{ "title": "Kazakhstan: Staff Concluding Statement of the 2018 Article IV Mission", "publication": "IMF News, June 28, 2018", "sourceUrl": "https://www.imf.org/en/news/articles/2018/06/28/ms062818-kazakhstan-staff-concluding-statement-of-the-2018-article-iv-mission", "canonical": "https://www.imf.org/en/news/articles/2018/06/28/ms062818-kazakhstan-staff-concluding-statement-of-the-2018-article-iv-mission", "overlayPath": "/en/news/articles/2018/06/28/ms062818-kazakhstan-staff-concluding-statement-of-the-2018-article-iv-mission/index.md", "summary": "Recovery continues after shocks beginning in 2014; real GDP increased by 4 percent in 2017.", "publishDate": "2018-06-28", "sections": [ { "heading": "Context and outlook", "content": "- Recovery continues after shocks beginning in 2014; real GDP increased by 4 percent in 2017.\n- Growth drivers in 2017: strong exports (oil and metals), new supply from the Kashagan field, mining, manufacturing, and investment.\n- Current account deficit reduced by export growth; inflation has remained within the NBK target band and expectations stabilized.\n- Credit recovery underway: lending to households has picked up more than corporate credit.\n- Growth prospects and risks:\n - Non-oil growth projected to increase to 4 percent over the medium term.\n - Downside risks: commodity prices, reduced reform impulse from higher oil/metal prices, pressures on the tenge, slower growth in Russia or China, tighter/volatile global trade or financial conditions.\n - Upside opportunities: Belt and Road Initiative (BRI) and reforms in Uzbekistan." }, { "heading": "Growth strategy and structural reforms", "content": "- Ongoing initiatives:\n - “100 Concrete Steps” to improve business climate, public administration, and governance; more than half of the steps completed.\n - Small-scale privatization and preparations for IPOs for major SOEs in aviation, telecoms, and nuclear materials.\n - Astana International Financial Center (AIFC) to open in July as a regional financial hub.\n - “Kazakhstan 2025” strategic plan focusing on high-quality growth, productivity, competitiveness, modernization, technical upgrades, and public administration improvements.\n - President Nazarbayev’s “5 Social Initiatives”: affordable housing, lower tax burden for lower-income earners, higher education access/quality, expanded SME financing, and a gas pipeline to Astana.\n- Implementation challenges and priorities:\n - Reduce the state’s footprint to foster a dynamic private sector and avoid cementing a culture of reliance on state subsidies.\n - Emphasize infrastructure modernization (rail, road), performance of state holding companies and SOEs, trade liberalization, competition, land use and agricultural infrastructure, and well-designed public-private partnerships (PPP).\n - Improve coordination among agencies, regular reporting on implementation, and comprehensive evaluation of results." }, { "heading": "Fiscal policy", "content": "- Consolidation underway as countercyclical spending winds down and oil revenues improve; adjustment envisaged this year with lower spending on goods/services and investment.\n- Reform measures affecting public spending:\n - New “capitation” funding approach for health and education service providers.\n - Review of public sector jobs and wage alignment with private-sector remuneration; new performance recognition system.\n - Reduction of transfers from the National Fund (NFRK); consideration of a tenge-denominated Eurobond to attract foreign investors and establish a benchmark.\n- Medium-term fiscal outlook:\n - Non-oil deficit expected to decline toward IMF staff estimates of the sustainable long-term position.\n - Adjustment driven by higher revenues, mainly from tax administration gains (improved VAT administration, enhanced technology).\n- Tax and revenue measures:\n - Recent tax code changes: simplification, clarifying ambiguities, reducing compliance burden, improving dispute resolution.\n - Measures to enhance compliance by small businesses and the self-employed; expand electronic invoicing and filing.\n - As part of the “5 Social Initiatives,” the effective personal income tax rate for low-income earners will be cut from 10 percent to 1 percent.\n - IMF staff view: support for administration and policy measures, but projected revenue gains from tax administration reforms may be ambitious.\n - Considerations: moderate increase of PIT rates for higher-income earners, universal income declaration requirements, review of tax holidays/exemptions/incentives/zones, targeted and time-limited incentives linked to investment, possible moderate VAT rate increase once administrative improvements are in place.