BAKU, Azerbaijan, Nov. 19
By Nargiz Sadikhova - Trend:
Most of Kazakhstan’s banks entered the COVID-crisis with relatively strong capital buffers, as confirmed by the asset quality review (AQR) concluded in early 2020, and have remained resilient, Trend reports citing the International Monetary Fund (IMF).
The IMF said that during the pandemic, several temporary regulatory forbearance measures were introduced, including reduced capital and liquidity requirements, lower risk weights, and frozen loan classification for certain credit exposures.
“These measures have helped mitigate the impact of the crisis, but they should be phased out as the economy recovers to limit risks to financial sector soundness. Where relevant, banks should produce credible medium-term plans to restore their capital and liquidity buffers and address the recapitalization needs identified as part of the AQR,” the report said.
The IMF noted that the newly created Agency for Regulation and Development of the Financial Market (the Agency) has already made significant progress in confronting the COVID-19 crisis through strengthened financial oversight, in coordination with the National Bank of Kazakhstan (NBK).
“Going forward, it will have a major role in aligning further Kazakhstan’s financial regulatory and supervisory framework with best international standards, and in helping to strengthen banks’ risk management practices and business models. To this end, it will be critical to continue the strategy to strengthen the Agency’s institutional capacity and independence,” the report said.
IMF also added that Kazakh authorities have resorted to countercyclical fiscal policy in response to the COVID-19 pandemic.
“The overall deficit for the general government (including local governments and the National Fund of Kazakhstan (NFRK)) is expected to widen to 5½ percent of GDP in 2020, reflecting weaker revenues and additional spending on healthcare, cash and in-kind transfers to vulnerable households, and support to SMEs and the most affected industries. Fiscal policy is expected to remain accommodative in 2021 to support the recovery. The fiscal stimulus will result in an increase in public debt of 4 percent of GDP between 2019 and 2021. Nonetheless, debt levels remain well below the assets accumulated in the NFRK,’ the report said.
The IMF noted that rebuilding fiscal buffers will be a medium-term priority.
“Fiscal consolidation is expected to resume in 2022, aiming to reduce and maintain the non-oil deficit below 6 percent of GDP beyond 2023. To this end, the authorities are working to increase non-oil revenues through improved tax administration, including by leveraging new digital technology and to raise the efficiency of public spending programs. The team sees scope for tax reforms to support higher non-oil revenues and improve equity, including through VAT improvements and progressive income and property taxation. These reforms will need to be well prepared and accompanied by measures to reduce economic informality,” the report said.
The IMF staff team also welcomed the authorities’ plan to further strengthen the fiscal framework and fiscal risk management.
“Efforts are underway to update the rules guiding the use of NFRK resources and introduce a countercyclical mechanism for government expenditure. The authorities are also working to prepare a fiscal risk statement for the 2022 budget, covering major macroeconomic and long-term risks, including from the quasi-government sector. The team emphasizes that an effective fiscal framework needs to be supported by proper fiscal transparency and public financial management arrangements,” the IMF said.
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