The analytical center Halyk Finance commented on the reports from the International Monetary Fund (IMF) and the World Bank (WB) regarding Kazakhstan, published in January 2025, as reported by inbusiness.kz.
"Overall, both organizations positively assessed the economic growth in 2024, noting the effectiveness of monetary policy and the resilience of the banking sector. In 2025, a brief acceleration in growth is expected, along with a slower decline in inflation and a continued budget deficit. At the same time, geopolitical uncertainty, structural issues, and limited economic diversification pose certain risks to sustainable development. Therefore, accelerated structural reforms are crucial for future economic growth," writes analyst Saltanat Igenbekova.
Macroeconomic Stability. In the report following the mission to Kazakhstan, which took place from September 18 to October 1, 2024, the IMF notes high economic activity in 2024: GDP growth may reach 4.0% in 2024 and increase to 5.0% in 2025, partly due to the expansion of fiscal stimuli and increased oil production. In the medium term, the IMF estimates growth at 3.0-3.5% in the absence of necessary reforms.
According to the World Bank's assessments presented in the "Kazakhstan Economic Report," with economic growth at 4.0% in 2024, a temporary acceleration to 4.7% is projected for 2025, also driven by increased oil production and tax-budget incentives. After 2025, the WB, like the IMF, forecasts a slowdown in growth rates to 3.0-3.5% due to low productivity and declining investments, once again emphasizing the need for economic diversification and the development of new sources of economic growth.
By the end of the year, actual growth reached 4.8%, driven by dynamic growth in trade and manufacturing, which increased by 9.1% year-on-year and 5.9% year-on-year, respectively. The gap between the assessments of international organizations and the actual figure is explained by relatively weak economic growth in the first half of the year (3.3%). The main growth occurred in the second half of the year, marked by a sharp increase in trade. However, we noted in our publications that this growth is difficult to classify as sustainable and qualitative, as one of the factors for the accelerated growth in trade was a 13.3% increase in government spending, occurring against a backdrop of declining imports, investments, and real incomes of the population.
"Our economic growth forecast for 2025 is more optimistic compared to the IMF and WB, standing at 5.3% (Fig. 1). According to our estimates, significant support for growth will come from a substantial increase in oil production from 87 million tons in 2024 to 96-99 million tons in 2025," notes the HF analytical memo.
Monetary Policy. The IMF report highlights the effectiveness of monetary policy amidst the flexibility of the exchange rate, as well as the consistent approach of the National Bank of Kazakhstan (NBK) in lowering the base rate, which led to price stabilization throughout 2024. However, price pressure remains, fueled by strong domestic demand (partly due to more lenient fiscal policy) and higher non-food inflation, partly due to rising domestic utility tariffs and electricity prices. As a result, the IMF estimates that inflation will only reach its target of 5% by 2028.
In this context, the IMF recommends improving the legal framework of the NBK to strengthen its mandate for price stability and enhancing the institutional foundations of the National Bank's activities to ensure the effectiveness of monetary policy. Among the priorities in this area, the IMF includes, among others, increasing the independence of the NBK and fiscal consolidation. The IMF report also emphasizes the importance of (1) maintaining a tight monetary policy until inflation approaches the target and inflation expectations are restored; (2) improving the NBK's tools and operations for managing systemic liquidity; (3) refraining from intervening in the foreign exchange market in the absence of market shocks, as this may affect confidence in the NBK's commitment to exchange rate flexibility and inflation targeting.
The WB notes that despite a decrease in inflation to 8.6%, its level remains above the target of 5%. The WB forecasts that inflation will decline to 7.5-8.0% in 2025 and 6.0% in 2026, not reaching the target level of 5%. Achieving the target inflation rate remains in question, as fiscal expansion and the volatility of the tenge exchange rate maintain inflationary pressure, creating obstacles to price stabilization in the medium term.
"According to our estimates, support for reducing inflation will come from a high base rate and a slowdown in global inflation. However, domestic risks, such as weak budget discipline, high levels of transfers from the National Fund (NF), exchange rate volatility, and external risks may pressure price stability. We have revised our inflation forecast upwards to 9.0% due to the recent decision on the liberalization of fuel prices, further increases in utility tariffs, uncertainty regarding oil prices, and consequently the exchange rate. Inflation values throughout the year will depend on the extent of (non)realization of the aforementioned inflationary risks. Regarding the base rate, we also support the thesis of the need for a more cautious approach in the upcoming period, considering ongoing budget expenditures, a slowdown in disinflation rates, and significant risks to prospects. Regarding exchange rate policy, we agree with the IMF's statements on the importance of a floating exchange rate and the necessity of its continuation. At the same time, we expressed in an earlier publication the possibility of introducing a 'managed floating exchange rate' after implementing strict counter-cyclical budget rules," analysts note.
Fiscal Policy. The IMF highlights gaps in budget discipline and planning, as well as a continuing pro-cyclical fiscal policy, resulting in increased dependence on transfers from the NF in recent years.
The World Bank also notes a regular shortfall in budget revenues and excessive dependence on the NF, undermining the reliability of budget rules and jeopardizing the country's long-term fiscal sustainability.
Analysts at HF, fully supporting the positions of the IMF and WB regarding the need for corrective measures in the tax and budgetary area, are preparing a separate publication on tax and budget policy.
Credit Activity. The IMF notes the resilience of the banking sector and the containment of risks to financial stability. However, the rapid growth of consumer lending highlights potential vulnerabilities in the household sector and the importance of macroprudential policy to contain risks in this segment.
The WB also emphasizes that credit activity is concentrated on lending to households, while business lending remains insignificant. HF analysts agree with international organizations on this issue and have also noted the low level of business lending from banks, which negatively affects economic growth.
International Integration. According to the IMF, the development of regional and international integration of Kazakhstan will facilitate economic diversification and reduce the country's exposure to external shocks. To achieve this, external constraints and protectionist measures, which are generally ineffective and distort the market, should be removed. Instead, focus should be placed on protecting socially vulnerable populations through a combination of targeted social expenditures, incentives for modernizing agriculture, education, and improving workforce skills.
"We support the IMF's thesis on moving away from protectionism, considering the size of our country's economy, and developing special targeted assistance for socially vulnerable populations. The development of the social insurance sector becomes particularly relevant in light of the above factors: budget deficit, tax shortfalls, and withdrawals from the National Fund," states the report.
Implementation of Structural Reforms. In its report, the IMF notes the weak implementation of structural reforms. At the same time, government intervention has recently shown a tendency to increase (for example, subsidy programs and external constraints). Measures to reduce the role of the state, improve the business environment, and enhance domestic competition, outlined in the presidential decree on measures to liberalize the economy, are being implemented slowly and are inadequately covered by government agencies. For many years, the IMF has emphasized the importance of reducing the role of the state in the economy, strengthening budget discipline, and reforming monetary, credit, and social policies.
The World Bank forecasts a decline in energy prices, while growth prospects in Kazakhstan's key trading partner countries are also not optimistic. In this context, the WB highlights the necessity of reforms, including measures for economic diversification, improvement of fiscal policy, and development of new incentives for economic growth.
"In our reports, particularly in the publication 'What Reforms Does Kazakhstan Need?', we have repeatedly emphasized the importance of implementing structural reforms that can significantly contribute to advancing economic diversification, resilience, and growth, but more decisive implementation is required. Priorities include reducing state presence, strengthening governance, developing the financial system, and improving monetary, fiscal, and social policies," conclude analysts at Halyk Finance.
Fig. 1. Indicative Indicators
