ASTANA — President Kassym-Jomart Tokayev described high inflation as the country’s most pressing challenge in his Sept. 8 address and urged the government and the National Bank to act as one team, a call that underscores the need for balanced coordination, economist Eldar Shamsutdinov told The Astana Times.
“Today, the main problem is high inflation, which erodes economic growth and household incomes. There is no ready-made solution to this issue. Most countries face it, and in essence, it is universal, but in our circumstances, it has taken on a particularly acute form. We need to break out of this macroeconomic vicious circle,” said Tokayev.
“The government and the National Bank must act as one team, recognizing the complexity of a challenge that is national in scale. Now is not the time for a tug-of-war,” he added.
Coordination benefits and risks
Eldar Shamsutdinov. Photo credit: Shamsutdinov’s personal archive
Shamsutdinov said that synchronized efforts are crucial, noting that coordination could help dampen inflationary shocks and improve the effectiveness of monetary policy.
“The benefits are obvious. Aligning fiscal and monetary measures allows faster responses to inflationary impulses. For example, a predictable tariff policy for utilities or fuel would help the National Bank act proactively, shaping market expectations in advance (…) The market adjusts faster when it knows what to expect,” said Shamsutdinov, who also chairs the public council at the Ministry of National Economy
He pointed to inflation’s decline from its peak in 2022 to 12.2% this August, mainly due to monetary tightening. However, Shamsutdinov noted that expanded social spending and rapid growth in consumer and foreign currency lending diluted the effect.
At the same time, he warned of the risk of fiscal dominance, a situation in which government spending overshadows monetary policy and undermines central bank independence. In such cases, the National Bank could be pressured to finance state obligations by purchasing government debt, effectively creating money to cover expenditures.
“Turning the National Bank into a cashier for government expenditures has historically led to hyperinflation. Its independence in setting targets and instruments must remain untouchable,” said Shamsutdinov.
He added that joint government – National Bank programs may be appropriate in crisis periods, such as during the Covid-19 shocks, but should always remain temporary and time-limited.
Policy tools for Kazakhstan
When asked which tools are most effective in Kazakhstan’s context, Shamsutdinov emphasized the need for monetary tightening and fiscal consolidation, while avoiding measures that would hinder growth.
“That means the interest rate should be kept above inflation to support the tenge’s attractiveness and to limit excessive lending. Unfortunately, consumer lending remains a major gap in the current policy, and while higher reserve requirements for banks may help, the growth of consumer loans continues at an alarming pace,” he said.
Shamsutdinov also warned that simplistic budget cuts would risk recession. Instead, fiscal consolidation should involve gradually phasing out broad subsidies and replacing them with targeted, conditional support.
“Universal subsidies and benefits are inherently inflationary. If someone receives a subsidy or tax break, they should deliver something in return, whether that is developing an industry, ensuring food security, or substituting imports. Otherwise, such payments quickly flow into consumption, imports, and price increases,” he said.
Obstacles to unified action
Despite repeated calls for cooperation, systemic and institutional obstacles remain. Shamsutdinov pointed to quasi-fiscal channels, such as state development banks and national welfare funds, which operate outside the official budget and often prioritize growth and employment over price stability.
“This creates a disconnect between fiscal and monetary policy. We saw the effects of tariff freezes in 2018 and 2020, which postponed inflation but resulted in underinvestment and today’s infrastructure problems,” he said.
To address this, he suggested a macro-coordination council to align inflation and gross domestic product growth forecasts across ministries, the National Bank, and state funds.
“Right now, forecasts vary between the Ministry of National Economy, the Agency for Strategic Planning and Reforms, state and quasi-state analytical funds, and the National Bank. These projections should be synchronized, at least temporarily (…) A unified outlook would strengthen confidence and not alarm investors. When different agencies publish divergent projections, it undermines investor confidence,” said Shamsutdinov.
“Every unplanned expense should be offset by cuts elsewhere. The budget should operate as a closed system, without money leaking in or out unexpectedly,” he added.
