2017 ARTICLE IV CONSULTATION—PRESS RELEASE; AND STAFF REPORT
IMF Country Report No. 17/108
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 2017 Article IV consultation with the Republic of Kazakhstan, the following documents have been released and are included in this package:
A Press Release summarizing the views of the Executive Board as expressed during its April 28, 2017 consideration of the staff report that concluded the Article IV consultation with the Republic of Kazakhstan.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on April 28, 2017 following discussions that ended on February 8, 2017, 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 April 13, 2017.
An Informational Annex prepared by the IMF staff.
The documents listed below have been or will be separately released.
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
International Monetary Fund • Publication Services
Context: Kazakhstan continues to withstand challenges from lower oil prices and slower growth in Russia, China, and Europe. While buffers are strong, the shocks exposed vulnerabilities, including dependence on oil and other commodities; gaps in public administration, the business environment, and competitiveness; and long-standing banking weaknesses. The authorities’ response—targeted fiscal support, exchange rate (ER) adjustment, enhanced monetary policy management, and structural reforms focusing on the business climate and the public sector—has stabilized conditions. Growth in 2016 was positive, and a pickup is expected in 2017. Medium-term prospects are subdued, due to continued lower oil prices and conditions in key trading partners. Growth is projected to reach 2.5 percent in 2017 and non-oil growth should reach 4 percent by 2021. This will reflect the implementation of announced reforms, unlocking of bank lending, and a further increase in oil production. Uncertainty is high, given exposure to commodity price developments.
Focus of the consultation and key recommendations: Policies should continue to address the long-lasting challenges of lower oil prices and weaker trading-partner growth. To ensure fiscal sustainability and strong buffers, the non-oil deficit should be reduced gradually over the medium term, with higher non-oil revenues to support sufficient social and capital spending. Monetary policy efforts should further strengthen the inflation-targeting framework, including instruments, ER flexibility, analytics, and communications. Financial sector weaknesses should be addressed promptly, with an independent AQR and any state support subject to strict conditions to limit costs and risks, and actions taken to strengthen the supervisory, regulatory, and resolution frameworks. Implementation of the authorities’ ambitious structural reform agenda should be accelerated and well communicated.
Previous consultation: During the 2015 Article IV consultation, Directors noted that slower growth, tighter financing, and imbalances called for policies to balance alleviating the impact of shocks with maintaining sustainability by: (i) formulating a credible medium-term fiscal consolidation plan, within a more transparent fiscal framework; (ii) greater ER flexibility in tandem with new monetary instruments; and (iii) actions on NPLs, supervision, and regulation to bolster financial stability and resilience. Since then, the authorities have provided large, targeted fiscal support to activity and have outlined ambitious targets for medium-term fiscal consolidation in a new framework for the National Fund (NFRK). They have also made substantial progress in monetary and ER policies and operations and in some elements of the structural reform agenda. Challenges remain, including in fleshing out the medium-term fiscal adjustment strategy, addressing financial sector issues, and advancing structural reforms.
Juha Kähkönen (MCD) and Zeine Zeidane (SPR)
Discussions took place in Astana and Almaty during January 25-February 8, 2017. The staff team comprised Mark A. Horton (head), Rossen Rozenov, Matteo Ghilardi, and Jonah Rosenthal (all MCD), and Lucyna Gornicka (MCM). Randa Elnagar (COM) joined the mission during February 6-8. The mission met with Prime Minister Sagintayev, National Bank Governor Akishev, Minister of Finance Sultanov, and Minister of National Economy Suleimenov, other officials, and the representatives from the private sector, civil society, the diplomatic community, university students, and the mass media. Ms. Bissekeyeva (local IMF office manager) supported the mission, and Mr. Saudabayev (OED) attended the meetings. The authorities agreed to publication of the mission’s concluding statement.
OUTLOOK AND RISKS
A. Fiscal Policy
B. Monetary and Exchange Rate Policy
C. Financial Sector Policies
D. Structural Reforms
1. The New Concept of the National Fund of the Republic of Kazakhstan (NFRK)
2. Kazakhstan—Exposure of the Public Sector to Local Banks