{
  "title": "Kazakhstan Staff Concluding Statement of the 2021 Article IV Mission",
  "publication": "IMF News, November 17, 2021",
  "sourceUrl": "https://www.imf.org/en/news/articles/2021/11/17/kazakhstan-staff-concluding-statement-of-the-2021-article-iv-mission",
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  "summary": "Kazakhstan’s economy contracted by 2.5 percent in 2020 due to reduced oil production and domestic activity.",
  "publishDate": "2021-11-17",
  "sections": [
    {
      "heading": "Recent developments, outlook, and risks",
      "content": "- Kazakhstan’s economy contracted by 2.5 percent in 2020 due to reduced oil production and domestic activity.\n- Real GDP growth in 2021 through October was 3.5 percent, returning output to its pre-Covid level.\n- Inflation exceeded the NBK target band (4-6 percent) and stood at 8.9 percent in October, driven mostly by food prices.\n- Credit growth accelerated to 16 percent in September 2021, reflecting rapid growth in consumer lending and large state support programs.\n- Unemployment remained stable at about 5 percent.\n- Authorities’ policy response included: regulating prices for socially important goods; cash transfers to vulnerable households; targeted assistance to hard-hit sectors and SMEs (including subsidized lending and tax exemptions); “Employment Roadmap” projects; accommodative monetary policy after an early 2020 rate increase; eased regulatory and prudential bank requirements and encouragement of loan repayment deferrals.\n- Outlook: Growth should reach 3.7 percent in 2021 and converge to potential (4 percent for the non-oil sector) over the medium term.\n- Inflation may remain elevated in the near term but should ease towards the NBK’s target band in late 2022.\n- After improvement in 2021 due to favorable commodity prices, the current account would gradually return to a deficit of about 3 percent of GDP in the medium term.\n- Main downside risks: lower-than-expected vaccination rates, slower growth of trading partners, lower oil prices, and persistent inflationary pressure potentially requiring further monetary tightening.\n- Main upside risk: higher-than-expected oil prices strengthening buffers."
    },
    {
      "heading": "Monetary and exchange rate policy",
      "content": "- Further monetary policy tightening may be needed in the short term to contain inflation.\n- Headline inflation and inflation expectations rose well above target during 2020–2021 due to rising international food prices, pent-up domestic demand, and imported inflation.\n- Gradual increases in the policy rate in recent months were warranted; further tightening may be necessary to anchor inflation expectations.\n- Given weaknesses in monetary transmission, coordinated monetary and fiscal implementation and government initiatives to mitigate domestic supply chain disruptions should help curb inflation.\n- Progress toward full-fledged inflation targeting includes:\n  - Policy transparency: publication of the NFRK’s FX transactions and increased communication.\n  - Policy independence: new Monetary Policy Committee and NBK’s planned exit from subsidized credit programs.\n  - Enhanced analytical capacity to inform policy decisions.\n- Further steps needed: develop domestic capital markets, reduce dollarization, coordinate with fiscal policy, manage excess bank liquidity, eliminate non-core mandates and quasi-fiscal activities of the NBK, and improve regular surveys of inflation expectations."
    },
    {
      "heading": "Financial sector stability",
      "content": "- Financial sector policy should balance supporting recovery and safeguarding stability.\n- Following the 2019 asset quality review and supervisory interventions, the banking system has weathered the COVID shock; bank profitability, liquidity and capitalization remained strong.\n- Authorities plan to unwind most anti-crisis regulatory measures by end-2021; careful monitoring of new risks is needed, including fast-growing consumer lending which may require targeted macroprudential measures to prevent excessive household debt build-up.\n- Recent efforts to strengthen financial oversight:\n  - Creation of a financial regulatory agency (ARDFM) building capacity to align with international standards.\n  - Introduction of regular asset quality reviews and stress tests in collaboration with financial institutions.\n  - Need for close cooperation between ARDFM and NBK, clearer accountability, and more formalized information-exchange protocols.\n- Bank resolution framework:\n  - Upgraded in 2019 with special resolution tools introduced, but mandate and scope of the resolution authority could be clarified further; staff should be granted stronger legal protection.\n  - ARDFM revoked licenses of several small banks and relied on court-based liquidation procedures, signaling changes in policy implementation and manager responsibilities.\n  - Ongoing efforts to develop a distressed asset market are welcome.\n  - Continued efforts are needed to strengthen the resolution framework for effective and orderly resolution of failing banks.\n- The next FSAP for Kazakhstan, expected in 2022, will be an opportunity to fully assess the financial stability framework."
