Central Asia Think Tank Development Forum Promoting Economic Cooperation for an Integrated Central Asia Kazakhstan Outlook 216 MACROECONOMIC outlook Astana June 216
GDP Growth YoY, % Macroeconomic Environment Low oil prices, slowdown in FDI, and negative spillovers from slowdown in Russia and China have been putting downward pressure on economic activity. Economy shrunk in the first quarter of 216 2,5 2 1,5 1 2,3 1,7 1,2 1,2 Similar situation is observed in the whole region Current Account Balances (ECA Region) Foreign Reserves (ECA Region) % of GDP Months of Import,5 -,5 -,2 1Q215 2Q215 3Q215 4Q215 1Q216 Source: National Bank of Kazakhstan Source: World Bank Negative heritage of global financial crisis has not been eliminated (high share of NPLs) Fiscal policy is constrained by the weakness of output 2
Macroeconomic Environment Shift to floating exchange rate in August 215 led to a sharp tenge depreciation which resulted in plummeting inflation 45 5,5 2,% 4 35 3 25 2 15 USDEUR USDRUB (RHS) USDKZT 5 4,5 4 3,5 3 2,5 2 1,%,% -1,% -2,% -3,% 6,% 4,% 2,%,% -2,% -4,% -6,% Consumer Price Inflation, MoM Producer Price Inflation, MoM Consumer Price Inflation, YoY Producers Price Inflation, YoY Source: National Bank of Kazakhstan, Kazakhstan Statistics Committee 3
External Accounts Downward pressure on trade and current account Source: Halyk Finance The current account was in deficit of 3,2% GDP in 215, compared to a surplus of 2,1% GDP on average in 21-214 External debt amounted to $153,5 bln (83,3% of GDP) with the public sector debt accounting for 7,9% of the total external debt 4
FDI In 215, the volume of FDI in Kazakhstan dropped by almost 4% 35 3 25 2 15 1 5 Gross FDI inflows to Kazakhstan, 25-215 28 935 26 467 24 137 23 888 21 31 21 437 22 246 19 418 14 829 12 66 7 916 25 26 27 28 29 21 211 212 213 214 215 3,5 1,71,9 5,3 2,6 8,6 9,2 FDI Structure in 25-215, % 8,1 Geological Survey and Prospecting 26,4 32,7 Mining Industry Metallurgy Trade Manufacturing Finance Construction Transport and Logistics Information and Communication Other Source: National Bank of Kazakhstan Source: National Bank of Kazakhstan despite recent success in international rankings World Bank Doing Business Rank WEF Global Competitiveness Report 53 41 5 42 12 8 215 216 214-15 215-216 5
USD billion FDI (continued) During the period of overall investment deceleration manufacturing turned out to be the most resilient sector 9 8 7 6 5 4 3 2 1 8,3 7,3 62% Change in FDI inflows in selected sectors 3,5 2,8 2,8 58% 47% Oil and Gas Production Mining Industry Trade Manufacturing 1,5 3,7 3% 2,6 214 215 Source: National Bank of Kazakhstan Manufacturing share in total FDI went from 15,4% to 17,3% 6
% to GDP % to GDP % % Economic Outlook A rebound is projected in 217, though in the medium term the growth is likely to remain below its long-run potential 8, 7, 6, 5, 4, 3, 2, 1,, Real GDP Growth 7,3 7,2 5,8 4,6 4,9 4,1 3,7 1,9 1,2 1,,1,1 21 211 212 213 214 215e 216f 217f 218f 221f Statistics Committee World Bank IMF 15 1 5 5 Consumer Price Index 213 214 215 216f 217f 218f Current Account Balance Source: Kazakhstan Statistics Committee, World Bank (April 216), IMF (April 216) Main assumptions for the rebound recovery of commodity prices rebalancing of the economies of main trade partners favorable regional conjuncture easing of geopolitical tensions are at large risk -5 3 2 1 213 214 215 216f 217f 218f Public Debt 213 214 215 216f 217f 218f Source: World Bank (April 216) 7
Policy Response Rebalancing of monetary policy. General stabilization of financial sector: reduction of exchange rate volatility, decreasing inflation, and building confidence to monetary authorities Promoting structural reforms. Implementation of the Plan of the Nation 1 steps, implementation of privatization program, boost for investment attraction Safeguard for public investment. Implementation of infrastructure projects under Nurly Zhol program, fiscal consolidation, securing available fiscal buffers (assets of the National Fund) 8
Monetary Policy Since the beginning of 216, pass-through effect of depreciation begins to fade away, but inflationary trends still persist Source: Halyk Finance Source: Halyk Finance Since the beginning of the year NBK is easing the monetary policy Interventions by NBK are significantly lowered; KZT becomes more flexible currency NBK is keeping the inflation target for 216 at 6-8% with the projected reduction to 3-4% corridor by 22 9
Structural Reforms The Plan of the Nation 1 Steps with a package of structural reforms has good prospects, positive effects are likely to kick in over the medium to long term 1 steps is based on ambitious agenda including market liberalization (energy sector restructuring, lifting price control in agriculture), privatization, and investment climate improvement Implementation milestones: In the first quarter of 216, income from privatization amounted to KZT 1,9 bn The new privatization program is extended until 22 1
Assets of National Fund, USD bn Change in assets MoM, % Fiscal Buffers: National Fund Accumulated fiscal buffers allow sustainable public investment 7 68 66 64 62 6 2-2 -4-6 Objectives. Source: National Bank of Kazakhstan Noticeable success in achieving its main objectives: stabilization of the economy; and saving for future generations. Stabilization Objective. It is noted that the government used the resources from the National Fund in 29 to limit the impact of the global financial crisis on the domestic economy. The retrospect reviews by the IMF and World Bank confirm that Kazakhstan responded to the 28-29 crisis quite effectively. Saving Objective. Has accumulated already exceeding the target of 3% of GDP set to achieve by 22. Size could reach $2 billion by 22 that has a particular significance. It could then accumulate all of its principle while transferring to the budget only its annual return (estimated at 4 percent) that would coincide with the amount of $8 billion/year. This (transferring only the annual return to the budget) is in line with the Norwegian bird in hand fiscal rule, which is considered best practice. In 215, vetoed further spending from NF (aside from basic annual transfer) 11
Budget policy revision In 216, the Government revised the budget; Public spending volume was increased by KZT 6 bn, including KZT 24 bn for Nurly Zhol program (affordable housing, schools, roads, EXPO- 217, Winter Universiade 217) KZT 6 bn for social projects (education, healthcare, water supply) 12