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Kazakhstan: Staff Concluding Statement of the 2023 Article IV Mission – International Monetary Fund

Kazakhstan Staff Concluding Statement of 2023 Article IV Mission

November 21, 2023

A Concluding Statement describes the preliminary findings of IMF staff at the end of an official staff visit (or ‘mission’), in most cases to a member country. Missions are undertaken as part of regular (usually annual) consultations under Article IV of the IMF’s Articles of Agreement, in the context of a request to use IMF resources (borrow from the IMF), as part of discussions of staff monitored programs, or as part of other staff monitoring of economic developments.

The authorities have consented to the publication of this statement. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF’s Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF Executive Board for discussion and decision.

An International Monetary Fund (IMF) mission led by Mr. Nicolas Blancher
conducted discussions for the 2023 Article IV consultation with Kazakhstan
on November 7-21

in Astana and Almaty. At the end of the visit, the mission issued the
following statement, which summarizes its main conclusions and

Strong buffers and policy responses have helped Kazakhstan manage
multiple shocks in recent years. Going forward, the economic
environment is expected to be challenging both in the short term,
including from external spillovers, and over the medium term, including
due to global fragmentation and decarbonization. To confront these
challenges, modernized economic institutions and policy frameworks are
needed, and accelerated structural reforms are essential to raise
economic growth while making it more resilient, inclusive, and green.
Priorities in Kazakhstan are to reduce the state footprint in the
economy, improve public sector governance, and promote the development
of a more vibrant private sector driving job creation and economic

Recent developments, outlook, and risks


Economic activity has been strong and inflation has declined in 2023.
GDP growth is projected at 4.8 percent for 2023, driven by both the oil
and non-oil sectors, while the impact of the war in Ukraine remains
limited. Inflation has dropped since it peaked at 21 percent in
February and is projected at about 10 percent by the end of 2023. On the
external front, a current account deficit of 3½ percent of GDP is
projected for 2023. Real wage growth has stabilized following sharp
increases in the last two years. Strong credit growth has also
supported activity.

2.Growth is expected to moderate in 2024 in an
uncertain economic environment. It would slow to 3.1 percent in 2024, mostly
due to delay in the Tengiz oil field expansion.
In the medium-term,non-oil
GDP growth would stabilize at around 3½ percent, and inflation would ease
gradually to reach 5 percent by 2025-26. Downside risks include oil price
declines, oil export disruptions, and slow growth in trading partners.
Spillovers from the war in Ukraine and geopolitical fragmentation,
including through secondary sanctions, could weaken activity and investor
confidence. Should social tensions resurface, they could delay reform
implementation. Finally, climate-related risks, especially from rapid global
decarbonization, could negatively impact the economy and financial system.
Upside risks include accelerated reform implementation, immigration of
skilled labor and relocation of foreign firms to Kazakhstan, as well as
higher oil prices.

Monetary and exchange rate policy

3.A prudent monetary policy stance is warranted
amid persistent inflation pressures.
Together with lower global food
prices, tight monetary policy since late 2022 has helped reduce price
pressures. Yet, inflation is still well above the National Bank of
Kazakhstan’s 5 percent target while inflation expectations are elevated,
the near-term economic outlook is uncertain, and domestic energy and
utility prices should rise in the coming months. As such, monetary policy
should not be relaxed prematurely, i.e., before inflation is close to
target and inflation expectations are well anchored.

4.The effectiveness and credibility of monetary
policy can be further strengthened, including by increasing the National
Bank of Kazakhstan (NBK)’s independence.
The NBK has recently improved the
transparency of monetary policy, including by better communicating its
decisions and by publishing quarterly inflation forecasts. Its credibility
in conducting monetary policy would be further bolstered by eliminating its
quasi-fiscal activities (e.g., subsidized loans), avoiding perceptions of
political influence on the policy rate level, and securing greater personal
independence for senior NBK officials.

Financial sector stability

5.The banking system remains sound overall. In
2023, banks reported strong average capitalization, profitability, and
liquidity positions. However, there is some heterogeneity among banks
regarding capital and liquidity buffers, credit risk exposures, and asset
quality. The level of bank loan and deposit dollarization has decreased
further, and continued progress has been made in implementing risk-based
supervision in recent years.

6.The 2023 Financial Sector Assessment Program
(FSAP) identified several reforms to enhance the sector’s resilience and
policy framework.
These focus in particular on:

·Crisis preparedness. The
crisis management and bank resolution frameworks need to be enhanced to
limit the risks of bank bailouts by the state. The independence of the
resolution authority (ARDFM) should be reinforced, its resolution tools and
powers should be strengthened, and its resources and capacity to use them
effectively should be secured.

