kazakhstan outlook 2016 - carec institute · restructuring, lifting price control in agriculture),...
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Kazakhstan
Outlook 2016
MACROECONOMIC outlook
Astana
June 2016
Central Asia Think Tank Development Forum
“Promoting Economic Cooperation for an Integrated Central Asia”
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.
2
Source: National Bank of Kazakhstan
2,3
1,7
1,2 1,2
-0,2-0,5
0
0,5
1
1,5
2
2,5
1Q2015 2Q2015 3Q2015 4Q2015 1Q2016
GD
P G
row
th Y
oY, %
Economy shrunk in the first quarter of 2016 Similar situation is observed in the whole region
Negative heritage of global financial crisis has not been eliminated (high share of NPLs)
Fiscal policy is constrained by the weakness of output
Current Account Balances (ECA Region) Foreign Reserves (ECA Region)
% of GDP Months of Import
Source: World Bank
Macroeconomic Environment
3
-30,0%
-20,0%
-10,0%
0,0%
10,0%
20,0%
Consumer PriceInflation, YoY
Producers PriceInflation, YoY
-6,0%
-4,0%
-2,0%
0,0%
2,0%
4,0%
6,0%
Consumer Price Inflation, MoM
Producer Price Inflation, MoM
2
2,5
3
3,5
4
4,5
5
5,5
150
200
250
300
350
400
450
Shift to floating exchange rate in August
2015 led to a sharp tenge depreciation…
USDEUR
USDKZT
USDRUB (RHS)
Source: National Bank of Kazakhstan, Kazakhstan Statistics Committee
… which resulted in plummeting
inflation
External Accounts
The current account was in deficit of 3,2% GDP in 2015, compared to a surplus
of 2,1% GDP on average in 2010-2014
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
Source: Halyk Finance
Downward pressure on trade and current account
FDI
In 2015, the volume of FDI in Kazakhstan dropped by almost 40%…
7 916
12 066
19 41821 301 21 437 22 246
26 46728 935
24 137 23 888
14 829
0
5 000
10 000
15 000
20 000
25 000
30 000
35 000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Gross FDI inflows to Kazakhstan, 2005-2015
Source: National Bank of Kazakhstan
32,7
26,49,2
8,6
2,6
5,3
3,51,7
1,98,1
FDI Structure in 2005-2015, %
Geological Survey and Prospecting
Mining Industry
Metallurgy
Trade
Manufacturing
Finance
Construction
Transport and Logistics
Information and Communication
Other
Source: National Bank of Kazakhstan
… despite recent success in international rankings
World Bank Doing Business Rank
2015 2016
53 41
WEF Global Competitiveness Report
2014-15 2015-2016
50 4212 8
5
FDI (continued)
During the period of overall investment deceleration
manufacturing turned out to be the most resilient sector
7,3
8,3
2,8
3,7
2,83,5
1,5
2,6
0
1
2
3
4
5
6
7
8
9
Oil and Gas Production Mining Industry Trade Manufacturing
USD
bill
ion
Change in FDI inflows in selected sectors
2014 2015
Source: National Bank of Kazakhstan
– 30%– 47%
– 58%
– 62%
Manufacturing share in total FDI went from 15,4% to 17,3%
6
0
5
10
15
2013 2014 2015 2016f 2017f 2018f
%
Economic Outlook
7
7,3 7,2
4,6
5,8
4,1
1,2
0,1
1,9
3,7
0,11,0
4,9
0,0
1,0
2,0
3,0
4,0
5,0
6,0
7,0
8,0
2010 2011 2012 2013 2014 2015e 2016f 2017f 2018f 2021f
%
Statistics Committee World Bank IMF
A rebound is projected in 2017, though in the medium term the growth is likely to remain below its long-run potential
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
Source: Kazakhstan Statistics Committee, World Bank (April 2016), IMF (April 2016)
Consumer Price Index
-5
0
5
2013 2014 2015 2016f 2017f 2018f
% t
o G
DP
Current Account Balance
Real GDP Growth
0
10
20
30
2013 2014 2015 2016f 2017f 2018f%
to
GD
P
Public Debt
Source: World Bank (April 2016)
Policy Response
8
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 “100 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)
Monetary Policy
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 2016 at 6-8% with the projected reduction
to 3-4% corridor by 20209
Source: Halyk Finance
Since the beginning of 2016, pass-through effect of depreciation begins to fade
away, but inflationary trends still persist
Source: Halyk Finance
Structural Reforms
10
The Plan of the Nation “100 Steps” with a package of structural reforms has good
prospects, positive effects are likely to kick in over the medium to long term
“100 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 2016, income from privatization amounted to KZT 1,9 bn
The new privatization program is extended until 2020
11
Fiscal Buffers: National Fund
Objectives.
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 2009 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 2008-2009 crisis quite effectively.
Saving Objective.
Has accumulated already exceeding the target of 30% of GDP set to achieve by 2020. Size could reach $200 billion by 2020 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 2015, vetoed further spending from NF (aside from basic annual transfer)
60
62
64
66
68
70
Ass
ets
of
Natio
nal
Fund
, U
SD
bn
-6
-4
-2
0
2
Chang
e in a
ssets
Mo
M, %
Source: National Bank of Kazakhstan
Accumulated fiscal buffers allow sustainable public investment
Budget policy revision
12
In 2016, the Government revised the budget;
Public spending volume was increased by KZT 600 bn, including
KZT 240 bn for “Nurly Zhol” program (affordable housing, schools, roads, EXPO-
2017, Winter Universiade 2017)
KZT 60 bn for social projects (education, healthcare, water supply)