The International Monetary Fund (IMF) said that Kazakhstan needs to accelerate structural reforms and greater economic diversification to achieve sustainable economic growth.
The Fund’s executive board concluded the 2021 Article IV consultations with the Central Asian country and projected 2.3 percent economic growth in 2022, down from its previous projection of 3.7 percent.
In 2020, Kazakhstan’s economy contracted for the first time in over 20 years—by 2.5 percent—due to reduced oil production and domestic activity amid the COVID-19 pandemic. The turnaround that began in late 2020 has fostered real gross domestic product (GDP) growth in 2021 of 4 percent. Annual inflation exceeded the 4-6 percent target band of the central bank since the onset of the pandemic, and stood at 8.4 percent last year, driven mostly by food prices. For this year, the IMF projects inflation at 8.5 percent.
The IMF said it saw a need to reduce the state’s footprint in the economy, including by reassessing and reducing the role of the state-owned enterprises and by ensuring a level playing field for competition.
Considering the recent social unrest, the Fund called for accelerated reforms to improve governance, address corruption vulnerabilities, and strengthen the business environment.
The IMF emphasized the need for gradual medium-term fiscal consolidation to preserve buffers.
“To achieve this, strengthening revenue administration should be complemented by reforms to raise the VAT rate, broaden the tax base, and introduce a progressive income tax,” the Fund said in a statement.
The IMF recommended enhancing public expenditure efficiency and public sector transparency. The Fund also concurred that streamlined fiscal rules would support sustainability, intergenerational equity, and policy flexibility.
The Fund commended the central bank for its commitment to fully-fledged inflation targeting regime, which along with exchange rate flexibility, will help absorb shocks.
Strengthening monetary policy effectiveness requires continued efforts to enhance the central bank’s policy independence and credibility, improve its analytical framework and communications, develop domestic capital markets, and reduce dollarization.
The Fund’s directors agreed that the enhanced coordination between monetary and fiscal policies should also help curb inflation. They also underscored that financial sector policy should continue to balance supporting the economic recovery and safeguarding financial stability.
The IMF called for careful monitoring of risks, including from bank liquidity pressures and fast-growing consumer lending, and for further efforts to strengthen risk-based supervision and the bank resolution framework. It encouraged the authorities to carefully consider the implications of introducing a central bank digital currency.