Kazakhstan: Staff Concluding Statement of an IMF Staff Visit
IMF News, November 25, 2015
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- Published: November 25, 2015
Mission context and headline findings
- Mission dates and leadership: November 12–17, 2015; led by Hossein Samiei. Statement dated November 17, 2015.
- Purpose: Review economic and financial sector developments and policies; authorities consented to publication. Views are those of IMF staff and this mission will not result in a Board discussion.
- Headline macroeconomic assessment:
- Large and persistent shocks: lower oil prices, Russia and China slowdown.
- Economic growth has decelerated sharply relative to 2014; credit to the private sector contracting significantly.
- Exchange rate and inflation: roughly 40 percent depreciation of the tenge against the dollar since the August 20 move to a floating exchange rate; pushing up inflation above the 6-8 percent objective range and could adversely impact private sector balance sheets.
- Growth projections: real GDP growth of 1.2 percent this year and 2.2 percent in 2016, well below the economy’s potential; external risks remain.
Monetary policy and central bank framework
- Key actions and reforms:
- Decision to float the exchange rate in August; introduction of a new policy interest rate (base rate) in September as the new monetary policy anchor.
- Subsequent minimization of NBK FX intervention starting November 5 allowed better accommodation of shocks.
- NBK temporarily suspended the new interest rate policy anchor on November 6.
- Staff recommendations and operational guidance:
- Reinstate the new interest rate policy anchor as soon as possible, depending on developments in the FX and money markets, supported by open market operations and standing facilities, and resume regular policy interest rate meetings.
- Maintain consistent communication about policy intentions, deliberations, and decisions to strengthen transparency and predictability in the absence of an exchange rate anchor.
- Close cooperation with the Ministry of Finance on liquidity forecasting and debt issuance is critical.
- Given inflationary pressures and speculative pressures on the tenge, monetary policy may need to maintain a tightening bias for an extended period.
- To facilitate monetary transmission and efficiency of operations:
- NBK’s long-term FX swap agreements should be unwound on maturity (or extended only at prevailing market rates).
- The current cap on commercial banks’ deposit rates on individual accounts should be removed, or linked to the base rate, combined with the introduction of standard term deposits.
- IMF stands ready to provide further technical assistance (TA) as needed.
Financial sector vulnerabilities and supervision
- Risks and recent developments:
- Weaker growth and the tenge depreciation have increased financial sector vulnerabilities.
- Some progress in adopting risk-based assessment tools and supervision, but more work needed.
- Supervision and regulatory guidance:
- Closely monitor emergence of systemic risks based on current regularly conducted stress tests.
- Progress welcomed on implementation of 2014 FSAP recommendations, including making the non performing loan (NPL) ratio an operational early-warning indicator.
- Further progress needed, including enhanced solvency assessment in case of state support to financial entities.
- Caution against regulatory forbearance despite sector difficulties.
- Encourage careful approach to implementing countercyclical banking sector measures, such as temporarily postponing the planned increase in the regulatory minimum on capital adequacy ratio.
Fiscal policy: short-term support and need for medium-term consolidation
- Short-term stance:
- Fiscal policy appropriately supports economic growth in the short term; the multiyear fiscal stimulus package (Nurly Zhol) is helping mitigate negative shocks.
- Together with lower oil revenues, the stimulus is resulting in a wider fiscal deficit in 2015.
- Key fiscal statistics and projections:
- The non-oil fiscal deficit of the general government (IMF definition) is projected to reach 11 percent of GDP this year, compared to 9.3 percent of GDP in 2014.
- Over the medium term, the non-oil deficit is projected to decline only gradually to around 8 percent of GDP in 2020.
- Sustainable non-oil deficit estimated at 5.5-6 percent of GDP.
- Policy recommendations:
- Authorities urgently need to formulate well-specified medium-term fiscal consolidation measures, especially on the revenue side.
- Possible measures include strengthening enforcement of tax collection, closing fiscal loopholes, and reducing tax exemptions including in the Special Economic Zones.
- Early steps by the Ministry of Finance toward compliance with the IMF’s Government Financial Statistics Manual (GFSM) are encouraging; successful implementation requires enhanced high-level coordination between the Ministries of Finance and National Economy.
- IMF stands ready to provide additional TA in these areas.
Structural reforms, privatization, and growth agenda
- Privatization and investment:
- Authorities announced large-scale privatization plans; IMF welcomes these initiatives and urges speedy implementation.
- Emphasis on implementing the privatization program competitively to ensure genuine private ownership and control; support for consulting international experts on privatization modalities.
- Longer-term growth-enhancing reforms:
- Steadfast implementation needed of previously-announced reforms to promote private-sector-led growth and attract foreign investment.
- Priority areas include strengthening human capital and institutions, and economic diversification.
- IMF welcomes Kazakhstan’s recent gains under the World Bank’s Doing Business indicators and its upcoming formal accession to the WTO.
IMF staff concluding statement, November 17, 2015.