On April 28, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the 2017 Article IV consultation1 with the Republic of Kazakhstan.
After a slowdown in 2016, growth in Kazakhstan is expected to strengthen to 2.5 percent this year, reflecting higher oil production and the effect of substantial fiscal stimulus spending. The sharp exchange rate depreciation in late 2015-early 2016 triggered a surge in consumer prices, but inflation has come down to levels consistent with the National Bank of Kazakhstan’s target range. The medium-term outlook has improved, with growth in the non-oil sector of the economy expected to gradually pick up to 4 percent, benefitting from structural reforms and a resumption of bank lending. Uncertainty, however, is high, as the economy remains vulnerable to commodity price swings and especially to a sustained decline in oil prices.
Fiscal policy in recent years has been supportive of economic activity, mainly through the authorities’ flagship “Nurly Zhol” initiative, which has provided funding to infrastructure, SMEs, and housing. Such support will be reduced going forward, as the authorities move to consolidate. At the end of 2016, the authorities approved a new framework and rules for the National Fund that aim to sustain strong buffers and reduce the dependence of the budget on oil revenues. Also, in the context of transition to inflation targeting, the National Bank (NBK) has strengthened its policy toolkit and improved analytical capacity and communications. The decline in inflation, along with anchoring of expectations, has allowed for a steady reduction of the policy rate.
Notwithstanding progress made, important vulnerabilities remain to be addressed. In particular, problems in the banking sector have accumulated and need to be resolved promptly, as weak balance sheets generate uncertainty, affect credit and growth, and may create risks to public finances. Structural bottlenecks have hindered economic diversification, a prerequisite for achieving broad-based and inclusive growth.
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.
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.