ASTANA – An International Monetary Fund (IMF) mission in Kazakhstan recently commended the state’s actions to advance the economy’s potential through additional fiscal stimulus from the National Fund and multilateral development banks, modernising physical infrastructure, promoting private sector development and reviving the financial sector.
TheIMF mission, led by Hossein Samiei,a division chief at the organisation’s Middle East and Central Asiadepartment, released the concluding statement on Kazakhstan’s economy for 2014 at the end of the Dec. 3-8 visit to Astana and Almaty to review economic and financial sector developments and policies.
The statement, published Dec. 9, determined external and internal challenges faced by the economy this year which affected the final data. Among external challenges, weaker domestic and external demand (especially from Russia, China and Europe), continued regional uncertainty and falling oil prices were underlined. As a result, economic growth slowed down from 6.0 percent in 2013 to a projected 4.3 percent in 2014. At the same time, heightened external risks increased the urgency of ongoing efforts to bolster financial sector resilience, as the large stock of non-performing loans (NPLs) remained a serious burden on banks’ ability to properly intermediate credit.
The statement commended recent legislative amendments in the tax regime aimed at easing NPL resolution and recapitalisation of the Problem Loan Fund. It also called for authorities to follow through expeditiously with their plans to attain the end-2015 NPL target of 10 percent, which will hinge on a successful reduction of the Kazkommertsbank-BTA’s nonperforming loans. It also insisted on full implementation of the IMF’s Financial Sector Assessment Programme (FSAP) recommendations, including closely monitoring systemic risks with greater emphasis on risk-based supervision and conducting a banking asset quality review.
In light of declining oil prices and increased spending from Kazakhstan’s National Fund, the statement emphasised that while strengthening the fiscal policy framework remained a priority, it was essential to focus on extending the budget coverage to all fiscal activity, including those related to the National Fund, and improve the budget integration within the broader macroeconomic framework.
The statement also commended the augmented fiscal stimulus financed from the National Fund and multilateral development banks (MDBs). According to IMF’s estimations, it could total up to 7 percent of the GDP over the next three to five years and is expected to increase the economy’s potential through modernising physical infrastructures, promoting private sector development and reviving the financial sector.
At the same time, the report highlighted the need for a strong and sustained government commitment to ensuring fiscal sustainability and macro stability. That included the authorities’ assurances of avoiding a pro-cyclical bias over the medium term, such as by conditioning spending in 2017 on economic performance in the prior two years and guaranteeing high-quality spending through improved project appraisal and procurement policy with help from multilateral development banks (MDBs).
Referring to the National Bank’s plans to overhaul its monetary policy framework and operations, the statement underlined that the medium-term objective should be to adopt an inflation-targeting framework. It stated that the policy rate should allow for greater exchange rate fluctuations within the existing band, as well as widening of the band over time. To anchor expectations about policy intentions and operations, it was also critical to actively communicate the transition plans, including by expeditiously publishing the monetary policy guidelines for 2015-16. The IMF staff also confirmed its willingness to provide further technical assistance in all these areas.
To assist Kazakhstan in expanding its role in the international arena and furthering economic cooperation, especially while joining the Eurasian Economic Union to be launched in January 2015, extending cooperation with the Organisation for Economic Cooperation and Development (OECD) and the European Union and finalising World Trade Organisation (WTO) accession, the IMF mission stressed the necessity to conduct structural reforms aimed at improving the business climate, promoting job creation, bolstering human capital and institutions and reducing state intervention in the economy.