\n - Recommendation to consider additional high-quality capital spending in tandem with higher non-oil revenues.\n- Extractive industries fiscal regime revisions:\n - Oil and gas: introduction of an optional, “alternative” tax for deep-water exploration; elimination of discovery bonus; more favorable tax treatment of exploration expenses; licensing round for deep-water areas planned for later this year.\n - Mining: removal of an excess profits tax and increased reliance on regressive ad valorem royalties.\n - Recommendation: comprehensive tax regime review for mining, possibly with IMF technical assistance; increase transparency around contractual arrangements.\n- Fiscal transparency and risk management:\n - Align fiscal reporting with international standards; adopt IMF GFSM methodology.\n - Strengthen risk management for PPPs and SOEs; introduce a more comprehensive and detailed medium-term fiscal framework." }, { "heading": "Monetary and exchange rate policies", "content": "- Monetary policy focus: price stability.\n - NBK interest rate cuts have been undertaken as inflation declined and expectations stabilized; most recent cut to 9 percent in June.\n - Cuts are consistent with keeping real interest rates close to neutral levels; NBK should resist calls for further accommodation given changing balance of risks.\n- Exchange rate regime:\n - Existing flexible exchange rate regime supports inflation targeting, helps absorb macro changes, and supports dedollarization.\n - ER movements reflect fundamentals, including oil prices and Russian ruble dynamics.\n - Recommendation: NBK should strengthen communications and transparency on FX purchases/sales, including on behalf of the NFRK and UAPF.\n- Monetary operations and market development:\n - NBK notes have helped manage liquidity and build the short end of the yield curve; money-market rates have stayed within the NBK corridor, close to the lower bound.\n - Clearstream project to facilitate foreign-investor access and enhance local securities market.\n - Scope to strengthen NBK-government cooperation on liquidity management and market issues, including management of SOE deposits/funds.\n - Review of reserve requirements recommended: consider unifying resident and non-resident reserve requirements, possibly higher rates, remuneration, maintaining differentiated rates for FX and tenge liabilities, and gradual elimination of cash from eligible reserves." }, { "heading": "Financial sector policy", "content": "- Recent sector support and reforms:\n - State-supported merger of Halyk and KKB; five banks received capital support through NBK subordinated loans.\n - NBK has withdrawn/suspended licenses of several smaller banks; legal changes to enhance NBK supervisory/regulatory powers under consideration by parliament.\n- Remaining challenges:\n - Need for banks to adopt strengthened business models with enhanced governance, management, and operations.\n - Weak credit-risk management and problem loans persist in some banks.\n- Priority policy actions:\n - Asset quality and governance:\n - Updated assessment of bank assets to clarify magnitude of possible problem loans, followed by prompt write-off of bad loans.\n - State support should be followed by decisive operational improvements.\n - Strengthening supervision and regulation:\n - Adopt amendments to the Law on the NBK and the Law on Banks and Banking Activity to address regulatory deficiencies.\n - NBK to issue follow-up regulations to formalize broader powers and improve transparency of supervisory judgment.\n - Area for possible IMF technical assistance; improve loan-classification regulations.\n - Emergency liquidity assistance (ELA):\n - Strengthen ELA framework; ELA should be provided only to solvent institutions, collateralized, and—in the IMF staff view—provided under government guarantee.\n - Credit subsidies and state-supported initiatives:\n - Programs such as the “7-20-25” mortgage program and support to SMEs and agriculture should be targeted, transparent, temporary, budget-funded (not NBK-funded), not compromise commercial bank credit assessment, and be rigorously evaluated ex post.\n - With recovery in place, limit state funding and subsidies to avoid cementing reliance on state support; utilize existing agencies where possible.\n - Financial sector infrastructure:\n - Improve collateral valuation, foreclosure, and disposal of distressed assets.\n - Address legal, institutional, and operational constraints affecting the Problem Loan Fund (PLF) to enable resolution of bad assets from the KKB-Halyk merger.\n - UAPF:\n - Pension fund asset management should aim for sound returns with appropriate risk management and transparency, not support fiscal or monetary objectives.