The International Monetary Fund (IMF) has released a significant report highlighting Kazakhstan's economic challenges and the urgent need for reforms to drive long-term growth. The report, issued on January 31, 2025, stems from consultations conducted between September 18 and October 1, 2024, and emphasizes the necessity for policy changes to stabilize and improve the country’s economy.
According to the report, Kazakhstan's economy is facing slower growth rates, having declined from 5.1% in 2023 to 3.9% for 2024. The main factor contributing to this stagnation is the lack of progress in oil production—a major sector for Kazakhstan—a decline exacerbated by increased government spending and rising inflation rates. The IMF noted, "The report calls for structural reforms and policy changes to boost the economy's resilience and growth potential."
Although inflation has decreased from 9.7% to 8.3% as of September 2024, the IMF insists this improvement hasn't occurred quickly enough, attributing the slow-down to rising electricity tariffs and other state-provided services. This nuanced picture reveals how external pressures and internal fiscal policies are colliding, leaving Kazakhstan's economic growth vulnerable.
The fiscal policy segment of the report points to the alarming gap between projected and actual tax revenues. By September 2024, tax collections achieved merely 60.5% of targets, leading to budget deficits widening to 2.6% of GDP. Experts advocate for raising the value-added tax (VAT) from 12% to 16% as part of recommendations to uplift state finances. This proposed increase could potentially yield 1.5% of GDP. "We have to address the reliance on oil and diversify our economy to sustain growth," stated President Kassym-Jomart Tokayev during related discussions reported by state media. The IMF has cautioned against excessive reliance on the National Fund, labeling it detrimental to tax discipline and overall fiscal stability.
The banking sector, though characterized by resilience, faces its own host of challenges. With the average capital adequacy ratio currently standing at 21.5% and asset return at 5.1%, the rapid growth of retail lending poses risks. Since 2022 alone, personal loans have doubled relative to GDP, creating fears of market overheating. Authorities have already begun responding by imposing stricter regulations on lending practices.
Structural reforms are another focal point of the IMF's recommendations. It emphasizes the necessity for accelerated privatization efforts and debates surrounding state intervention. President Tokayev's recent decree aimed at liberalizing the economy remains unfulfilled, underlining the need for enhanced private investment and reduced state-assisted programs. The IMF urges Kazakhstan to actively pursue comprehensive changes to boost economic efficiency and manage public resources more effectively.
Environmental concerns are also prominent within the report's framework as Kazakhstan remains one of the world’s largest producers of greenhouse gases, with coal accounting for over 50% of its energy consumption. The authorities aim at achieving carbon neutrality by 2060, but the current pace of reforms is deemed insufficient. The IMF has advocated for improved emissions trading systems, reduced fossil fuel subsidies amounting to around 6% of GDP, and the urgent modernization of energy systems to attract private investments.
On the horizon, the IMF identifies several risks threatening Kazakhstan's economy, such as global economic slowdown, geopolitical instability, and the imperative for diversification away from oil dependency. With high government spending and rising budget deficits posing persistent challenges, the IMF calls for the Kazakh government to urgently implement structural reforms and exhibit fiscal discipline.
Overall, Kazakhstan stands at a pivotal juncture, seemingly burdened by its economic imbalances yet teeming with potential for renewal through structural reform. The forecasts indicate stabilization efforts may yield benefits by successfully maintaining growth rates around 3.5% and curbing inflation down to target levels of 5% by 2028.