Kazakhstan: Staff Concluding Statement for the 2024 Article IV Mission
IMF News, October 1, 2024
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- Published: October 1, 2024
Recent developments, outlook, and risks
- IMF mission dates and location: September 18-October 1, 2024, in Astana and Almaty.
- 2024 projections and recent outcomes:
- GDP growth projected by staff at 3.9 percent for 2024, against 5.1 percent in 2023.
- Inflation dropped to 8.4 percent in August and is projected at 8.3 percent by the end of 2024.
- Current account deficit projected at 1.3 percent of GDP for 2024.
- Banking system remains sound overall amidst still high credit growth.
- Outlook and risks:
- Growth would reach 4.8 percent in 2025 driven by continued strong budget spending and the Tengiz oil field expansion.
- Medium-term: non-oil GDP growth would stabilize around 3½ percent, and inflation would gradually decline to 5 percent by 2027-28.
- Downside risks: growth slowdown in major economies; intensification of regional conflicts and secondary sanctions; higher commodity price volatility or CPC pipeline disruptions.
- Domestic risks: delays in implementing infrastructure projects could reduce near-term growth; failure to reintroduce fiscal discipline could fuel renewed inflation pressures and social tensions.
Monetary and exchange rate policy
- Policy stance:
- Monetary policy should remain tight in the coming months.
- The National Bank of Kazakhstan’s prudent approach to reducing the policy rate has contributed to disinflation since its peak in February 2023.
- Pace of disinflation has slowed recently, with high budget spending a contributing factor.
- Domestic demand expected to remain strong, utility tariffs increasing, and inflation still above the NBK’s 5 percent target.
- Recommendations to strengthen policy effectiveness and credibility:
- Increase the NBK’s legal independence, autonomy, transparency, and accountability.
- Refrain from intervening in the foreign exchange market in the absence of disorderly market conditions.
- Continue commitment to exchange rate flexibility.
Financial sector stability
- Progress and remaining gaps:
- December 2023: a detailed roadmap approved building on 2023 Financial Sector Assessment Program recommendations.
- Institutional independence of the regulatory agency (ARDFM) reinforced; enhancements to consolidated and risk-based supervision underway.
- New macroprudential policy tools introduced; NBK’s mandate strengthened.
- Data gaps persist for assessing household-sector vulnerabilities given rapid retail lending growth.
- Expanding AIFC’s domestic activities raises risks of regulatory fragmentation; safeguards should be introduced to limit these risks.
- Bank resolution:
- Need to introduce a fully-fledged framework for bank resolution, including strong interagency coordination, to limit the risk of bank bailouts by the state.
- Resolution tools and powers aligned with best international practices should be introduced.
- ARDFM should secure sufficient resources to deliver on its mandate as bank resolution agency.
- Establish clear collaboration mechanisms among ARDFM, NBK, Ministry of Finance, and Ministry of National Economy for resolving distressed banks.
Fiscal policy
- Concerns and drivers:
- Recurrent fiscal underperformance is a growing concern, leading to over-reliance on National Fund resources.
- Government’s commitment to fiscal consolidation undermined by inadequate budget planning and lower-than-expected tax revenues in recent years.
- Introduction of a new tax code is a major opportunity to enhance non-oil revenues, including by eliminating distortive tax exemptions and raising the value-added tax rate; its adoption has been delayed.
- Delays raise risks of persistent large deficit, further reliance on NF financing, and procyclical fiscal policy until at least 2025.
- Urgent actions and reforms recommended:
- Improve macro-fiscal projections to underpin medium-term fiscal consolidation plans.
- Make the fiscal framework more rules-based and transparent.
- Create an independent fiscal council and implement stricter escape clauses than provided for under the revised budget code to limit discretionary spending.
- Align public sector statistics with international standards; limit quasi-fiscal, off-budget activities of numerous public entities (e.g., state-owned enterprises) to enhance monitoring, evaluation, and efficiency of public spending programs.
Structural reforms and climate policy
- Structural reform priorities:
- Reduce the state footprint, including restructuring and privatizing state-owned enterprises to promote competition and private sector development.
- Strengthen public governance: improve anti-corruption laws regarding asset disclosure, liability for corruption, and judicial independence and integrity.
- Liberalize labor and product markets, diversify trade and integrate in global value chains, invest in human capital, eliminate external restrictions, and upgrade infrastructure.
- Implement reforms laid out in the 2024 presidential decree on economic liberalization.
- Climate-related recommendations:
- More comprehensive climate policies needed after climate risks materialized through catastrophic floods.
- Carbon price in Kazakhstan is among the lowest in the word; ongoing increases in domestic energy prices are welcome.
