Kazakhstan: Staff Concluding Statement of the 2023 Article IV Mission
IMF News, November 21, 2023
Source details
- Canonical URL
- Kazakhstan: Staff Concluding Statement of the 2023 Article IV Mission
Other formats
Bibliographic details
- Published: November 21, 2023
Recent developments, outlook, and risks
- GDP growth projected at 4.8 percent for 2023, driven by both the oil and non-oil sectors.
- Inflation peaked at 21 percent in February 2023 and is projected at about 10 percent by the end of 2023.
- Current account deficit projected at 3½ percent of GDP for 2023.
- Real wage growth has stabilized following sharp increases in the last two years.
- Strong credit growth has supported activity.
- Growth projection: 3.1 percent in 2024, mostly due to delay in the Tengiz oil field expansion.
- Medium-term non-oil GDP growth would stabilize at around 3½ percent.
- Inflation expected to ease gradually to reach 5 percent by 2025-26.
- Downside risks: oil price declines, oil export disruptions, slow growth in trading partners, spillovers from the war in Ukraine, geopolitical fragmentation including through secondary sanctions, potential social tensions, and climate-related risks from rapid global decarbonization.
- Upside risks: accelerated reform implementation, immigration of skilled labor and relocation of foreign firms to Kazakhstan, and higher oil prices.
Monetary and exchange rate policy
- Recommendation: maintain a prudent monetary policy stance amid persistent inflation pressures; monetary policy should not be relaxed prematurely i.e., before inflation is close to target and inflation expectations are well anchored.
- Tight monetary policy since late 2022, together with lower global food prices, has helped reduce price pressures.
- NBK has improved transparency by better communicating decisions and publishing quarterly inflation forecasts.
- Additional measures to strengthen effectiveness and credibility:
- Eliminate quasi-fiscal activities (e.g., subsidized loans).
- Avoid perceptions of political influence on the policy rate level.
- Secure greater personal independence for senior NBK officials.
Financial sector stability
- The banking system remains sound overall in 2023 with strong average capitalization, profitability, and liquidity positions, though heterogeneity exists across banks in capital and liquidity buffers, credit risk exposures, and asset quality.
- Dollarization of loans and deposits has decreased further.
- Continued progress in implementing risk-based supervision.
- Key 2023 FSAP-identified reforms:
- Crisis preparedness: enhance crisis management and bank resolution frameworks; reinforce independence of the resolution authority (ARDFM); strengthen ARDFM resolution tools and powers; secure ARDFM resources and capacity.
- Financial sector oversight: increase independence, legal protection, and resources for the ARDFM; support systemic risk monitoring and effective supervision on a consolidated basis covering related party transactions; close data gaps and integrate top-down stress testing to upgrade the macroprudential framework.
- Institutional responsibilities: clearly delineate financial oversight and crisis resolution mandates among ARDFM, NBK, Ministry of Finance, and Ministry of National Economy to improve inter-agency collaboration and policy effectiveness.
- Caution on AIFC: expanding AIFC activities with residents would raise risks of financial spillovers and regulatory fragmentation; introduce appropriate safeguards ex-ante to limit these risks.
Fiscal policy
- Government commitment to fiscal consolidation is welcome and should be underpinned by more conservative economic projections and specific reform plans.
- Target: reduce the non-oil deficit to 5 percent of GDP by 2030 to support disinflation and preserve large fiscal buffers.
- Current consolidation projections are predicated on optimistic growth and spending assumptions; concrete measures have yet to be articulated.
- New tax code under preparation presents an opportunity to enhance non-oil revenues; mission welcomed several proposed reforms including:
- an increased VAT rate,
- a progressive personal income tax,
- elimination of distortive tax exemptions and incentives.
- Room to strengthen revenue administration, including addressing taxpayer compliance risks.
- Stronger public institutions would improve fiscal credibility; mission welcomed a new budget code under preparation including measures to increase budget autonomy and clarity for government units and to report on tax expenditures and National Fund of the Republic of Kazakhstan (NFRK) activities.
- Areas for further progress: public sector data quality and transparency in the natural resources sector.
- Concern: activities of numerous public entities have weakened fiscal accountability, exemplified by the NFRK’s purchase of KazMunayGas shares used to generate fiscal revenues.
- Recommendation: reinstate fiscal rules in 2024; simplify and better enforce them through creation of an independent fiscal council and stronger escape clauses to limit discretionary spending (including transfers from the NFRK).
Structural reforms
- Priority: reduce and refocus the role of the state to bolster future economic growth; downsizing the state footprint would promote competition and private sector participation.
- Encouraging: announced resumption of privatizations in 2024.
- Strengthen public governance and reduce corruption-related vulnerabilities to deliver large growth benefits and increase the impact of other reforms.
