Author: Expert from the Analytical Center of Halyk Finance Saltanat Igenbekova
In January 2025, the International Monetary Fund (IMF) and the World Bank (WB) released reports on Kazakhstan. Halyk Finance has prepared an overview of these reports and provided comments on the forecasts and conclusions of the IMF and the World Bank.
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 temporary acceleration of growth is expected, with a slower decline in inflation and a continued budget deficit. However, geopolitical uncertainty, structural issues, and limited economic diversification pose certain risks to sustainable development. Therefore, accelerated structural reforms are crucial for future economic growth.
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 could reach 4.0% in 2024 and rise 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 an economic growth rate of 4.0% in 2024, a temporary acceleration to 4.7% is forecasted for 2025, also due to increased oil production and tax-budget stimulation. After 2025, the WB, like the IMF, predicts a slowdown in growth rates to 3.0–3.5% due to low productivity and reduced investments, once again emphasizing the need for economic diversification and the development of new sources of economic growth.
At the end of the year, actual growth was 4.8%, driven by dynamic growth in trade and manufacturing, which rose by 9.1% year-on-year and 5.9% year-on-year, respectively. The gap between the estimates 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, when a sharp increase in trade was recorded. However, in our publications, we noted that this growth is hard to describe as sustainable and qualitative, as one of the factors for accelerated trade growth was a 13.3% increase in government spending occurring against the backdrop of declining imports, investments, and real household incomes.
Our forecast for economic growth in 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.
Monetary Policy
The IMF report highlights the effectiveness of monetary policy against the backdrop of exchange rate flexibility and the consistent approach of the National Bank of Kazakhstan (NBK) in reducing the base rate, which led to price stabilization throughout 2024. However, price pressure remains, fueled by strong domestic demand (partly due to a looser fiscal policy) and higher non-food inflation, partly due to rising domestic utility and electricity tariffs. As a result, the IMF estimates that inflation will only reach its target level of 5% by 2028.
In this context, the IMF recommends enhancing the legal framework of the NBK to strengthen its mandate for price stability and fortifying the institutional foundations of the National Bank's operations to ensure the effectiveness of monetary policy. Among the priorities in this area, the IMF lists, among other things, increasing the independence of the NBK and fiscal consolidation, which we previously outlined in a separate publication titled “What Reforms Does Kazakhstan Need?” The IMF report also emphasizes the importance of (1) conducting a tight monetary policy until inflation approaches the target level and restoring inflation expectations; (2) improving the tools and operations of the NBK for managing systemic liquidity; (3) refraining from intervening in the foreign exchange market in the absence of shocks, as this could 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 level of 5%. According to WB forecasts, inflation is expected to decrease to 7.5–8.0% in 2025 and 6.0% in 2026, not reaching the target level of 5%. Achieving the target inflation level remains in question, as fiscal expansion and the volatility of the tenge exchange rate maintain inflationary pressure, creating obstacles for price stabilization in the medium term.
According to our estimates, high base rates and a slowdown in global inflation will support the reduction of inflation. However, domestic risks such as weak budget discipline, high levels of transfers from the National Fund (NF), tenge exchange rate volatility, and external risks may put pressure on price stability. We have revised our inflation forecast upward to 9.0% due to the recent decision to liberalize 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 disinflationary rates, and significant risks for the outlook. In terms of exchange rate policy, we agree with the IMF's statements about the importance of a floating exchange rate and the necessity of its continuation. At the same time, we expressed in an earlier publication the opinion that the possibility of introducing a “managed floating exchange rate” could be considered after the implementation of strict counter-cyclical budgetary rules.
Fiscal Policy
The IMF draws attention to gaps in budget discipline and planning, a continuing pro-cyclical fiscal policy, leading to increased dependence on transfers from the National Fund in recent years.
The World Bank also notes the regular shortfall in budget revenues and excessive dependence on the NF, undermining the reliability of budget rules and jeopardizing the long-term fiscal sustainability of the country.
We fully support the position of the IMF and the WB regarding the need for corrective measures in the tax and budgetary sphere and are preparing a separate publication on tax and budget policy.
Credit Activity
The IMF highlights 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 mitigate risks in this segment.
The WB also emphasizes that credit activity is concentrated on lending to households, while business lending remains insignificant. We agree with international organizations on this matter and have also noted the low level of business lending from banks, which negatively affects economic growth.
The main issues with business lending in Kazakhstan have been outlined in a separate publication.
International Integration
According to the IMF, the development of regional and international integration of Kazakhstan will contribute to the diversification of the economy and reduce the country's exposure to external shocks. To achieve this, external restrictions and protectionist measures, which are generally ineffective and distort the market, should be removed. Instead, the focus should be on protecting socially vulnerable populations through a combination of targeted social spending, incentives for modernizing agriculture, education, and workforce training.
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 groups. The development of the social insurance sector becomes particularly relevant in light of the aforementioned factors: budget deficit, tax shortfalls, and withdrawals from the National Fund.
Implementation of Structural Reforms
In its report, the IMF notes the weak implementation of structural reforms. At the same time, government intervention has recently tended to increase (for example, subsidy programs and external restrictions). Measures to reduce the role of the state, improve the business environment, and enhance internal competition, outlined in the decree of the President of the Republic of Kazakhstan on measures to liberalize the economy, are being implemented slowly and are insufficiently covered by government bodies. The IMF has been emphasizing for many years 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 predicts a decrease in energy prices, and the growth prospects in countries that are