Kazakhstan Government and National Bank identified main directions of economic policy for 2015

Dec 25. Kazpravda

Kazakhstan Government and National Bank identified main directions of economic policy for 2015Today PM Karim Massimov signed Decree № 1370 On the statement of the Government of the Republic of Kazakhstan and the National Bank of Kazakhstan on the main directions of economic policy for 2015.

Kazpravda.kz reports on it with reference to primeminister.kz.

In 2014, aggravation of the external factors for the development of Kazakhstan’s economy was observed.

General slowdown in world economic growth and increased geopolitical instability was observed in connection with the events around Ukraine. Imposing of mutual sanctions between Russia and the European Union with the United States led to a drop in growth in Russia and destabilization of the macroeconomic situation.

Against the background of strengthening in GDP growth rate in the United States, curtailing of the third program of the federal reserve system of quantitative easing, the U.S. dollar is growing stronger and interest rates are rising.

As a result of these factors, also against the growth of shale oil extraction in the U.S. the world price for Brent crude oil decreased from $ 115 / barrel at the end of June 2014 to $ 63 /barrel on December 22, 2014 (45.2 %).

Against this background, Kazakhstan’s economy has grown by 4.2% over 11 months in 2014.

In January-October 2014 the external trade turnover of the Republic of Kazakhstan decreased by 8.3% on-year. Exports of commodities decreased by 4.9% due to the fall in world prices on oil and base metals, reduction of export volumes of oil, coal, ferro-alloys, copper and aluminum. Imports of goods decreased by 14.5% due to the reduction in imports of machinery and equipment, chemical products and foods.

These foreign economic trends pose risks to the economy of Kazakhstan in 2015.

Under these conditions, the economic policy in 2015 will focus on leveling the impact of external factors to ensure socioeconomic stability in the country.

The main objectives of Kazakhstan Government and the National Bank’s policy will be maintaining macroeconomic and financial stability also economic growth and competitiveness of Kazakhstan’s economy.

The main directions of economic policy in 2015:

1) conducting countercyclical economic policy through the implementation of the State program of infrastructure development “Nurly Jol” for 2015 – 2019, increasing the competitiveness of Kazakhstan’s economy and support to small and medium business;

2) sustaining macroeconomic stability;

3) keeping up financial stability by strengthening the financial system and by the recovery of the banking sector.

1. Countercyclical economic policy

The policy of the Government and the National Bank will aim to achieve the target parameters of real economic growth for 2015 at 4-5%.

To support economic growth and employment in 2014- 2015, in February 2014, 1 trillion tenge was allocated from the RK National Fund.

The second tranche of $ 500 billion tenge in 2015 will be used for additional concessional lending to small, medium and large businesses and the recovery of the banking sector. In addition, construction of infrastructure of free economic zones and of EXPO-2017 will be financed.

To ensure sustainable economic growth and employment, the new economic policy Nurly Jol will be implemented for which $ 3 billion will be annually withdrawn in 2015- 2017 from the National Fund.

The state program Nurly Jol for 2015 – 2019 provides for development of infrastructure in 7 main directions. It is development of transport and logistics, energy and industrial infrastructure. Modernization of housing and utilities, water and thermal networks will also be carried out, construction of schools and housing will continue, also support to small and medium businesses.

Together with international financial institutions projects will be launched in the small and medium business (SMB), in modernization of housing and utilities, road construction, development of electric power, renewable energy, and institutional reforms in the amount of $ 13.5 billion, of which $ 9 billion will be financed by international financial institutions.

The new economic policy will focus on further structural reforms in our economy. It is enhancement of competitiveness and productivity in economy sectors, improving the structure of economy through development of transport, energy, industrial and social infrastructure, small and medium businesses.

Investments in these areas will give the biggest multiplier effect for economic growth and employment and will form the foundation for future sustainable growth.

In order to keep up the positive external trade balance Kazakhstan’s export will be supported.

Mechanisms will be developed for trade and export financing at the rates not exceeding the rates applicable for exporters to the EU (3.2% in foreign currency).

Policy for further industrialization of the country’s economy will be pursued in the frames of second quinquennium of industrial- innovative development, aimed at development of the manufacturing industry in certain priority sectors given their regional specifics.

