While most of the CIS economies were reporting GDP growth at mid-year, Kazakhstan did not. Its GDP fell 3.3 percent during the first half of the year, with industrial output down 4.1 percent, investment off 6 percent and exports to other CIS countries down a stunning 58 percent (https://www.unece.org/stats/cisstat/kaz_q.htm). Economic recovery, however, may now be underway. Kazakhstan in July registered 4.7 percent GDP growth (compared to July 1998), while industrial production was up 7.0 percent (TACIS, Kazakhstan Economic Trends, July 1999). Strong monthly industrial output growth was reported in August as well. A bumper grain crop of 16 million tons–more than double 1998’s 6.4 million ton harvest (Reuters, November 11) is set to push agricultural output up sharply, further boosting second-half GDP. Rising shipments of industrial and agricultural products will also help the transport sector, which reported a 14 percent decline at mid-year. Meanwhile, higher world prices for energy and other commodities which make up 85 percent of Kazakhstan’s exports are helping Kazakhstan to recover from the CIS trade shock.
While the government has focused on keeping fiscal policy tight and thereby guaranteeing continued lending from the IMF, the National Bank of Kazakhstan (NBK) has loosened monetary policy in the second half of the year, in order to spur growth. The NBK dropped the refinancing rate from 20 to 18 percent on November 11; this rate had been 25 percent in August (Reuters, November 11). The NBK had hiked that rate in order to support the tenge in the aftermath of the Russian financial crisis. But modest inflation rates and growing foreign exchange reserves now seem to have convinced policy makers that they have little to fear from further depreciation of the tenge. Instead, the 2000 budget anticipates an average exchange rate of US$1 = 157 tenge for the entire year (compared to a rate of US$1 = 140 tenge on November 11).
Lower interest rates should help boost construction investment spending, and a weaker tenge should increase exports, providing further stimulus to growth. Since retail sales grew 3.7 percent during the first half of the year, consumption growth already seems to be on track. With Kazakhstan reporting GDP growth during the second half of this year, Ukraine is the only large CIS economy left in recession.
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