Financial inclusion contributes to growth, strengthening banking system in Kazakhstan, says WB economist

NUR-SULTAN – Attracting foreign investment, developing the private sector and diversifying the economy are important aspects for Kazakhstan’s next stage of development, said World Bank Chief Economist for Europe and Central Asia Asli Demirguc-Kunt in an interview with The Astana Times.

Asli Demirguc-Kunt

“The Astana International Financial Centre will play an important role in being a one-stop shop for bringing investors and also investment opportunities together. In our analysis, we’ve been thinking about the type of foreign investment that needs to come to the country. The investors that are the most important to attract are those that are seeking efficiency – the ones that are looking for competitive advantages in locations and coming and investing in those locations with an eye to exporting new products. These are also the investors that bring the new technology and knowhow. I hope this forum will be a catalyst to be able to also attract some of the best type of foreign investment into the country,” she said.

Demirguc-Kunt spoke about the priorities and important topics at a May 16 roundtable dedicated to the economic policy measures for inclusive growth as part of the Astana Economic Forum (AEF).

“There’s the need to build a much more diversified economy beyond oil and commodities. It is important to move from a public sector dominated model to one that is much more driven by a vibrant competitive private sector and attracting the right type of investment, both, of course, domestically as well as internationally, in order to achieve that. There is a need to reform the financial systems so that the banking system is healthy and also inclusive to provide services to both individuals and small and medium enterprises with the use of technology. Also, it is important to strengthen governance and transparency and reduce corruption in order to ensure these things are achieved,” she noted.

“In the recent economic update, we featured financial inclusion as a very important element of contributing to inclusive growth. I was glad to see that the majority of the finance ministers and central bank governors from the whole of Central Asia and Caucasus emphasised their focus on promoting financial inclusion in their financial sectors at the roundtable. They are either in the process of preparing national financial inclusion strategies or have already launched, as in Russia, and the bank is helping many of these countries with these strategies,” she added.

Demirguc-Kunt noted the forum brought together Kazakh, regional and international experts to exchange ideas, have thought-provoking sessions and contribute to both the thinking and development of the country and the region.

“It’s an excellent forum and it’s been going on for over a decade now. It is a great opportunity to come together and exchange views and identify and focus on priorities and have shared ideas about what the priorities are for the country going forward. And that’s actually exactly what is being achieved,” she said.

According to the World Bank’s Economic Update for Europe and Central Asia, the economic growth in Europe and the Central Asia region slowed to 3.1 percent in 2018 and is projected to decline to 2.1 percent in 2019, amid slowing global growth and uncertain prospects.

“Central Asia has been one of the strongest performing sub-regions in the region. Its performance has been quite strong, with 4.7-percent growth in 2018 and projected to decline to 4.2 and within it Kazakhstan has also performed very robustly at 4.1 percent in 2018, with the projection to go down to 3.5 percent. There are some external risks. There has been a slowing down of the external economy. The euro area has been slowing down, but in general a lot of the large economies in the region – Russia, China, the U.S. – are all sort of projected to go through a slowdown in a fragile recovery. There is certainly the potential trade tensions that generate uncertainty and, if they worsen, this could also generate an even gloomier outlook,” she said.

Demirguc-Kunt noted the most important risks in Kazakhstan are “the potential of a slowdown in the EU (European Union), the sanctions against Russia and the implications for investment and demand for exports, the trade tensions between China and the U.S. and their impact on Chinese investment and growth and therefore demand for Kazakh exports.”

“The countries in the region are all opening up, so there is certainly room for a better sort of connectivity and better coordination in many areas, including exchange rates. There should be better regional coordination on green growth policies and going beyond, adopting what is expected with COP 21 and the relevant set of reductions in greenhouse gas emissions and doing things on the ground and in implementation. The regional coordination and connectivity are extremely important, because Kazakhstan is a landlocked country. The country needs to attract investment to improve connectivity, be it under the Belt and Roads Initiative, in a sustainable way and in a transparent way. That’s also part of the integration and exchange rates that are also parts of that whole thing, ensuring stability and the macro stability of the system as a whole,” she added.

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