- Increase financial inclusion for small and medium-size enterprises by refocusing state interventions, streamlining large-scale loan subsidy programs, and improving credit market infrastructure (collateral and insolvency frameworks).
- Digital Tenge: expected to contribute to higher financial inclusion; further analyses of macroeconomic and financial stability implications desirable as it is implemented.
- Broader business environment reforms needed to facilitate private sector-led diversification: address obstacles to efficient labor allocation and productivity, education and skill mismatches, market contestability, tariffs and price controls that discourage investment (including FDI).
- Transport infrastructure upgrades would help develop new value chains; authorities’ efforts to diversify trade partners, routes and hubs were welcomed.
Climate policy and social safety nets
- Climate policy: adoption of a national strategy for carbon neutrality in early 2023; planned increases in domestic energy prices will help reduce carbon emissions, generate public revenues, and support transition to a low-carbon global economy.
- Further actions needed: accelerate reforms to increase domestic energy efficiency standards and develop renewable energy sources; monitor and manage large exposures to climate-related risks in the financial sector.
- Social safety nets: poverty levels are comparatively low, but targeting can be strengthened toward informal workers and through means testing; improve monitoring of social program outcomes.
- Opportunities: implementation of a new social code and increased reliance on comprehensive digital platforms to advance social protection.
Key statistics (Selected Economic Indicators, 2021–25)
- Real GDP growth (%): 2021: 4.3; 2022: 3.2; 2023: 4.8; 2024 (proj.): 3.1; 2025 (proj.): 5.7
- Real oil growth (%): 2021: -0.6; 2022: -1.7; 2023: 7.1; 2024 (proj.): 0.1; 2025 (proj.): 14.4
- Real non-oil growth (%): 2021: 5.5; 2022: 4.7; 2023: 4.2; 2024 (proj.): 3.9; 2025 (proj.): 3.4
- Crude oil and gas condensate production (million tons): 2021: 85.7; 2022: 84.2; 2023: 90.0; 2024 (proj.): 90.3; 2025 (proj.): 103.0
- Unemployment (%): 2021: 4.9
- Inflation (eop, %): 2021: 8.4; 2022: 20.3; 2023: 10.2; 2024 (proj.): 7.7; 2025 (proj.): 6.2
- Revenue (% GDP): 2021: 17.1; 2022: 21.8; 2023: 23.1; 2024 (proj.): 20.7; 2025 (proj.): 20.6
- Oil revenue (% GDP): 2021: 8.0; 2022: 6.4; 2023: 5.3; 2024 (proj.): 5.4
- Non-oil revenue (% GDP): 2021: 12.9; 2022: 13.8; 2023: 16.7; 2024 (proj.): 15.4; 2025 (proj.): 15.1
- Expenditures (% GDP): 2021: 22.1; 2022: 21.7; 2023: 22.9; 2024 (proj.): 21.5
- Fiscal balance (% GDP): 2021: -5.0; 2022: -1.2; 2023: -0.9
- Non-oil fiscal balance (% GDP): 2021: -9.3; 2022: -7.9; 2023: -6.3; 2024 (proj.): -6.4
- Gross public debt (% GDP): 2021: 25.1; 2022: 23.5; 2023: 22.7; 2024 (proj.): 23.0
- Net public debt (% GDP): 2021: -3.0; 2022: -1.0; 2023: -0.4; 2024 (proj.): -0.1
- Broad money (% change): 2021: 20.8; 2022: 13.9; 2023: 16.4; 2024 (proj.): 17.3; 2025 (proj.): 14.0
- Credit to the private sector (% GDP): 2021: 24.4; 2022: 17.0; 2023: 18.2
- NBK policy rate (%, eop): 2021: 9.8; 2022: 16.8; 2023: …
- Current account (% GDP): 2021: -1.4; 2022: -3.5; 2023: -3.9; 2024 (proj.): -2.3
- Net foreign direct investments (% GDP): 2021: -3.6; 2022: -3.4; 2023: -3.3
- NBK reserves (in months of next year's imports of G&S): 2021: 6.9; 2022: 5.9; 2023: 6.0; 2024 (proj.): 5.8
- NFRK assets (in billions of US dollars): 2021: 55.3; 2022: 55.7; 2023: 60.6; 2024 (proj.): 66.1; 2025 (proj.): 76.2
- External debt (% GDP): 2021: 83.3; 2022: 71.7; 2023: 65.6; 2024 (proj.): 61.7; 2025 (proj.): 58.7
- Real effective exchange rate (eop, percent change) (+ appreciation): 2021: -1.3; 2022: 0.4
Source: IMF staff concluding statement of the 2023 Article IV mission to Kazakhstan (November 7–21, 2023).