Article IV Consultation with the Republic of Kazakhstan

Press Release No. 14/385
August 5, 2014

On July 21, 2014, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Kazakhstan.

Growth slowed from 6 percent in 2013 to 3.8 percent year-on-year in the first quarter of 2014. The slowdown reflects weaker external demand, especially from China and Russia, the confidence effects of regional tensions and the February devaluation of the tenge on domestic demand, and slower production in the mining sector. Inflation, on the other hand, has risen, fueled by the devaluation and amid heightened external uncertainties, reaching 7 percent year-on-year in June compared with 4.8 percent at end-2013. Fiscal balances improved significantly last year and the national oil fund assets reached 31 percent of GDP. The banking sector recovery continues.

Real GDP growth in 2014 is projected at 4.8 percent, one percentage point below earlier projections, despite the expected positive contributions from the fiscal stimulus. At the same time, headline inflation is expected to further increase to around 9 percent in 2014, although the authorities are determined to maintain it within the 6–8 percent target range. Medium-term growth prospects hinge on the projected rise in oil output. Risks to the outlook are predominantly on the downside, reflecting possible additional unfavorable developments in Russia and Ukraine, and a prolonged slowdown in emerging markets.

The authorities have taken more aggressive steps to reduce the large stock of Non Performing Loans (NPLs), and have committed to enhancing the monetary and fiscal policy frameworks. They have also strengthened their commitment to speeding up structural reforms and in this context deepened their cooperation with the multilateral development institutions. The newly launched Eurasian Economic Union, with Belarus, Kazakhstan, and Russia as members, will formally come into effect in January 2015, while accession to the World Trade Organization (WTO) is expected later this year.

Executive Board Assessment2

Directors commended Kazakhstan’s solid economic performance in recent years. However, given the recent growth slowdown and rise in inflation amid heightened external uncertainties, Directors stressed the importance of strengthening the macroeconomic policy frameworks to improve the economy’s resilience and long-term prospects.

Directors considered the near-term fiscal policy stance to be appropriately supportive of growth, but saw a need to better ensure the quality and transparency of planned increases in spending. They also welcomed the authorities’ commitment to reducing the non-oil deficit to its sustainable level by 2018. More broadly, Directors recommended strengthening fiscal policymaking by reducing off-budget operations and further integrating the annual budget and medium-term fiscal plans into the broader macroeconomic framework. In this context, Directors stressed the importance of prudent and transparent management of resource wealth to safeguard the integrity of the budget process and intergenerational equity.

Directors emphasized the need to stand ready to tighten monetary policy while improving the monetary policy framework and operations. They suggested speeding up the introduction of a new policy rate instrument supported by open market operations, which would aid liquidity management and open the door for a more flexible management of the exchange rate. They also noted that enhancing communications to anchor expectations and gradually widening the exchange rate band would facilitate adoption of inflation targeting over the medium term. Directors took note of the staff assessment that Kazakhstan’s real effective exchange rate appeared to be only moderately overvalued at end-2013.

Directors encouraged the authorities to fully implement the recommendations from the recent Financial Sector Assessment Program. They welcomed the authorities’ more aggressive efforts to reduce the large stock of nonperforming loans, and highlighted the urgency of supervisory actions to enforce nonperforming loan ceilings and ensure adequate provisions. Directors also underscored the importance of an asset quality review by an independent international entity ahead of the merger of two systemic financial institutions. They also recommended further strengthening risk-based supervisory functions and closely monitoring foreign currency risks associated with increased dollarization. 

Directors commended the authorities’ commitment to an ambitious structural reform agenda that would help Kazakhstan become a dynamic emerging market economy and ensure sustainable and inclusive growth. They agreed that priority should be given to strengthening human capital and institutions and lowering the role of the state in the economy. Directors encouraged the authorities to intensify their efforts to reduce labor market skill mismatches, address barriers to starting new businesses, and enforce contracts. Avoiding price controls will also be important. Directors welcomed the authorities’ increased cooperation with multilateral institutions to advance structural reforms.

Kazakhstan: Selected Economic Indicators, 2011–15
        Projections 1/
  2011 2012 2013 2014 2015
  (Changes in percent)

Real economy

Real GDP

7.5 5.0 6.0 4.7 4.8

CPI (p.a.)

8.3 5.1 5.8 8.9 6.6
  (In percent of GDP)

Public finance

Government revenue and grants

27.7 26.9 26.1 26.4 24.6

Government expenditures (and net lending)

21.8 22.4 20.9 22.1 20.4

General government balance 2/

5.9 4.5 5.2 4.3 4.1

General government non-oil balance

-8.8 -8.9 -7.0 -9.0 -8.1

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

10.4 12.4 13.3 13.6 14.3
  (Changes in percent)

Money and credit

Base money

10.3 1.9 -2.2 12.9 8.8

Broad money

15.0 7.9 10.3 16.8 11.3

Credit to the private sector 4/

14.3 11.6 12.7 16.9 11.3

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

7.5 5.5 5.5
  (In percent of GDP)

Balance of payments 5/

Trade balance

23.8 18.7 15.0 15.7 13.2

Current account balance

5.4 0.5 -0.1 0.6 -0.6

External debt

66.6 67.3 66.3 73.0 74.3

Excluding intra-company loans

33.4 34.1 33.9 35.7 36.8

Gross international reserves 6/


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

29.3 28.3 24.7 28.4 29.4

In months of next year’s imports of goods and nonfactors services

5.7 5.5 4.7 5.2 5.1
  (Changes in percent)

Exchange rate

Tenge vs. U.S. dollar (end-of-period) 7/

0.4 1.5 2.2

Real effective exchange rate (p.a.) 8/

0.2 3.6 1.5

Sources: Kazakhstani authorities; 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/ Private sector includes nonbank financial institutions, public and private nonfinancial institutions, non-profit institutions, and households.
5/ The GDP in U.S. dollars is calculated using the period average exchange rate.
6/ Does not include NFRK.
7/ A positive sign indicates depreciation.
8/ IMF staff estimates.

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.

2 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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