\n - Efforts to return part of UAPF assets to non-NBK management with safeguards are welcome.\n - Measures to unlock credit:\n - Policies should foster a dynamic private sector and stronger banks.\n - Some contemplated measures (allowing banks to sell securities connected with past state funding; possible UAPF purchase of commercial bank bonds) could help with appropriate risk-sharing and market terms, but constraints on credit demand limit effectiveness.\n - Recommended focus on reducing dollarization, phasing out loan subsidies, removing interest rate regulations, and strengthening banking sector to improve monetary transmission." }, { "heading": "Concluding remarks", "content": "- With economic recovery gaining strength, Kazakhstan should move decisively with reforms to transform the economy and bring it closer to development goals.\n- Key recommendations: shift growth impetus to the private sector, restore fiscal buffers through consolidation and revenue administration/expenditure optimization, finalize legislative amendments addressing regulatory gaps, conduct bank asset-quality assessments, and ensure any state support is targeted, transparent, temporary, and budget-funded.\n- The IMF staff stands ready to provide additional policy advice and technical assistance.\n\nIMF Communications Department — Staff Concluding Statement of the 2018 Article IV Mission (June 28, 2018).\n\n---\n\n\n References\n\n- Republic of Kazakhstan and the IMF\n- IMF Policy Advice -- A Factsheet\n- Mission Concluding Statements\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2018/06/28/ms062818-kazakhstan-staff-concluding-statement-of-the-2018-article-iv-mission" } ], "bullets": [ "[Markdown version](/en/news/articles/2018/06/28/ms062818-kazakhstan-staff-concluding-statement-of-the-2018-article-iv-mission/index.md)", "[Structured JSON version](/en/news/articles/2018/06/28/ms062818-kazakhstan-staff-concluding-statement-of-the-2018-article-iv-mission/index.json)", "[Bundle manifest](/en/news/articles/2018/06/28/ms062818-kazakhstan-staff-concluding-statement-of-the-2018-article-iv-mission/bundle-manifest.json)", "Published: June 28, 2018", "Recovery continues after shocks beginning in 2014; real GDP increased by 4 percent in 2017.", "Growth drivers in 2017: strong exports (oil and metals), new supply from the Kashagan field, mining, manufacturing, and investment.", "Current account deficit reduced by export growth; inflation has remained within the NBK target band and expectations stabilized.", "Credit recovery underway: lending to households has picked up more than corporate credit.", "Growth prospects and risks:", "Ongoing initiatives:", "Implementation challenges and priorities:", "Consolidation underway as countercyclical spending winds down and oil revenues improve; adjustment envisaged this year with lower spending on goods/services and investment.", "Reform measures affecting public spending:", "Medium-term fiscal outlook:", "Tax and revenue measures:", "Extractive industries fiscal regime revisions:", "Fiscal transparency and risk management:", "Monetary policy focus: price stability.", "Exchange rate regime:", "Monetary operations and market development:", "Recent sector support and reforms:", "Remaining challenges:", "Priority policy actions:", "With economic recovery gaining strength, Kazakhstan should move decisively with reforms to transform the economy and bring it closer to development goals.", "Key recommendations: shift growth impetus to the private sector, restore fiscal buffers through consolidation and revenue administration/expenditure optimization, finalize legislative amendments addressing regulatory gaps, conduct bank asset-quality assessments, and ensure any state support is targeted, transparent, temporary, and budget-funded.", "The IMF staff stands ready to provide additional policy advice and technical assistance.", "[Republic of Kazakhstan and the IMF](http://www.imf.org/external/country/KAZ/index.htm)", "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)", "[Mission Concluding Statements](https://www.imf.org/en/news/searchnews)", "[PRESS CENTER](http://presscenter.imf.org/)", "[https://www.imf.org/en/home](https://www.imf.org/en/home)" ], "alternates": { "markdown": "/en/news/articles/2018/06/28/ms062818-kazakhstan-staff-concluding-statement-of-the-2018-article-iv-mission/index.md", "json": "/en/news/articles/2018/06/28/ms062818-kazakhstan-staff-concluding-statement-of-the-2018-article-iv-mission/index.json", "bundleManifest": "/en/news/articles/2018/06/28/ms062818-kazakhstan-staff-concluding-statement-of-the-2018-article-iv-mission/bundle-manifest.json" }, "generatedAtUtc": "2026-09-25T21:58:20.433Z" }