- A more effective emission trading system should help reduce carbon emissions, generate public revenues, and support transition to a low-carbon economy.
- Under the national strategy for carbon neutrality, progress is underway to improve incentives for investment in renewable energy, but more ambitious policies are needed for fossil fuel subsidy reforms, adaptation measures, and addressing transition and physical risks in the financial sector.
Key statistics (Table 1: Selected Economic Indicators, 2022–26)
- GDP (Percent)
- Real GDP: 3.2 (2022); 5.1 (2023); 3.9 (2024 proj); 4.8 (2025 proj)
- Real Oil GDP: -1.7 (2022); 7.0 (2023); 0.1 (2024 proj); 7.9 (2025 proj); 4.4 (2026 proj)
- Real Non-Oil GDP: 4.6 (2022); 4.9 (2023); 4.0 (2024 proj); 3.8 (2025 proj)
- Inflation
- Headline (EOP): 20.4 (2022); 9.7 (2023); 8.3 (2024 proj); 6.9 (2025 proj); 6.0 (2026 proj)
- General government fiscal accounts (Percent of GDP)
- Revenues and grants: 21.8 (2022); 21.7 (2023); 19.2 (2024 proj); 18.6 (2025 proj); 19.1 (2026 proj)
- Oil revenues: 8.0 (2022); 5.7 (2023); 5.9 (2024 proj); 5.8 (2025 proj); 5.2 (2026 proj)
- Non-oil revenues 1/: 13.8 (2022); 16.0 (2023); 13.3 (2024 proj); 12.8 (2025 proj); 13.9 (2026 proj)
- Expenditures and net lending: 23.2 (2022); 22.1 (2023); 21.2 (2024 proj)
- Overall fiscal balance: -1.5 (2022); -2.9 (2023); -3.1 (2024 proj); -2.2 (2025 proj)
- Non-oil fiscal balance: -7.9 (2022); -7.2 (2023); -8.7 (2024 proj); -8.9 (2025 proj); -7.4 (2026 proj)
- Gross public debt: 23.5 (2022); 22.8 (2023); 24.3 (2024 proj); 25.8 (2025 proj); 28.6 (2026 proj)
- Net public debt: -1.2 (2022); 2.9 (2023); 4.5 (2024 proj)
- Monetary accounts
- Reserve money: 11.4 (2022); 11.6 (2023); 11.9 (2024 proj); 12.0 (2025 proj); 11.5 (2026 proj)
- Broad money: 33.1 (2022); 34.0 (2023); 34.6 (2024 proj); 35.0 (2025 proj); 35.4 (2026 proj)
- Credit to the private sector: 22.7 (2022); 24.1 (2023); 25.0 (2024 proj); 26.1 (2025 proj)
- Balance of payments
- Current account balance: 3.1 (2022); -3.3 (2023); -1.3 (2024 proj); -2.3 (2025 proj); -2.4 (2026 proj)
- Financial account balance 2/: 2.6 (2022); -0.6 (2023); -2.6 (2024 proj); -3.0 (2025 proj); -2.5 (2026 proj)
- Exchange rates
- Exchange rate KZT/USD (EOP): 461.0 (2022); 453.6 (2023)
- Memorandum items
- Reserves Assets (USD billion): 35.1 (2022); 35.9 (2023); 40.2 (2024 proj); 43.2 (2025 proj); 44.5 (2026 proj)
- In months of following year imports of G&S: 6.5 (2022); 6.7 (2023); 6.6 (2024 proj)
- NFRK assets (percent of GDP): 24.7 (2022); 21.5 (2023); 21.3 (2024 proj); 22.9 (2025 proj)
- External debt (percent of GDP): 71.2 (2022); 61.3 (2023); 58.4 (2024 proj); 58.1 (2025 proj); 57.0 (2026 proj)
- NBK policy rate (EOP, percent): 16.8 (2022); 16.6 (2023)
- Crude oil and gas cond. prod. (million tons) 3/: 84.2 (2022); 90.0 (2023); 90.3 (2024 proj); 97.3 (2025 proj); 101.5 (2026 proj)
- Unemployment rate (AVG, percent): 4.7 (2022)
- Notes:
- 1/ Non-oil revenue in 2023 includes a one-off dividend from Samruk-Kazyna of 1.1 percent of GDP and in 2024 includes a one-off dividend from Kazatomprom of 0.4 percent of GDP from the sale of shares to the NFRK.
- 2/ Excluding reserve movements.
- 3/ Based on a conversion factor of 7.5 barrels of oil per ton.
Staff Concluding Statement: Kazakhstan: Staff Concluding Statement for the 2024 Article IV Mission, October 1, 2024.