IMF Staff Concludes Visit to Kazakhstan
IMF News, June 3, 2024
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- Published: June 3, 2024
Economic performance and outlook
- Real GDP expanded by 5.1 percent in 2023.
- Inflation declined to 8.7 percent in April 2024, including as a result of lower international food prices and prudent monetary policy.
- For 2024:
- Growth is projected to moderate to about 3½ percent, supported by robust activity in manufacturing, construction, and services.
- Inflation would be close to 8 percent by the end of the year.
- The current account deficit is expected to narrow to about 3 percent of GDP in 2024.
- Medium-term projections:
- Non-oil GDP growth would be in the 3-3½ percent range, in line with its estimated potential.
- A current account deficit would persist due to lower oil prices.
Downside and upside risks
- Downside external risks:
- Slower than projected growth of trading partners.
- Higher imported inflation pressures.
- Adverse spillovers from the war in Ukraine through trade, foreign investment, and exchange rate channels.
- Lower than projected oil prices.
- Secondary sanctions stemming from transactions with Russia.
- Downside domestic risks:
- Impact of the recent floods.
- Inflation pressures (e.g., from energy and utility tariff increases) that could fuel social tensions and delay reform implementation.
- Upside risks:
- Higher oil prices.
- Higher-than-expected foreign investment in new sectors (e.g., critical minerals, green energies, or information technologies).
Monetary policy
- Assessment:
- Monetary policy has been appropriately tight and should remain so until inflation is close to its 5 percent target.
- Recent action:
- The National Bank of Kazakhstan lowered the policy rate to 14.5 percent on May 31, 2024.
- Constraints and recommendations:
- Room for further rate cuts is constrained by strong domestic demand and the prospect of further energy and utility tariff increases.
- The NBK’s commitment to inflation targeting is commendable and would benefit from further efforts to enhance its institutional independence and the effectiveness of monetary transmission.
Fiscal policy and public finances
- 2023 stance:
- The fiscal stance was expansionary in 2023, with the structural non-oil deficit widening from about 8 to 8.7 percent of GDP due to strong spending growth.
- 2024 outlook and risks:
- For 2024, the fiscal stance is expected to tighten, but revenue shortfalls in early 2024 and the need to address the impact of the recent floods could make this difficult to achieve.
- Policy recommendations:
- The new budget code under preparation should strengthen fiscal rules by establishing strict escape clauses and rule out any discretionary transfers from the National Fund of the Republic of Kazakhstan.
- The forthcoming introduction of a new tax code is an opportunity to raise non-oil revenues; the mission recommends raising the value-added tax rate and accelerating the elimination of onerous tax exemptions.
Financial sector resilience and supervision
- Current conditions:
- The financial sector has maintained strong capital and liquidity levels amid elevated credit growth, especially for consumer lending.
- Progress noted:
- Recent progress in bolstering the independence of the Agency for the Regulation and Development of the Financial Market (ARDFM).
- Strengthening consolidated supervision and the oversight of related party transactions, in line with the 2023 FSAP recommendations.
- Key priorities:
- Develop a robust bank resolution framework and capacity at the ARDFM.
- Strengthen NBK’s macroprudential policy mandate, including coordination with members of the Financial Stability Council.
Structural and climate-related reforms
- Importance:
- Accelerating structural and climate-related reforms is essential to raise future economic growth and diversification.
- Recent measures:
- The recently adopted decree for economic liberalization lays out important goals and steps to reduce the role of the state and increase competition in the economy.
- Policy steps recommended:
- Timely implementation of the decree to bring significant progress.
- Decisive efforts and incentives to promote green energy sources and decarbonization, including through continued energy tariff adjustments, improved functioning of the emissions trading system, and upgraded energy infrastructure.
Mission visit and statement
- Mission dates: May 23-31, 2024.
- Team led by: Nicolas Blancher.
- The IMF team expressed gratitude to the authorities and other counterparts for their cooperation and hospitality.
Source: IMF Press Release No. 24/199, June 3, 2024.