BAKU, Azerbaijan, Nov. 19
By Nargiz Sadikhova - Trend:
Kazakhstan’s agriculture, manufacturing, and construction sectors maintained positive growth during COVID-19, supported by government programs, Trend reports citing International Monetary Fund (IMF).
The IMF said Kazakhstan’s economy has been hit by the COVID-19 pandemic and oil price shocks. Output contracted by about 2.8 percent in the first nine months of 2020, due to declining activity in service sectors and oil production cuts under the OPEC+ agreement.
“However, agriculture, manufacturing, and construction sectors maintained positive growth, supported by government programs. At 7 percent in October, inflation was above the National Bank’s (NBK) 4-6 percent target band, reflecting the recent spike in food prices and tenge depreciation. The external current account is expected to post a deficit in 3Q2020, mainly due to weak oil exports, but official reserves have increased, supported by rising gold prices,” the report said.
The IMF team projects that activity will contract overall by 2.7 percent in 2020 and that growth will return to positive territory next year, although significant risks remain regarding the evolution of the pandemic, oil price volatility, and trade tensions involving major trading partners.
“Following the sharp drop in oil prices in March, the NBK raised the policy rate to 12 percent (from 9.25 percent), widened the interest rate corridor, intervened in the foreign exchange (FX) market, and adjusted regulations for FX purchases to limit short-term exchange rate volatility. As FX market pressures abated and concerns over economic activity started to mount, the NBK lowered the base rate to 9 percent by the summer, expanded existing lending programs at preferential rates, and launched a new program for small and medium-sized enterprises (SMEs). These measures have been successful in maintaining the flow of credit to the private sector,” the report said.
IMF noted that while the monetary and financial policy response to the crisis has been strong and timely, it has increased further the already large role of the state in financing the economy.
“Given uncertainties around a possible second wave of the pandemic, anti-crisis measures may need to be extended, but it is important to gradually unwind them with a view to scaling downstate involvement and laying the foundations for a market-led recovery. More broadly, the medium-term monetary policy strategy currently being discussed will be key to identify and address constraints to effective monetary policy implementation,” the IMF said.
IMF added the NBK’s commitment to inflation targeting is to be commended.
“It implies maintaining a flexible exchange rate to serve as a shock absorber as was demonstrated in the spring while promoting policies that help reduce dollarization and implementing reforms to gradually reduce the impact of exchange rate volatility on inflation. In this regard, enhanced policy credibility will benefit from strengthening the NBK’s independence, setting a credible target, and improving monetary policy transmission, which would all help better anchor inflation expectations,” the IMF said.
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