...

Kazakhstan's GDP to decrease due to external demand for crude, manufactured goods fall

Business Materials 9 April 2020 19:33 (UTC +04:00)
Kazakhstan's GDP to decrease due to external demand for crude, manufactured goods fall

BAKU, Azerbaijan, Apr.9

By Nargiz Sadikhova – Trend:

Kazakhstan’s GDP is projected to contract by 0.8 percent in 2020, as external demand for crude and manufactured goods fall notably and COVID-19 mitigation measures sap consumer demand and investment, Trend reports with reference to Europe and Central Asia Economic Update of the World Bank (WB).

WB said that measures to contain the virus outbreak are likely to moderate business activities in Almaty and Nur-Sultan cities of Kazakhstan.

“To contain the rapidly expanding coronavirus the authorities implemented extreme measures by locking down of country’s two key cities. Prior to COVID-19 outbreak the draft budget for 2020 assumed a slight increase in the deficit, but now considering plummeted oil prices and standstill in economic activity the deficit is likely to be significantly higher,” the bank said in the report.

In response to an economic crisis the authorities have announced a fiscal stimulus package in the amount of 4.4 trillion tenge ($10 billion) or an equivalent to a five percent of GDP, the WB reminded.

“Although a large part of an announced fiscal stimulus is expected to come from central bank resources and state-owned enterprises (SOEs) and thus not part of the central budget, the authorities intend to reallocate budget resources to the sectors most in need in the current situation, including additional spending on health, social assistance, infrastructure, subsidies for SMEs,” the report said.

The WB said that current account deficit is expected to widen to 6 percent of GDP in 2020, in large part, owing to collapse in oil prices and deteriorated terms of trade. Inflation is likely to move up above the central bank target on the back of tenge depreciation, which has lost almost 15 percent of its value against the US dollar since the beginning of 2020.

“A prolonged strict lockdown measures implemented in Nur-Sultan and Almaty, representing more than one-third of the country’s GDP, could paralyze economic activity. If the pandemic continues to spread across the regions and should the external economic environment deteriorate further, in this downside scenario, GDP could contract by as much as 3 percent in 2020, which can significantly increase the poverty rate,” the report said.

The WB added that while the authorities have taken active and bold steps to contain the spread of COVID-19, the possibility for protracted containment measures should not be ruled out.

“This scenario compounded by a deep global economic recession can have far-reaching repercussions on the already fragile economic growth. A further drop in business activities will significantly deteriorate the balance-sheet of firms, undermine the ability for households to repay loans, which in turn increases the risk of higher nonperforming loans (NPLs). While the authorities have not disclosed plans to tap into its Oil Fund reserves so far, the deeper shortfall in tax revenues from economic fallout might require additional resources to be deployed,” the WB said in the report.

The WB noted that the county has the fiscal ability to raise revenue either through external borrowing or additional transfers from rainy-day fund. Progressing with structural reforms and continuing to strengthen the performance of the financial sector will be important once the authorities have managed the COVID-19 outbreak, the report said.

The latest data said that the total number of coronavirus patients confirmed in Kazakhstan is 764.

The first two cases of coronavirus infection were detected in Kazakhstan among those who arrived in Almaty city from Germany on March 13, 2020.

On March 15, 2020, Kazakhstan’s President Kassym Jomart Tokayev signed a decree introducing an emergency state in Kazakhstan due to the coronavirus outbreak, which came in force from 08:00 (GMT +6) on March 16 and will last till 08:00 April 15, 2020.

Currently, quarantine regime has been imposed on the majority of Kazakh regions and major cities.

By a decision of State Commission on Provision of Emergency State under the president of Kazakhstan, quarantine regime has been introduced in Kazakhstan’s Nur-Sultan and Almaty cities at 00:00 (GMT +6) on March 19, 2020.

---

Follow the author on twitter: @nargiz_sadikh

Tags:
Latest

Latest