On July 31, 2015, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with Kazakhstan and considered and endorsed the staff appraisal without a meeting.2
Against the backdrop of external shocks, economic growth and inflation have decelerated, financial conditions have tightened, and external imbalances are emerging. Real GDP growth slowed to an annualized 2 percent during the first quarter of 2015, down from around 4 percent in 2014 and 6 percent in 2013. In addition to weaker external demand, slower growth was driven by the impact of lower income and profitability (resulting from lower oil prices) and confidence effects (reflecting regional developments) on private consumption and domestic investment. The external position has deteriorated largely due to the fall in oil prices, with the current account balance turning negative in the second half of 2014, although there has been some improvement in the current account during the first quarter of 2015. At the same time, Kazakhstan’s real effective exchange rate (REER) has appreciated over the past year, mainly reflecting the depreciation of the ruble and sharp appreciation of the U.S. dollar, against which the tenge is managed. In the face of slowing demand and a more stable exchange rate, headline inflation fell from 7.4 percent year-on-year at end-2014 to 3.9 percent year-on-year at end-June, 2015. In mid-July, following the decline in sovereign spreads and reduced currency pressures, the authorities successfully issued a $4 billion sovereign bond and widened the exchange rate band from 170–188 to 170–198 tenge/dollar.
Washington, D.C. 20431
Real GDP growth is projected to decelerate to 2 percent in 2015. Weaker demand from Russia and China, lower oil prices, confidence effects, and continuing delays in the Kashagan oil field are the main factors behind the projected slowdown. Next year, growth is projected to pick up to 3.25 percent, driven by gradual recovery in oil prices and external demand. Still, the medium-term growth outlook is less favorable than projected last year, given the impact of lower oil prices and continued slow growth in Russia on non-oil potential growth in Kazakhstan.
The fiscal stimulus aimed at supporting growth has led to deterioration in the fiscal accounts, with the overall fiscal surplus falling from 5 percent of GDP in 2013 to 1.7 percent of GDP in 2014. Monetary conditions have tightened, which, together with lower economic activity, have slowed lending activity sharply. At the same time, the NBK has made progress in improving its monetary policy framework and operations, while administrative and prudential measures have succeeded in lowering the level of non-performing loans (NPLs). In line with the 2014 FSAP recommendations, the authorities have started to undertake bottom-up stress tests for banks. The NBK has also initiated discussions with bank supervisors in other jurisdictions to strengthen cross-border supervision. The authorities have embarked on an ambitious structural reform program, bolstered by extensive engagement with the Multilateral Development Banks. In June 2015, Kazakhstan completed negotiations to become a formal member of the WTO.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
The Executive Board takes decisions under its lapse-of-time procedure when the Board agrees that a proposal can be considered without convening formal discussions.