    },
    {
      "heading": "Fiscal policy and framework",
      "content": "- Kazakhstan used substantial buffers to cushion the pandemic’s impact.\n- Projected non-oil fiscal deficit for 2021 is 8½ percent of GDP, striking a balance between prudence and targeted support.\n- Government net financial assets projected to decline to 5 percent of GDP by end-2021 from 14 percent of GDP in 2019.\n- Authorities plan to reduce the non-oil deficit to 6 percent of GDP by 2025, requiring an additional adjustment of 1-2 percent of GDP to remain a net creditor and foster intergenerational equity.\n- Medium-term consolidation options include:\n  - Increasing non-oil revenues to avoid undue spending cuts.\n  - Strengthening revenue administration, reducing informality, promoting digitalization.\n  - Broaden tax base (e.g., streamline CIT exemptions, tax capital income), raise tax rates (e.g., VAT rates), introduce a progressive income tax and possibly a carbon tax consistent with the Paris agreement.\n  - Increase public expenditure efficiency via detailed performance reviews, streamline public employment, and improve civil service efficiency.\n- Fiscal rules: authorities’ goal to introduce new fiscal rules is welcome; recommended features:\n  - Simple, easy-to-monitor set of rules.\n  - Long-term anchor preserving positive net financial assets for the public sector.\n  - Complementary limit on the non-oil deficit as a share of non-oil GDP, or on government expenditure growth.\n  - Incorporate escape clauses for flexibility.\n  - Create an independent fiscal council to monitor implementation.\n- Fiscal framework and transparency:\n  - Fiscal rules should apply to a broad definition of fiscal accounts, encompassing the general government.\n  - Managing fiscal risks is essential; preparations of the first annual Fiscal Risks Statement (FRS) are welcome and should cover quasi-government entities.\n  - Public debt reporting should be expanded to cover substantial quasi-government debt.\n  - These efforts would benefit from a Fiscal Transparency Evaluation (FTE) by the IMF."
    },
    {
      "heading": "Structural reforms",
      "content": "- Long-term growth, resilience, and sustainability require greater economic diversification away from natural-resource reliance in the transition to a low-carbon global economy.\n- Reform plans articulated in 10 National Projects (supporting agriculture and non-carbon sectors, promoting entrepreneurship, improving access to social services) will support the transition; prioritization is essential given multiple challenges.\n- Private sector development requires public sector transformation:\n  - Reevaluate the rationale for state-owned enterprises (SOEs).\n  - Enhance SOE risk management, governance, and transparency.\n  - Authorities’ plan to resume privatizations post-COVID is welcome.\n  - Creation of an independent competition agency is promising to reduce barriers to market access, trade, and investment.\n- Governance and anti-corruption:\n  - Continue focus on governance and anti-corruption reforms with measurable benchmarks to monitor the 2015–25 National Anti-Corruption Strategy.\n  - Digitalization of tax and customs administration will enhance public spending control.\n  - Amended public procurement law requires disclosure of beneficial ownership of entities contracting with the government to support transparency and competition.\n  - New asset declaration law has entered into force and can help fight corruption if properly implemented.\n  - Further efforts needed to align AML/CFT regime with international standards and improve efficacy in fighting corruption.\n- Climate commitments and transition:\n  - Authorities committed to carbon neutrality by 2060.\n  - Challenges: large hydrocarbon sector, reliance on coal, high per-capita greenhouse gas emissions.\n  - Need to identify specific actions to meet goals and prepare for the transition to a low-carbon world.\n  - Incorporate costs of required public investments into macroeconomic and fiscal frameworks.\n  - Raise the price of carbon, including by gradually eliminating substantial energy subsidies, to align incentives and finance a just transition.\n  - Proceed gradually to allow development of social safety nets and provide room for private-sector structural transformation."
