In a reversal of hitherto continuous praise for Kazakhstan’s economic reforms, the IMF has urged the Kazakhstan government to tighten its economic policy so that the country can draw on the July 1996-approved US$440 million Extended Fund Facility (EFF) loan. The National Bank of Kazakhstan (NBK) has successfully avoided drawing on the EFF over the past two years. Now, however, it might find itself forced to do so.
Since mid-1994, Kazakhstan has followed an IMF-backed stabilization program. In 1996 the NBK slashed the budget deficit to 2.4 percent of GDP, thus even surpassing the IMF target of 2.8 percent (The Economist Intelligence Unit Country Profile, 1998-89, p.14). This tightening of fiscal policy was achieved mainly through a cut in spending. Revenue, by contrast, began to fall under former Prime Minister Akezhan Kazhegeldin’s government, as tax collection was poor and foreign investment funds misappropriated. Last year’s slow-down in privatization also dented revenue goals. This year’s sharp drop in world commodity prices has cast a distinct pall on an economy 30 and 50 percent reliant on oil and metals exports respectively. Further, despite frequent contrary assurances (see the Monitor, September 8, 14), the crisis in Russia–Kazakhstan’s key trading partner–has led to a 50 percent drop in Kazakhstan’s trade with its northern neighbor.
Consequently, today’s budget deficit is barely within the 5.5 percent GDP limit agreed upon with the IMF last year. Foreign currency reserves are down to US$1.3 billion because the government drew on reserves to support the tenge. Last, the initially forecast growth of 3 percent has been revised downward, with even zero growth deemed optimistic. Standard and Poor’s decision on September 16 to lower Kazakhstan’s long-term foreign-currency-issuer credit rating (see the Monitor, September 22) was followed on October 13 by its reduction of long-term partner ratings for two of Kazakhstan’s biggest banks, Halyk Savings Bank and Kazkommertsbank. On October 30, Willy Kiekens, the visiting IMF executive director, stated that the NBK could receive the agreed US$440 million EEF in the next six months–if the government agreed to further austerity measures.
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