NUR-SULTAN (TCA) — Economic growth in Kazakhstan remains strong, fueled by supportive fiscal policy, oil-and-gas sector investment, and retail lending, the International Monetary Fund (IMF) mission said on November 13 in a concluding statement following its visit to Kazakhstan earlier this month.
The IMF mission visits Kazakhstan twice a year for annual consultations in accordance with Article IV of the IMF Agreement with the country.
Strong growth performance has continued. GDP grew by 4.3 percent in the first three quarters of 2019, led by the non-oil sector, especially construction and services. Preliminary estimates point to acceleration in the third quarter. A pick-up of consumption and continuing investment activity are key drivers. This reflects fiscal support, strong growth in retail lending, and investment projects in oil and gas, the IMF statement said.
Non-oil growth is expected to remain strong going forward, with risks on the down side. Fiscal support will buoy consumption and investment, although non-oil growth will slow to 4 percent. Inflation will remain elevated next year, including as the effect of utility price cuts in 2018 dissipates. The external current account is expected to worsen with continued strong domestic demand and moderate oil prices. The balance of risks is negative, reflecting commodity prices and trade and geopolitical tensions, the statement said.
The IMF mission said that financial support to banks from the government and the National Bank of Kazakhstan (NBK) has contributed to stabilization of the banking sector, but at a high cost. Over the past two years, several banks received significant state funds, either through purchase of bad assets by the Problem Loan Fund or subsidized loans from a subsidiary of the NBK. This led to improvement of bank capital and liquidity indicators. Corporate lending has been sluggish, although consumer loans are growing rapidly, which warrants close monitoring. The IMF team said it supports the planned regulatory tightening through an increase in risk weights on uncollateralized consumer loans and refinements to household debt-burden calculations. In recent years, there have been numerous new credit-support initiatives from the Government and the NBK, targeting sectors, purchases (e.g., vehicles), products (e.g., mortgages), and borrowers (e.g., SMEs). As noted in last year’s consultation, extensive state support risks cementing a culture of reliance on subsidies. The growth impetus should move firmly to the private sector. The IMF has again called on the Kazakh authorities to abstain from introducing new credit-support initiatives.
Further efforts are needed to address structural constraints in agriculture and agro-processing, the statement said. With the second-highest per capita arable land in the world and proximity to large markets in China and Russia, Kazakhstan’s agriculture has significant potential to contribute to diversification and growth. However, deep-seated issues, including infrastructure and irrigation bottlenecks, access to technology and financing, and inefficient use of resources hold back the sector. State programs have made progress in addressing some of the challenges but should be more effective. Streamlining support mechanisms, shifting the balance of financing from subsidies to investment, and tailoring support to farmers’ needs would deliver better results.