    },
    {
      "heading": "Kazakhstan: Selected Economic Indicators, 2019–23",
      "content": "- Real GDP growth (%): 2019: 4.5; 2020: -2.5; 2021 (est.): 3.7; 2022 (proj.): 3.9; 2023: 3.1\n- Real oil: 2019: 0.1; 2020: -4.7; 2021 (est.): 0.5; 2022 (proj.): 1.6; 2023: 0.0\n- Real non-oil: 2019: 5.9; 2020: -1.8; 2021 (est.): 4.6; 2022 (proj.): 4.0\n- Crude oil and gas condensate production (million tons): 2019: 90; 2020: 86; 2021: 88\n- Unemployment (%): 2019: 4.8; 2020: 4.9; 2021: 4.7\n- Inflation (%): 2019: 5.4; 2020: 7.5; 2021 (est.): 8.5; 2022 (proj.): 6.0\n- General government revenue (% GDP): 2019: 19.7; 2020: 17.5; 2021 (est.): 18.8; 2022 (proj.): 19.3\n  - Of which: oil revenue: 2019: 6.9; 2020: 3.4; 2021 (est.): 6.3; 2022 (proj.): 5.8\n- General government expenditures (% GDP): 2019: 20.3; 2020: 24.6; 2021 (est.): 21.4; 2022 (proj.): 20.4; 2023: 20.0\n- Fiscal balance (% GDP): 2019: -0.6; 2020: -7.1; 2021 (est.): -2.6; 2022 (proj.): -1.0; 2023: -0.7\n- Non-oil fiscal balance (% GDP): 2019: -7.5; 2020: -10.5; 2021 (est.): -8.7; 2022 (proj.): -7.3; 2023: -6.5\n- Gross public debt (% GDP): 2019: 19.9; 2020: 26.4; 2021 (est.): 24.7; 2022 (proj.): 25.7; 2023: 27.5\n- Broad money (% change): 2019: 2.4; 2020: 16.9; 2021 (est.): 13.4; 2022 (proj.): 10.5; 2023: 9.5\n- Credit to the private sector (% GDP): 2019: 21.3; 2020: 22.0; 2021 (est.): 20.9; 2022 (proj.): 21.1\n- NBK policy rate (%, eop): 2019: 9.3; 2020: 9.0; 2021: …\n- Current account (% GDP): 2019: -4.0; 2020: -3.8; 2021 (est.): -0.9; 2022 (proj.): -1.4\n- Net foreign direct investments (% GDP): 2019: -3.2; 2020: -3.5; 2021 (est.): -2.3\n- NBK reserves (in months of next year's imports of G&S): 2019: 7.7; 2020: 8.4; 2021 (est.): 8.3; 2022 (proj.): 8.1\n- NFRK assets (in months of next year's imports of G&S): 2019: 16.4; 2020: 14.0; 2021 (est.): 13.6; 2022 (proj.): 14.1; 2023: 14.4\n- External debt (% GDP): 2019: 87.6; 2020: 96.0; 2021 (est.): 83.0; 2022 (proj.): 79.5; 2023: 77.5\n- Exchange rate (y-o-y percent chage; Tenge per U.S. dollar; eop): 2019: -0.8; 2020: 10.4\n\nStaff Concluding Statement of the 2021 Article IV Mission for Kazakhstan, November 17, 2021.\n\n---\n\n\n References\n\n- Republic of Kazakhstan and the IMF\n- IMF Policy Advice -- A Factsheet\n- The IMF and Good Governance -- 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/2021/11/17/kazakhstan-staff-concluding-statement-of-the-2021-article-iv-mission"
    }
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    "Published: November 17, 2021",
    "Kazakhstan’s economy contracted by 2.5 percent in 2020 due to reduced oil production and domestic activity.",
    "Real GDP growth in 2021 through October was 3.5 percent, returning output to its pre-Covid level.",
    "Inflation exceeded the NBK target band (4-6 percent) and stood at 8.9 percent in October, driven mostly by food prices.",
    "Credit growth accelerated to 16 percent in September 2021, reflecting rapid growth in consumer lending and large state support programs.",
    "Unemployment remained stable at about 5 percent.",
    "Authorities’ policy response included: regulating prices for socially important goods; cash transfers to vulnerable households; targeted assistance to hard-hit sectors and SMEs (including subsidized lending and tax exemptions); “Employment Roadmap” projects; accommodative monetary policy after an early 2020 rate increase; eased regulatory and prudential bank requirements and encouragement of loan repayment deferrals.",
    "Outlook: Growth should reach 3.7 percent in 2021 and converge to potential (4 percent for the non-oil sector) over the medium term.",
    "Inflation may remain elevated in the near term but should ease towards the NBK’s target band in late 2022.",
    "After improvement in 2021 due to favorable commodity prices, the current account would gradually return to a deficit of about 3 percent of GDP in the medium term.",
    "Main downside risks: lower-than-expected vaccination rates, slower growth of trading partners, lower oil prices, and persistent inflationary pressure potentially requiring further monetary tightening.",
    "Main upside risk: higher-than-expected oil prices strengthening buffers.",
    "Further monetary policy tightening may be needed in the short term to contain inflation.",
    "Headline inflation and inflation expectations rose well above target during 2020–2021 due to rising international food prices, pent-up domestic demand, and imported inflation.",
    "Gradual increases in the policy rate in recent months were warranted; further tightening may be necessary to anchor inflation expectations.",
    "Given weaknesses in monetary transmission, coordinated monetary and fiscal implementation and government initiatives to mitigate domestic supply chain disruptions should help curb inflation.",
