IMF raises economic growth forecast for Kazakhstan slightly
ASTANA. May 11 (Interfax) - An International Monetary Fund (IMF) mission projects 6% growth for Kazakhstan in 2012.
"For 2012, IMF staff projects robust growth of 6 percent with a continued rebound of nonoil activity, and a modest pick-up of inflation from the current level to 6-7 percent," the IMF said in Consultation Concluding Statement after holding discussions with the Kazakhs authorities in spring 2012.
The IMF has already upgraded its forecast for Kazakhstan's 2012 growth from 5.6% to 5.9%, according to the survey of the World Economic Outlook.
The Kazakh government has estimated the 2012 economic growth at 6% and set the inflation band at 6%-8%.
Over the medium term, the IMF expects growth to converge to 6-6.5%, and inflation to remain within the objective of 6-8%.
"Favorable commodity prices underpin an auspicious economic outlook, albeit one subject to risks," said the IMF.
The main external risk, IMF experts said, is "a protracted global slowdown, in particular if it affects China and Russia. "It could affect Kazakhstan through trade, finance, and investment channels. If these developments are combined with a decline in commodity prices, the adverse impact on Kazakhstan's economy and its banking system will be even stronger," according to the statement.
"Conversely, if world oil prices remain high, the economy will continue to benefit from positive spillovers," the IMF said.
"Overall, while Kazakhstan's strong net foreign asset position and its good track record of fiscal management are critical shock absorbers, healthier banks would be an essential complement to the existing buffers to protect the economy against possible deterioration in global conditions," the statement says.
The IMF notes that economic performance continues to be strong led by high commodity prices. "The rebound from the crisis in 2007-09 has been impressive, with real GDP growth reaching 7.5 percent in 2011. Notably, growth has become more broad-based, as high commodity prices helped spur activity in transport and communications and domestic demand," according to the statement.
"At the same time, slowing international food prices and a record high harvest, aided by administrative measures to limit price increases for fuel and staple food items, brought inflation below 5 percent. The external position strengthened further, with the current account surplus increasing to 7.75 percent of GDP, the highest level in recent history," said the IMF mission.
Besides, the IMF said, resources of the National Fund and National Bank of Kazakhstan's (NBK) international reserves provide an ample external buffer of $80.5 billion, equivalent to 17 months of imports.
The financial performance of the banking sectors is signaling possible recapitalization needs for some banks, said the IMF.
"While banks' reported capital adequacy ratios are strong, accrued but not received interest income has continued to expand, raising doubts about recovery of restructured loans and signaling possible recapitalization needs for some banks," the IMF said.
"So far, hopes that economic growth and government ad-hoc support to distressed borrowers in the construction, real estate and SME sectors would help to improve the quality of the loan portfolio have not been justified, as activity in construction and real estate, the sectors subject to highest bank exposure, remains flat. Moreover, low asset quality is leading to increased risk aversion and undermining banks' preparedness to finance productive projects," said the experts.
The IMF mission said in this context that "restoring the health of the banking system remains a key short-term policy priority."
The authorities have adopted regulations to contain banks' risks, including by discouraging foreign currency lending, increasing minimum capital requirements, requiring better governance and transparency practices, and temporarily removing tax impediments to writing off bad loans, said the IMF.
"Ultimately, successful resolution of problem loans will depend critically on the willingness of banks to accept realistic asset valuation and recognize losses, and on the readiness of the NBK to enforce proper provisioning and adequate bank capitalization," said the experts.
"New capital should come in the first instance from existing shareholders, and the public sector should stand ready to inject funds to support viable banks. In addition, the NBK, as the banks' regulator, should strictly enforce existing regulations, refrain from forbearance, and ensure that banks adopt and implement better practices in governance, accountability, and risk management," according to the statement.
The experts believe that the banking sector has still not fully recovered from the severe shock in 2007.
"Foreign liabilities have fallen drastically, aggregate liquidity is ample, and provisioning of overdue loans is still relatively high. Nevertheless, domestic banks' burden of nonperforming loans has further increased, and BTA bank has embarked on a second debt restructuring with external creditors after a default earlier this year," said the IMF.