On April 14, the International Monetary Fund (IMF) published conclusions from Article IV consultation with Kazakhstan. The Fund praised Kazakhstan’s solid macroeconomic fundamentals such as keeping the 8% annual GDP growth average over the past decade and 2.5% annual growth of employment over the last three years. IMF welcomed gradual recovery of financial sector but also pointed out that recovery is timid as the return on assets ratio for the largest banks, excluding trouble-making banks BTA and Alliance, reached just 1% last year.

IMF directors focus mostly on financial sector vulnerabilities and medium-term risks for fiscal performance. Fund urged authorities to deal more decisively with the challenge of NPLs as resolution of this problem showed so far little progress. In particular, Fund called for redesigning Problem Loans Fund, which was created as part of Kazakhstan’s strategy to improve banks’ asset quality. IMF recommended also strict supervision on NLPs as well as further enhancement of liquidity and credit risk assessments. As far as monetary policy, IMF recommended the National Bank of Kazakhstan’s (NBK) to communicate more clearly with the market about its interest rate decisions and active market operations. Fund also suggested greater exchange rate flexibility.

Finally, the Fund reiterated its traditional key priority recommendations for Kazakhstan such as lowering the non-oil deficit in the medium fiscal framework and reducing Kazakhstan’s economy dependence on oil. In particular, IMF recommended including National Fund into fiscal accounts because recently announced large-scale public spending plans are not incorporated into budget. The Fund also warned authorities that consolidation of the private pension funds into recently established United Pension Fund could exacerbate fiscal risks. In this context, the IMF urged authorizes to adopt a market-based investment strategy for the pension’s assets and maintain individual accounts.