International Monetary Fund forecasts Kazakhstan's economic expansion to level off at 3.5% in the year 2025.
Kazakhstan's Economic Outlook: A Fresh Look at the IMF's Projections
Astana, Kazakhstan – The International Monetary Fund (IMF) forecasts Kazakhstan's economy to settle around a 3.5% growth rate in the mid-term, expecting inflation to cool down and hit the 5% target by 2028, according to a press statement on January 31st.
A snapshot of the city, Astana. Photo credit: Shutterstock
Upon wrapping up the 2024 Article IV consultation with Kazakhstan on November 27th last year, the IMF Executive Board presented their conclusions on the lapse-of-time basis.
Economic Performance and Emerging Risks
Kazakhstan's economic performance in 2024 displays robust strength, continuing the momentum from a 5.1% growth spurt seen in 2023. Economic activity was particularly buoyant in the latter half of the year, translating to a projected 3.9% annual expansion rate. Inflation, however, remained high at an estimated 8.2%, slowing down at a slight pace compared to expectations due to increasing domestic energy tariffs and a looser fiscal policy. Externally, the IMF anticipates a moderate current account deficit in 2024, classifying Kazakhstan's external position as modestly weaker compared to its implied assessment by economic fundamentals and preferred policies.
The IMF has tagged multiple challenges to Kazakhstan's economic prospects, carrying a negative tilt. External threats include a potential economic slowdown in major economies, increasing regional conflicts, potential secondary sanctions, and increased commodity price volatility or export pipeline disruptions. Domestically, risks stem from delays in major infrastructure projects, ongoing fiscal underperformance that might intensify inflationary pressures, and a reemergence of social unrest. Yet, upside risks do exist, such as expedited reform implementation, higher oil prices, and stronger foreign investment in various sectors.
Inflation and Monetary Policy
The IMF points to the need for a strict monetary policy stance until inflation gets closer to its target level. Despite the favorable economic growth, slower disinflation, and an uncertain global economic environment, monetary prudence continues to be necessary. To amplify the effectiveness of monetary policy, the IMF advises beefing up the institutional independence and governance of the National Bank of Kazakhstan (NBK). They also recommend that the NBK refrain from intervening in the foreign exchange market unless market conditions get chaotic.
Fiscal Policy Challenges
Tax revenues, as of September last year, amounted to only 60.5% of the budget plan, reflecting an expansionary fiscal strategy. The IMF urged measures to avoid pro-cyclical fiscal politics and enhance the broader fiscal policy framework. These steps would support the authorities' ambition of fiscal consolidation while preserving a balanced external position.
Key recommendations include:
- Improving Macro-fiscal Forecasting: Enhancing macro-fiscal forecasting capabilities can bolster policymaking decisions.
- Strengthening Budget Planning: Stepping up budget planning processes can lead to more effective resource allocation and spending.
- Leveraging New Tax and Budget Codes: Utilizing new tax and budget codes can help boost non-oil revenue collection through a phased increase in the Value-Added Tax (VAT) and boosting the efficiency of public spending. Transparent tax administration, aligning it with international standards, curbing off-budget expenditures, and limiting discretionary transfers from the National Fund are also essential.
Banking Sector Strength and Reforms
The resilience of Kazakhstan's banking sector is notable, and the IMF reported substantial progress in implementing the 2023 Financial Sector Assessment Program (FSAP) recommendations. The IMF highlights the strengthened institutional independence of the Agency for Regulation and Development of the Financial Market (ARDFM), improvements in risk-based supervision, as well as the expanded macroprudential policy framework.
However, the IMF stresses the need for a fully-fledged bank resolution framework to promote coordination among the ARDFM, the NBK, and relevant ministries.
Rethinking State Intervention and Climate Change Risks
To foster long-term economic growth and resilience, strengthening public governance is vital. This includes addressing corruption-related vulnerabilities to bolster economic resilience and diversification.
As the impact of climate change grows, Kazakhstan needs to accelerate its shift towards a more sustainable and resilient economic model. The IMF encourages modernizing energy infrastructure, improving energy efficiency, and reforming fossil fuel subsidies. Moreover, policies aimed at transforming high-emission sectors, mitigating climate-related risks in the financial sector, and shielding vulnerable populations from the transition's adverse effects are crucial.
Based on the IMF's recommendations, the focus lies on fostering a stable economic environment through robust inflation management, fiscal sustainability, and structural reforms to support long-term growth. The IMF endorses a broadened tax base, higher VAT rates, fiscal reforms, a tight monetary policy stance, investments in infrastructure and digital technologies, tightened macroprudential policies, accelerating economic diversification, and enhanced public governance. Additionally, addressing climate change risks and modernizing the energy sector are crucial for a sustainable future.
Enrichment Data:
- Fiscal Policy
- Broaden the Tax Base and Increase VAT Rates: The IMF recommends expanding the tax base and increasing Value-Added Tax (VAT) rates to boost revenue collection and address fiscal deficits caused by lower oil prices[2].
- Fiscal Reforms: The IMF emphasizes the need for fiscal reforms to manage the non-oil fiscal deficit, which is projected to exceed 8% of GDP in 2025[2].
- Monetary Policy
- Tight Monetary Policy: The IMF suggests maintaining a tight monetary policy stance to curb inflation, which stood at 10.7% in April 2025[1][3][4].
- Structural Reforms
- Infrastructure and Digitalization Investments: The IMF advises investments in infrastructure and digital technologies to aid economic growth and diversification, including investments in digital technologies, AI, agribusiness, and logistics[1][3].
- Macroprudential Policy: The IMF recommends strengthening macroprudential policies to tackle risks associated with consumer lending and financial stability[1][3].
- Economic Diversification: The IMF supports Kazakhstan's strategic focus on economic diversification to lessen dependence on oil and improve resilience against external shocks[3].
The IMF's recommendations aim to create a stable economic environment by addressing inflation, advancing fiscal sustainability, and promoting structural reforms for long-term growth.
- The IMF emphasizes the importance of implementing fiscal reforms in Kazakhstan, suggesting measures such as improving macro-fiscal forecasting, strengthening budget planning, and leveraging new tax and budget codes to boost non-oil revenue collection.
- In the realm of politics and policy-and-legislation, the IMF suggests that Kazakhstan broaden its tax base and increase Value-Added Tax (VAT) rates to manage fiscal deficits caused by lower oil prices, as part of the general-news discussions on the country's economic outlook.
