In Kazakhstan, the economic growth for the first 10 months of 2023 was4.9%. This was reported by the Minister of National Economy Alibek Kuantyrov at the November government meeting. Compared to the results of the first half of this year, when GDP growth in real terms was 5%, there was a slight decline. The government of Kazakhstan hopes to maintain the growth trajectory until the end of this year, and next year they expect a GDP jump of 5.3%.
However, international experts are more pessimistic. On November 21, 2023, the International Monetary Fund Mission published a statement:
“It is expected that in the context of economic uncertainty, growth in 2024 will be moderate. It is forecasted to slow down to 3.1% in 2024, mainly due to the postponement of the launch of the Tengiz oil field expansion project” Mission of the International Monetary Fund
The IMF sees risks of slowing growth in the event of falling oil prices, disruptions in oil exports, and a slowdown in growth in Kazakhstan's trading partner countries. Factors improving the forecast include the acceleration of reform implementation, an influx of skilled labor, the relocation of foreign companies to Kazakhstan, and rising oil prices.
The last time Kazakhstan's economy showed a decline was 2.6% in 2020, which was related to the pandemic, but a year later, the pace of economic growth increased. For example, last year, economic activity in the country surged by 3.2%. Analysts from ACRA in their September review “Kazakhstan's Economy Returns to Equilibrium Growth” explain this, among other things, by the active attraction of investments in fixed capital.
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In addition to the factors noted by ACRA, the growth of the economy was influenced by the influx of liquidity from the Russian Federation. According to the publication “Kursiv”, citing data from the National Bank of the Republic of Kazakhstan, in 2022, 357 billion tenge were transferred from Russia to Kazakhstan, which became a record for at least the last eight years. As a result, the volume of cashless transactions in the domestic market sharply increased, amounting to 102.8 trillion tenge by the end of 2022.
“Goods that cannot be supplied directly to the Russian Federation have flowed through Kazakhstan, and the economy has received an influx of capital from migrants fleeing Russia; our country has attracted a significant portion of the transit of goods from China to Europe, which previously went through Russia. Thus, the economy of Kazakhstan grew actively in 2022” General Director of the investment company Damu Capital Management Murat Kastaev
Conversely, this year, the influx of liquidity from the Russian Federation to the Republic of Kazakhstan has sharply decreased. According to data from the Telegram channel of the First Credit Bureau DataHub, the share of Russia in money transfers to Kazakhstan has fallen to a minimum in a year and a half. In September 2023, one-third of all incoming funds (over 6.9 billion tenge out of 24.4 billion tenge) came from Russia through the money transfer system. This is the lowest figure since March 2022.
Thus, this growth factor has exhausted itself. However, the imported inflation from Russia has not.
“Despite the fact that we have our own national economy, we constantly look to Russia... Russia recently raised its key rate to 15%, and I think that their inflation will spill over into Kazakhstan” Noted DKnews.kz in November of this year, expert of the Institute of Innovative Economy Magbat Spanov
As the publication “Kursiv” reports, citing the IMF's May report, significant imported inflation from Russia persists in Kazakhstan against the backdrop of the devaluation of the ruble. According to economist Andrey Chebotarev, in 2022, inflation was imported. In addition, the global inflation rate rose, reaching a record high in the last 40 years. Askar Kysykov, Deputy Director of the Talap Applied Research Center, expressed a similar opinion last year during the economic dialogue “Kazakhstan in a New Reality,” stating that inflation in Kazakhstan is imported.
While the country was experiencing increased economic growth, high inflation could be tolerated. There is no economic growth without a surge in inflation. This is confirmed by our experience over the past two years of growth. In 2020, with a GDP growth of 2%, inflation was 7.3%, and in 2022, with a GDP growth of 3.2%, inflation reached 15%.
However, if growth factors, including the influx of liquidity, diminish, the costs of inflation become more pronounced. Keeping inflation within the target corridor of up to 5% by 2026 is a task for the government of Kazakhstan and the National Bank. The regulator uses its key tool - the base rate, which determines the course of the monetary policy (MP) in the country.
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Since 2022, the National Bank of Kazakhstan has begun to tighten its monetary policy, raising the base rate. Throughout last year, the base rate increased: from 10.25% in January to 16.75% in December. It remained at this “high note” until July 2023. After that, the regulator began to ease the policy and on November 24 of this year announced a reduction in the base rate by 0.25 percentage points - from 16% to 15.75%. The National Bank explained this decision by stating that annual inflation has begun to slow down.
According to Askar Kysykov, the National Bank is fighting inflation, “thinking that it is monetary.” The expert believes that this is why the regulator raises the base rate, although, according to him, it does not particularly affect anything except the income of banks, large deposit holders, and servicing public debt.
There are two sides to the coin: the flip side of a high rate is the suppression of economic activity in the country. Expensive loans make investments less accessible, and business credit activity declines, many experts believe.
For example, economist Marat Abdurakhmanov stated in an interview with Zakon.kz that with a base rate of 16.75%, entrepreneurs will incur losses.
“Due to the high base rate, business entities cannot produce a sufficient volume of products, leading to shortages and declining profitability of enterprises. Because money is too expensive for the economy” Marat Abdurakhmanov
“The high base rate strikes the real sector of the economy the hardest – those who produce real products and belong to the non-resource sectors” Believes economist Magbat Spanov
This primarily affects small and medium-sized businesses. This is acknowledged at the highest levels of the country. The head of state noted at an expanded government meeting in April this year that SMEs in Kazakhstan remain “outside the scope of accessible bank lending” and later instructed the National Bank to build a balanced financial system.
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Due to high inflation and the base rate, the cost of commercial loans is quite high, reaching 20-24%. This means that to pay these interest rates to banks, the profitability of the business must be around 30% net annual return, and there are very few business sectors where this can be achieved, added the General Director of DAMU Capital Management Murat Kastaev.
Economist Arman Beisembaev agrees with him:
“Borrowing at 20-25% per annum with your enterprise's margin at 5-10%, and sometimes even less – this is pure madness and suicide” Arman Beisembaev
Accordingly, when the base rate is lowered, loans usually become cheaper, the overpayment on them decreases, and entrepreneurs begin to actively borrow, developing their business.
Loans to businesses are certainly needed, as is growth - for the economy of the country. In the spring of this year, the government approved a comprehensive plan consisting of 67 measures aimed at stimulating economic growth. The Ministry of National Economy added additional measures to these. Among them are increasing production volumes, developing logistics for goods, controlling pricing, antimonopoly and foreign trade regulation, and other systemic measures.
“As part of the update of the set of measures, the ministry, together with the interested state bodies, has developed 46 new measures, mainly aimed at increasing production volumes” Alibek Kuantyrov
While external growth stimuli were in effect, the high base rate did not stop but only limited entrepreneurial activity. However, as external stimuli are exhausted, its suppressive effect becomes more noticeable. Against this backdrop, businesses positively perceived the recent decision of the National Bank to lower the base rate. This step is seen as a move towards more active corporate lending - experts from the publication “Kursiv” concluded, noting that “the change in the course of monetary policy is still happening very slowly.” And such a modest easing of monetary policy may be insufficient to revive the channel of bank lending to businesses. Further reductions in the base rate, along with measures from the government of Kazakhstan to be implemented in 2024, may become the internal stimulus for the growth of our country's economy - contrary to the forecasts of international experts.
On December 5, 2023, the National Bank of Kazakhstan announced that next year it plans to make 8 decisions regarding the base rate, and businesses hope that it will be steadily reduced.