dealing with inflows: kazakhstan’s experience, 2004-06
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Dealing with Inflows: Kazakhstan’s Experience, 2004-06. Aasim M. Husain April 2007. Outline. Impressive macro performance Volume and types of inflows Outflows Scaling the net inflows Policy responses Lessons. Macro Achievements. Real GDP growth around 10% or more since 2000. - PowerPoint PPT PresentationTRANSCRIPT
Dealing with Inflows:Dealing with Inflows:Kazakhstan’s Experience, 2004-06Kazakhstan’s Experience, 2004-06
Aasim M. HusainAasim M. Husain
April 2007April 2007
OutlineOutline
Impressive macro performanceImpressive macro performance Volume and types of inflowsVolume and types of inflows OutflowsOutflows Scaling the net inflowsScaling the net inflows Policy responsesPolicy responses LessonsLessons
Macro AchievementsMacro Achievements
Real GDP growth around 10% or more since Real GDP growth around 10% or more since 20002000
-4
-2
0
2
4
6
8
10
12
14
16
1999 2000 2001 2002 2003 2004 2005 2006
Constructionand servicesAgriculture andmanufacturingOil
Other
GDP growth
Per capita quadrupled; unemployment fellPer capita quadrupled; unemployment fell
0
1000
2000
3000
4000
5000
6000
1999 2000 2001 2002 2003 2004 2005 2006
0
2
4
6
8
10
12
14
16
GDP per capita (dollars; left scale)Unemployment (percent; right scale)
Social indicators improvedSocial indicators improved
0
5
10
15
20
25
30
35
40
1999 2000 2001 2002 2003 2004 200526
28
30
32
34
36
Inequality (GINI index; right)
Poverty (share of population with income lower than subissitence level; left)
Inflation was tamedInflation was tamed
0
2
4
6
8
10
12
14
1999 2000 2001 2002 2003 2004 2005 2006
(In percent)
Confidence in banks improved,Confidence in banks improved,dollarization declineddollarization declined
0
5
10
15
20
25
30
35
1999 2000 2001 2002 2003 2004 2005 2006
0
10
20
30
40
50
60
70
Total deposits (In percent of GDP; left)
Forex deposits (In percent of total deposits; right)
Kazakhstan’s Forex InflowsKazakhstan’s Forex Inflows
Types of inflows, 2004-06Types of inflows, 2004-06
Oil export receiptsOil export receipts Non-oil exportsNon-oil exports FDIFDI Bank borrowingBank borrowing
Volume of inflowsVolume of inflows
0
5
10
15
20
25
30
Average2002-03
2004 2005 2006 2004-06Cumulative(right scale)
0
10
20
30
40
50
60
Oil exports Non-oil exports FDI Bank borrowing
(In billions of dollars)
Types of outflowsTypes of outflows
Imports (goods and services)Imports (goods and services) FDI debt amortizationFDI debt amortization Income to direct investorsIncome to direct investors Bank lending abroadBank lending abroad
Volume of outflowsVolume of outflows
-50
-40
-30
-20
-10
0
Average2002-03
2004 2005 2006 2004-06Cumulative(right scale)
-100
-80
-60
-40
-20
0
Imports of goods and servicesFDI debt amortizationIncome to direct investorsBank lending abroad
(In billions of dollars)
Net inflowsNet inflows
0
2
4
6
8
10
12
14
16
18
Average2002-03
2004 2005 2006 2004-06Cumulative(right scale)
0
4
8
12
16
20
24
28
32
36(In billions of dollars)
Scaling the inflowsScaling the inflows
0
5
10
15
20
25
2002-03(avg.)
2004 2005 2006 2004-06cumulative(right scale)
600
800
1000
1200
1400
Net inflows (In percent of GDP)
Net inflows (in percent of end-2003 reserve money)
Policy ResponsesPolicy Responses
Handling the monetary impactHandling the monetary impact
Policy: offset through NFRKPolicy: offset through NFRK Other outflows (bank assets, E&O, labor rem.)Other outflows (bank assets, E&O, labor rem.)
