Washington, DC: The Executive Board of the International Monetary Fund (IMF) concluded the 2024 Article IV consultation [1] with the Republic of Kazakhstan on a lapse of time basis on November 27, 2024.
After reaching 5.1 percent in 2023, Kazakhstan's economic growth has remained robust in 2024, and inflation has continued to decline gradually. The banking sector remains resilient amid continued rapid consumer credit growth. In the medium term, growth is projected to stabilize at about 3½ percent, while inflation would ease further and reach its 5 percent target by 2028.
The National Bank of Kazakhstan has maintained a prudent monetary policy in light of persisting inflation pressures from increased energy tariffs and fiscal underperformance: as of September 2024, tax revenues were only 60½ percent of the 2024 budget plan, implying an expansionary fiscal stance. The macroprudential policy and risk-based supervisory frameworks are being strengthened in line with the 2023 FSAP recommendations.
Structural reform implementation remains slow, with the state footprint growing in some areas, while higher economic growth, diversification and resilience will be important in the current environment, including to address increasingly pressing challenges from climate change.
Executive Board Assessment [2]
In concluding the Article IV consultation with the Republic of Kazakhstan, Executive Directors endorsed the staff's appraisal as follows:
Robust economic growth and disinflation have continued this year. Growth is projected at 3.9 percent in 2024 due to broad-based acceleration of economic activity in the second half of the year. Inflation is expected to reach 8.2 percent, still above its 5 percent target, as the pace of disinflation has slowed this year due to increased domestic energy tariffs and an expansionary fiscal policy. On the external front, a moderate current account deficit is expected in 2024, and the external position is assessed as moderately weaker than implied by economic fundamentals and desirable policies.
Risks to the outlook remain tilted to the downside. They include external risks from a slowdown in major economies, an intensification of regional conflicts, secondary sanctions, and higher commodity price volatility or export pipeline disruptions. On the domestic front, key risks are delays in large infrastructure projects in the short term, failure to reintroduce fiscal discipline which could fuel inflation pressures, and a resurgence of social tensions. Upside risks include accelerated reform implementation, higher oil prices, and stronger foreign investment in new sectors.
Monetary policy should remain tight until inflation is close to target, and its effectiveness could be further strengthened. The combination of robust growth, slowing disinflation, and an uncertain outlook justify continued monetary policy prudence. In order to enhance the National Bank of Kazakhstan (NBK)'s institutional independence and monetary policy effectiveness, its governance and legal framework can be further improved, and the NBK should refrain from foreign exchange interventions in the absence of disorderly market conditions.
Recurrent fiscal underperformance requires measures to avoid fiscal procyclicality and strengthen the fiscal policy framework. Such measures would also help to meet the authorities' objective of fiscal consolidation and maintain a balanced external position. Priorities are to improve macro-fiscal forecasts and budget planning, and to use the introduction of new tax and budget codes as opportunities to enhance non-oil revenue mobilization, including through gradual VAT rate increases, and spending efficiency. Fiscal policy effectiveness also requires public sector data that are better aligned with international standards and a more rules-based and transparent policy framework, including by reducing off-budget spending and the continued reliance on discretionary transfers from the National Fund.
The banking sector remains resilient and rapid progress in implementing the 2023 FSAP recommendations is commendable. In particular, the regulatory agency (ARDFM)'s institutional independence and risk-based supervision, as well as the NBK's macroprudential policy mandate and toolkit, have been significantly enhanced. Going forward, the main priority is to introduce a fully-fledged framework for bank resolution, including coordination mechanisms among the ARDFM, NBK and relevant ministries.
Structural reform implementation is critical to elevate long-term economic growth. To meet the authorities' ambitious growth objectives, a key priority is to reduce the state footprint in the economy and promote competition and private sector development. However, the amount and size of state interventions, subsidies, state-owned enterprises, and external restrictions have recently increased. Stronger public governance is also required, including through continued efforts to reduce corruption-related vulnerabilities.
Given increasingly pressing challenges from climate change, more comprehensive policies are needed to accelerate the transition to a sustainable and resilient economic model and meet the authorities' commitment to reduce carbon emissions. Building on recent progress, including in implementing the national strategy for carbon neutrality, priorities are to modernize energy infrastructure, enhance energy efficiency, accelerate fossil fuel subsidy reforms, and adopt measures to transform high-emission sectors, manage climate-related risks in the financial sector, and address the needs of vulnerable groups.
Table 1. Kazakhstan: Selected Economic Indicators, 2022–26 |
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Sources: Kazakhstani authorities and IMF staff estimates and projections. 1/ Non-oil revenue in 2023 includes a one-off dividend from Samruk-Kazyna of 1.1 percent of GDP and in 2024 includes a one-off dividend from Kazatomprom of 0.3 percent of GDP from the sale of shares to the NFRK. 2/ Excluding reserve movements. 3/ Based on a conversion factor of 7.5 barrels of oil per ton. |
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[1] 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.
[2] The Executive Board takes decisions under its lapse-of-time procedure when the Board agrees that a proposal can be considered without conveying formal discussions.
