IMF: Economy diversification needed to facilitate rapid post-COVID recovery in Kazakhstan (INTERVIEW)

IMF: Economy diversification needed to facilitate rapid post-COVID recovery in Kazakhstan (INTERVIEW)

Trend's exclusive interview with Nicolas Blancher, International Monetary Fund's (IMF) Mission Chief for Kazakhstan.

BAKU, Azerbaijan, July 27

By Nargiz Sadikhova – Trend:

Kazakhstan has benefited from greater room for maneuver to absorb the impact of the COVID-related crisis, Nicolas Blancher said.

Talking differences of COVID-19 related crisis and previous global crises, Blancher noted that the current crisis differs since it started as a public health crisis, and affected economies through a range of transmission channels.

"At the global level, its economic and social impact will depend on how quickly and effectively the pandemic is brought under control. Containment measures imposed by many countries involve restrictions on people’s movement and social distancing, leading to both disruptions in supply and the suppression of demand. With regards to Kazakhstan’s economy, the fall in oil prices earlier this year has been an additional shock to the economy," Blancher said.

He noted that since the previous recession, around 2015, several reforms have been pursued and Kazakhstan’s policy frameworks have been significantly strengthened.

For instance, he said, on the fiscal front, the rules governing the use of resources from the National Fund of the Republic of Kazakhstan (NFRK) have been improved. On the monetary front, an important transition to inflation targeting and a more flexible exchange rate regime is underway. Finally, in the financial sector, several key steps have been taken to strengthen bank balance sheets.

"With the above improvements, Kazakhstan has benefited from greater room for maneuver to absorb the impact of the crisis. For instance, the authorities appropriately relied on exchange rate flexibility to deal with sharp external pressures from the decline in oil prices during March-April. In addition, the country’s strong buffers, such as the National Fund’s assets, have allowed the authorities to implement a decisive emergency support package since late March, providing critical relief to the affected population and businesses," Blancher said.

Nonetheless, he added, given the severity and complexity of the current situation, continued efforts are needed to safeguard the health and wellbeing of the population as the pandemic is still ongoing.

Talking current economic growth forecasts for Kazakhstan, Blancher said that IMF projects a decline in real GDP of 2.7 percent for 2020.

"The decline will largely be reflecting lower oil production, in line with the country’s commitment under the OPEC+ agreement, and a moderate contraction of non-oil activities due to the pandemic containment measures. This projection is more negative than the preliminary estimate for the first six months that was just announced by the authorities (a decline of 1.8 percent), but it is consistent with the re-introduction of measures to contain the COVID outbreak," Blancher said.

He also noted that uncertainty around these projections remains substantial, and key risks to the short-term outlook include the evolution of the pandemic, oil price volatility, and recovery prospects in major trading partners (including Russia, the European Union, China).

Talking aspects make Kazakhstan different from other Central Asian countries and how these differences can play a role in faster recovery from post-COVID crisis, Blancher said that Kazakhstan is endowed with many natural resources, including oil, gas and mineral reserves, as well as strong agricultural production capacity.

"Based on this and on the implementation of prudent fiscal policies in the past, the country has accumulated significant buffers which, as noted above, provided valuable policy space to support the economy during the crisis. If the authorities’ stimulus package is well designed and implemented, it could help lay the foundation for a prompt economic recovery and support longer-term economic growth," Blancher said.

Commenting on Kazakhstan’s government measures to support the economy amid COVID-19 Blancher said that the authorities have acted early and put in place measures to limit the spread of the coronavirus, including travel restrictions, bans on gatherings, closure of schools and non-essential businesses, remote working and quarantines of the largest cities.

"Yet, given the complexity of the pandemic and the recent resurgence of coronavirus cases, continued efforts are needed to contain the outbreak. The authorities also quickly implemented a large policy package against the economic crisis in March, allocating additional spending for the health sector and providing support to households and businesses," he said.

Blancher said the measures adopted, including cash transfers, targeted support to small and medium-sized businesses, loan and tax deferrals, are substantial and well-targeted, and they will go a long way in mitigating the adverse impact of the shocks. It will be important to monitor the implementation of these measures carefully and to make adjustments as needed given the fast evolving epidemiological and economic situations.

"Most measures taken so far by the authorities aim to provide temporary relief to vulnerable households and businesses. To facilitate a rapid recovery and achieve sustained growth in the coming years, they need to be anchored around longer-term priorities. Such priorities include the need to strengthen governance, limit moral hazard, diversify the economy, reduce the state’s footprint, and integrate more deeply both regionally and globally," Blancher said.

In all these areas, he said, it will be essential to preserve the gains achieved in recent years, including by phasing out some of the emergency measures that had to be implemented this year to address the crisis situation, and to use new opportunities to accelerate reforms in other areas.

Talking COVID-19 affecting IMF’s plans for cooperation with Kazakhstan, Blancher said that following the pandemic and the introduction of travel restrictions, the cooperation between the IMF and the Kazakhstan authorities had to rely on remote communications.

"However, it has remained strong. The IMF has tried to be as responsive as possible to the needs of its members, and we have maintained a close engagement and a fruitful dialogue with the authorities in various ways. One of these is through the provision of remote technical assistance, which has recently intensified in the fiscal, financial sector, and statistical areas," Blancher said.

He added that once the pandemic situation stabilizes and travel restrictions are lifted, IMF will also resume its regular country visits to conduct surveillance and provide in-person policy advice and technical assistance.

"As you may know, we also plan to open a regional center for regional technical assistance (the CCAMTAC) in Almaty, which will serve Kazakhstan and other countries in the Caucasus and Central Asia region, as well as Mongolia. We see this as a major opportunity to better serve the region, including because the CCAMTAC will start operating remotely this year in response to members’ pressing needs during the COVID-19 crisis, before the center opens physically next year," Blancher said.

The International Monetary Fund (IMF) is an organization of 189 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.

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