·Financial sector oversight.
Greater independence, legal protection, and resources for the ARDFM and its
staff are also needed to support systemic risk monitoring and effective
supervision, including on a consolidated basis and covering related party
transactions. Furthermore, the authorities should continue
to close data gaps and integrate top-down stress testing to upgrade the
macroprudential policy framework.

·Institutional responsibilities.
The financial oversight and crisis resolution mandates of the ARDFM and
other public entities (including the NBK, Ministry of Finance, and Ministry
of National Economy) should be delineated clearly to improve inter-agency
collaboration and policy effectiveness. Expanding the AIFC’s activities
with residents would raise risks of financial spillovers and regulatory
fragmentation, and appropriate safeguards should be introduced ex-ante to
limit these risks.

Fiscal policy

7.The government’s commitment to fiscal
consolidation is welcome and should be underpinned by more conservative
economic projections and specific reform plans.
Reducing the non-oil
deficit to 5 percent of GDP by 2030 would support disinflation and help
preserve large fiscal buffers. Currently, this is predicated on optimistic
growth and spending projections for which concrete measures have yet to be
articulated. The new tax code under preparation is an opportunity to
enhance non-oil revenues, and the mission welcomed several reforms proposed
in this context, including an increased VAT rate, a progressive personal
income tax, and the elimination of distortive tax exemptions and
incentives. There is also room to further strengthen revenue administration,
including by better addressing taxpayer compliance risks.


Stronger public institutions would help improve the credibility of
fiscal policy.
Building on progress in assessing fiscal risks and the
recent fiscal transparency evaluation, the mission welcomed the
preparation of a new budget code, including measures to increase budget
autonomy and clarity for government units and to report on tax
expenditures and National Fund of the Republic of Kazakhstan (NFRK)
activities. The mission also highlighted several areas for progress,
including public sector data quality and transparency in the natural
resources sector.
The activities of numerous public entities have weakened fiscal
accountability – as recently with the NFRK’s purchase of KazMunayGas shares
used to generate fiscal revenues. The mission supported the authorities’
plan to reinstate fiscal rules in 2024 and recommended simplifying and
better enforcing them through the creation of an independent fiscal council
and stronger escape clauses to limit discretionary spending (including
transfers from the NFRK).

Structural reforms

9.The role of the state in the economy needs to be
reduced and refocused to bolster future economic growth.
Downsizing the
state’s footprint in the economy would promote competition and private
sector participation, and the announced resumption of privatizations in 2024
is encouraging. Reforms to strengthen public governance and reduce
corruption-related vulnerabilities should also be prioritized as they can
deliver large growth benefitswhile also increasing the
impact of other reforms. Increasing financial inclusion of small, and
medium size enterprises also requires refocusing state interventions,
including by streamlining large-scale loan subsidy programs and improving
credit market infrastructure, such as collateral and insolvency frameworks.
The introduction of the digital Tenge is expected to contribute to higher
financial inclusion and, as it is implemented, further analyses of its
macroeconomic and financial stability implications will be desirable.

10.Broader reforms to improve the business
environment should facilitate private sector-led economic diversification.
Reforms are needed to address obstacles to efficient labor allocation and
productivity, education and skill mismatches, market contestability, and
tariffs and price controls that discourage investment, including foreign
direct investment. Upgraded transport infrastructure would also help
develop new value chains and the mission welcomed the authorities’ recent
efforts to support the diversification of trade partners, routes and hubs,
with support from international financial institutions.

11.Climate policy implementation is progressing,
but further efforts are needed.
Following the adoption of a national
strategy for carbon neutrality in early 2023, planned increases in domestic
energy prices will help reduce carbon emissions from current high levels,
generate public revenues, and support Kazakhstan’s transition to a
low-carbon global economy. More broadly, reforms should accelerate to meet
the government’s objectives of increasing domestic energy efficiency
standards and further developing renewable energy sources. Large exposures
to climate-related risks in the financial sector also need to be monitored
and managed.

12.Ongoing improvements to social safety nets will
help mitigate the potential social costs of economic transformations.
Poverty levels in Kazakhstan are comparatively low, but there is room to
strengthen the targeting of social spending, including toward informal
workers and through means testing, as well as the monitoring of social
program outcomes. The implementation of a new social code and increased
reliance on comprehensive digital platforms are opportunities for
substantial progress in this area.

* * *

The staff team is grateful to the authorities and a broad range of public
and private sector counterparts for their hospitality and candid

IMF Communications Department

PRESS OFFICER: Randa Elnagar

Phone: +1 202 623-7100Email:


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