Result: reserve increase (one half of net Result: reserve increase (one half of net inflows)inflows)
Policy: partial sterilization through:Policy: partial sterilization through:– Issuance of paperIssuance of paper– NBK deposit windowNBK deposit window– Reserve requirementsReserve requirements
Monetary impact of inflowsMonetary impact of inflows
-3000
-2000
-1000
0
1000
2000
3000
4000
5000
2004 2005 2006 2004-06Cumulative
Netinflows
NFRK
Other
NIRincrease
(In billions of tenge)
Monetary response to inflowsMonetary response to inflows
-2000
-1500
-1000
-500
0
500
1000
1500
2000
2500
2004 2005 2006 2004-06Cumulative
NIR
Paper
NBKdeposits
Requiredreserves
Other
Reservemoney
(In billions of tenge)
Result: rapid money growthResult: rapid money growth
0
20
40
60
80
100
120
140
Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07
Bank credit to economy Reserve money Broad money
Prudential measuresPrudential measures
Open forex limitsOpen forex limits Forex liquidityForex liquidity Tighter classification and Tighter classification and
provisioningprovisioning Risks weights for cross-border Risks weights for cross-border
lendinglending External borrowing limitsExternal borrowing limits
Exchange rate policyExchange rate policy
85
90
95
100
105
110
115
120
Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07
Dollar/tenge Rouble/tenge REER
(Index; Jan 2000=100)
Tenge: De Facto FlexibilityTenge: De Facto Flexibility(Proportion of monthly exchange rate (Proportion of monthly exchange rate changes that were less than +/- 1 changes that were less than +/- 1 percent)percent)
01020
30405060
708090
100
110120
Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07
1-year centered band 6-month centered band
Tenge appreciation has helped with Tenge appreciation has helped with inflationinflation
0
2
4
6
8
10
12
14
16
18
20
Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07
Inflation w/o appreciation CPI inflation
(In percent)
Fiscal policy—saving oil revenueFiscal policy—saving oil revenue
-10
-5
0
5
10
15
20
2002 2003 2004 2005 2006 2007 (proj.)
Oil revenue NFRK accumulation Overall surplus
(In percent of GDP)
Fiscal policy—prudent stance but Fiscal policy—prudent stance but monetary impactmonetary impact
0
2
4
6
8
2002 2003 2004 2005 2006 2007(proj.)
16
18
20
22
24
Overall balance (in percent of GDP; left) Expenditure (% change; right)
Lessons and Policy ImplicationsLessons and Policy Implications
Managing the inflowsManaging the inflows
Monetary, exchange rate, Monetary, exchange rate, prudential, and fiscal policies have prudential, and fiscal policies have played a roleplayed a role
But money/credit growth remains But money/credit growth remains very highvery high
External indebtedness of banks External indebtedness of banks continues to rise (rapidly)continues to rise (rapidly)
And inflation persisting at a And inflation persisting at a relatively high levelrelatively high level
Implications for near-term policy mixImplications for near-term policy mix
Further monetary tightening absorb liquidityFurther monetary tightening absorb liquidity Further prudential tightening to mitigate Further prudential tightening to mitigate
risksrisks– Measures to slow external borrowingMeasures to slow external borrowing– Measures to slow credit growth and maintain loan Measures to slow credit growth and maintain loan
qualityquality Exchange rate appreciation/flexibilityExchange rate appreciation/flexibility
– Help with inflationHelp with inflation– Remove one-way bet to facilitate flexibilityRemove one-way bet to facilitate flexibility– Which should reduce speculative inflowsWhich should reduce speculative inflows
These steps needed to permit the planned These steps needed to permit the planned fiscal easing without pushing up inflationfiscal easing without pushing up inflation