To further support business in the country, 100 billion tenge will be annually allocated in 2015 and 2016 from the National Fund. These funds will be used for lending to small, medium and large businesses, with the use of existing programs in interbank lending of JSC “Entrepreneurship Development Fund” Damu “and JSC” Development Bank of Kazakhstan “, of which 100 billion tenge will be for financing SMEs and 100 billion tenge for financing large businesses.

In order to reduce the debt burden on dollar loans and prevent curtailment of the business activity of SMEs, lending to them will be continued in the national currency, with attraction of loans from international financial institutions.

In order to stimulate the growth of investment costs of the business sector, support of lending to SMB will continue within the Business Roadmap 2020, expansion of leasing operations, funding of PAIID-2 projects, financial support to agribusiness in the framework of the Agribusiness 2020 program.

For employment, measures will be taken in the framework of the Employment Roadmap 2020.

2. Macroeconomic stability will be achieved by coordinated monetary and fiscal policy and curbing the inflation in the planned corridor of 6-8%.

In monetary policy basis will be provided for transition to inflation targeting in the medium term.

Inflation targeting will increase the real yield of savings in tenge and lower the inflation expectations.

Regulation of the money supply will be in correlation with inflation.

Monetary policy will aim at ensuring a balance between internal and external competitiveness of Kazakhstan’s economy.

Sharp movements in the tenge exchange rate at that will be prevented. Measures will be taken to restrict speculations in the foreign exchange market. In 2015, the National Bank and the Government will have the legislation amended in the part of raising performance requirements to exchange points in the foreign cash exchange market.

Policy will be continued to maintain international reserves of the National Bank on an adequate level, including through the prevention of decline in gold and foreign exchange reserves of the National Bank below a 3- month volume of imports of goods and services.

Fiscal policy will be aimed at balancing the budget in accordance with the concept of the new fiscal policy. Tax policy will be aimed at improving the investment attractiveness of the economy and to stimulate growth of manufacturing industries. Increase of tax burden on businesses is not envisaged at that.

In order to reduce the load on the national budget for financing of infrastructure projects on co-financing conditions, external loans will be involved from international financial institutions and public-private partnership mechanisms will be used.

3. Financial stability will be maintained by a set of regulatory measures aimed at minimizing the negative impacts of possible global imbalances in the world economy, also at ensuring a stable functioning of the financial system. The measures to ensure financial stability will be conducted in accordance with the Concept for the financial sector development in the Republic of Kazakhstan until 2030.

The main priority directions in the policy of the financial system regulation in 2015 will be:

1) increasing the role of the national currency in the economy;

2) stimulating the growth of tenge liquidity of the banks to further increase lending to the economy;

3) recovery of the banking sector.

1. In order to enhance the role of the national currency in the economy the following measures will be taken:

1) to encourage savings in tenge, guaranteed payout will be increased of JSC “Kazakhstan Deposit Insurance Fund” on deposits in tenge from 5 million to 10 million tenge with increase of their capitalization;

2) maximum size of the recommended interest rate will be reduced on guaranteed deposits in dollars from 4% to 3% per annum;

3) setting of the prices on goods and services in conventional units will be banned.

2. In order to stimulate the growth of tenge liquidity of the banks to further increase lending to the economy the following measures will be taken:

1) possibility will be considered of a temporary reduction of certain provisions of the prudential regulation where necessary;

2) to prevent liquidity shortage in the commercial banks, they will be provided with tenge liquidity;

3. For recovery of the banking sector the following measures will be taken:

1) work will continue to reduce bad assets. Authorized capital of JSC “Fund of problem loans” will be further increased by 250 billion tenge, work will continue to raise the efficiency of its cooperation with banks.

The priority directions will also be improvement of other mechanisms of work with troubled assets, including the activities of organizations managing non-performing assets, tax issues (tax administration);

2) In regulatory policy new standards for capital adequacy of Basel III banks will be gradually introduced.

In general, the economic policy in 2015 will be aimed at mitigating the impact of negative external factors, strengthening the socioeconomic stability in the country.

In the case of deterioration of the situation in foreign markets, the Government and the National Bank will take additional measures to preserve socioeconomic stability in the country.