    "Progress toward full-fledged inflation targeting includes:",
    "Further steps needed: develop domestic capital markets, reduce dollarization, coordinate with fiscal policy, manage excess bank liquidity, eliminate non-core mandates and quasi-fiscal activities of the NBK, and improve regular surveys of inflation expectations.",
    "Financial sector policy should balance supporting recovery and safeguarding stability.",
    "Following the 2019 asset quality review and supervisory interventions, the banking system has weathered the COVID shock; bank profitability, liquidity and capitalization remained strong.",
    "Authorities plan to unwind most anti-crisis regulatory measures by end-2021; careful monitoring of new risks is needed, including fast-growing consumer lending which may require targeted macroprudential measures to prevent excessive household debt build-up.",
    "Recent efforts to strengthen financial oversight:",
    "Bank resolution framework:",
    "The next FSAP for Kazakhstan, expected in 2022, will be an opportunity to fully assess the financial stability framework.",
    "Kazakhstan used substantial buffers to cushion the pandemic’s impact.",
    "Projected non-oil fiscal deficit for 2021 is 8½ percent of GDP, striking a balance between prudence and targeted support.",
    "Government net financial assets projected to decline to 5 percent of GDP by end-2021 from 14 percent of GDP in 2019.",
    "Authorities plan to reduce the non-oil deficit to 6 percent of GDP by 2025, requiring an additional adjustment of 1-2 percent of GDP to remain a net creditor and foster intergenerational equity.",
    "Medium-term consolidation options include:",
    "Fiscal rules: authorities’ goal to introduce new fiscal rules is welcome; recommended features:",
    "Fiscal framework and transparency:",
    "Long-term growth, resilience, and sustainability require greater economic diversification away from natural-resource reliance in the transition to a low-carbon global economy.",
    "Reform plans articulated in 10 National Projects (supporting agriculture and non-carbon sectors, promoting entrepreneurship, improving access to social services) will support the transition; prioritization is essential given multiple challenges.",
    "Private sector development requires public sector transformation:",
    "Governance and anti-corruption:",
    "Climate commitments and transition:",
    "Real GDP growth (%): 2019: 4.5; 2020: -2.5; 2021 (est.): 3.7; 2022 (proj.): 3.9; 2023: 3.1",
    "Real oil: 2019: 0.1; 2020: -4.7; 2021 (est.): 0.5; 2022 (proj.): 1.6; 2023: 0.0",
    "Real non-oil: 2019: 5.9; 2020: -1.8; 2021 (est.): 4.6; 2022 (proj.): 4.0",
    "Crude oil and gas condensate production (million tons): 2019: 90; 2020: 86; 2021: 88",
    "Unemployment (%): 2019: 4.8; 2020: 4.9; 2021: 4.7",
    "Inflation (%): 2019: 5.4; 2020: 7.5; 2021 (est.): 8.5; 2022 (proj.): 6.0",
    "General government revenue (% GDP): 2019: 19.7; 2020: 17.5; 2021 (est.): 18.8; 2022 (proj.): 19.3",
    "General government expenditures (% GDP): 2019: 20.3; 2020: 24.6; 2021 (est.): 21.4; 2022 (proj.): 20.4; 2023: 20.0",
    "Fiscal balance (% GDP): 2019: -0.6; 2020: -7.1; 2021 (est.): -2.6; 2022 (proj.): -1.0; 2023: -0.7",
    "Non-oil fiscal balance (% GDP): 2019: -7.5; 2020: -10.5; 2021 (est.): -8.7; 2022 (proj.): -7.3; 2023: -6.5",
    "Gross public debt (% GDP): 2019: 19.9; 2020: 26.4; 2021 (est.): 24.7; 2022 (proj.): 25.7; 2023: 27.5",
    "Broad money (% change): 2019: 2.4; 2020: 16.9; 2021 (est.): 13.4; 2022 (proj.): 10.5; 2023: 9.5",
    "Credit to the private sector (% GDP): 2019: 21.3; 2020: 22.0; 2021 (est.): 20.9; 2022 (proj.): 21.1",
    "NBK policy rate (%, eop): 2019: 9.3; 2020: 9.0; 2021: …",
    "Current account (% GDP): 2019: -4.0; 2020: -3.8; 2021 (est.): -0.9; 2022 (proj.): -1.4",
    "Net foreign direct investments (% GDP): 2019: -3.2; 2020: -3.5; 2021 (est.): -2.3",
    "NBK reserves (in months of next year's imports of G&S): 2019: 7.7; 2020: 8.4; 2021 (est.): 8.3; 2022 (proj.): 8.1",
    "NFRK assets (in months of next year's imports of G&S): 2019: 16.4; 2020: 14.0; 2021 (est.): 13.6; 2022 (proj.): 14.1; 2023: 14.4",
    "External debt (% GDP): 2019: 87.6; 2020: 96.0; 2021 (est.): 83.0; 2022 (proj.): 79.5; 2023: 77.5",
    "Exchange rate (y-o-y percent chage; Tenge per U.S. dollar; eop): 2019: -0.8; 2020: 10.4",
    "[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)",
    "[The IMF and Good Governance -- A Factsheet](https://www.imf.org/en/about/factsheets/sheets/2023/the-imf-and-good-governance)",
    "[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)"
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