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© 2011 International Monetary Fund
June 2011
IMF Country Report No. 11/150
Republic of Kazakhstan: 2011 Article IV Consultation—Staff Report; Supplement; and Public Information Notice
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2011 Article IV consultation with the Republic of Kazakhstan, the following documents have been released and are included in this package:
The staff report for the 2011 Article IV consultation, prepared by a staff team of the IMF, following discussions that ended on May 6, 2011, with the officials of the Republic of Kazakhstan on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on June 1, 2011. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
A staff supplement of June 1, 2011 updating information on recent developments.
A Public Information Notice (PIN) summarizing the views of the Executive Board.
The document listed below has been or will be separately released.
Selected Issues Paper
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
Copies of this report are available to the public from
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International Monetary Fund
Washington, D.C.
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INTERNATIONAL MONETARY FUND
REPUBLIC OF KAZAKHSTAN
STAFF REPORT FOR THE 2011 ARTICLE IV CONSULTATION
June 1, 2011
KEY ISSUES
Medium-term prospects. Removing impediments to trade and investment, building healthy financial institutions, and improving governance will help achieve inclusive and broad-based growth. Developing a comprehensive social safety net will complement these efforts.
Near-term growth outlook. The economy is recovering faster than anticipated, driven primarily by exports of oil and minerals, as well as public spending. The strong recovery is expected to continue in 2011, with growth becoming more balanced.
Recent macroeconomic policies. Consistent with the recommendations of the 2010 Article IV Consultation, the authorities have started a gradual withdrawal of crisis-related stimulus, and the official exchange rate band was abandoned. However, a transparent and comprehensive strategy to resolve banks’ problem loans has not been implemented, and banks continue to be burdened by a large share of impaired assets.
Bank soundness. The authorities’ new plan to reduce problem assets would benefit from a comprehensive forward-looking assessment of asset quality to determine possible recapitalization needs. Proper valuation and accounting of restructured loans, as well as resolution of tax and legal shortcomings, will be crucial to restoring the health of the system.
Inflation pressures. The surge in inflation is mainly driven by rising global food and fuel prices, but planned wage increases also pose risks. Inflation should be closely monitored, and further tightening is likely to be needed. The use of administrative measures to limit price increases should be phased out in favor of targeted assistance to low income groups.
Non-oil deficit reduction. A medium-term fiscal framework, with intermediate targets for non-oil deficit reduction, will be helpful. This framework should reflect the optimal balance between the use and saving of oil revenues, and incorporate the enlarged government, including public and quasi-public enterprises.
Greater exchange rate flexibility. Increased tenge flexibility would enhance the economy’s responsiveness to external shocks and improve monetary policy traction.
Approved by
David Owen and David D. Marston
Article IV Consultation discussions were held on April 26-May 6, 2011 in Astana and Almaty.
Staff Team: A. L. Coronel (head), A. Al-Eyd, and D. Rozhkov (all MCD), N. Raman (SPR), and N. Saker (MCM). D. Owen (MCD reviewer) participated in key meetings. K. Sazanov (OED) joined some discussions.
Contents
RECENT DEVELOPMENTS AND OUTLOOK
A. The Recovery is Gaining Momentum
B. Significant Challenges Persist
C. The Outlook is Broadly Favorable but not Without Risks
POLICY PRIORITIES
A. Financial Sector: Resolution of Problem Loans
B. Fiscal Policy: Consolidation and Transparency
C. Monetary and Exchange Rate Policies: Inflation may Pose a Challenge
D. Achieving Broad-Based and Inclusive Growth over the Medium Term
STAFF APPRAISAL
TABLES
1. Selected Economic Indicators, 2008–16
2 Balance of Payments, 2008–16
3a. General Government Fiscal Operations, 2008–16
3b. Statement of Operations - General Government, 2008–16
4. Monetary Accounts, 2007–2012
5. Selected Prudential Indicators of the Banking Sector, 2007–11
6. Gross Financing Requirements and Financing, 2010– 2012
7. Public Sector Debt Sustainability Framework, 2008–16
8. External Debt Sustainability Framework, 2008–2016
FIGURES
1. Macroeconomic Developments
2. Financial Market Developments
3. Banking Sector Developments
4. External and Fiscal Sector Developments and Outlook
5. Kazakhstan: Public Debt Sustainability: Bound Tests 1/
6. External Debt Sustainability: Bound Tests 1/
BOXES
1. Kazakhstan’s Social Safety Net
2. External Spillover Risks for Kazakhstan
3. New Conceptual Plan to Reduce Problem Loans in Kazakhstan
4. The Role of the Public Sector in Kazakhstan’s Economy
APPENDIX
1. External Stability and Exchange Rate Assessment for Kazakhstan
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INTERNATIONAL MONETARY FUND
REPUBLIC OF KAZAKHSTAN
STAFF REPORT FOR THE 2011 ARTICLE IV CONSULTATION—INFORMATIONAL ANNEX
June 1, 2011
Prepared by
The Middle East and Central Asia Department (In Consultation with Other Departments)
CONTENTS
ANNEX I. RELATIONS WITH THE FUND
ANNEX II. RELATIONS WITH THE WORLD BANK
ANNEX III. RELATIONS WITH THE EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT
ANNEX IV. RELATIONS WITH THE ASIAN DEVELOPMENT BANK
ANNEX V. STATISTICAL ISSUES
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Public Information Notice (PIN) No. 11/77
FOR IMMEDIATE RELEASE
June 17, 2011
International Monetary Fund
700 19th Street, NW
Washington, D. C. 20431 USA
