Tuesday, 14 April 2020, 11:07:47
At the Government session chaired by Prime Minister Askar Mamin, the Minister of National Economy Ruslan Dalenov and Chair of the National Bank Erbolat Dossaev reported on the results of socio-economic development and the state of the banking sector of the Republic of Kazakhstan for the first quarter of 2020.
According to Dalenov, today the global economy is in a difficult situation.
“International financial institutions note the emerging global recession and low business activity amid protective measures against the coronavirus. There is a decline in the raw materials market,” said Dalenov.
Reporting on the results of socio-economic development of Kazakhstan for the first quarter of this year, the minister noted that in January-March GDP growth amounted to 2.7%. Investments in fixed assets grew by 5.1%. Annual inflation was 6.4%.
In the basic sectors of the economy, there has been a growth. Construction increased by 11.7%, communication services — by 10.5%, industry — by 5.8%, and agriculture — by 2.5%.
The industrial growth rate remained at 5.8%. Positive dynamics is noted in 15 regions. The highest growth was shown by Kostanay (by 19.8%) and Akmola (by 11.9%) regions. In the manufacturing sector, growth of 8.8% was achieved.
“This is due to the accelerated pace in pharmaceuticals, mechanical engineering, the production of building materials and light industry. In the manufacturing industry, all regions showed a positive trend. High growth is noted in Kostanay, Atyrau and Kyzylorda regions. The growth of investments in fixed assets amounted to 5.1%, including private investments grew by 5.4%. An increase in investments is noted in most regions,” Dalenov explained.
In the construction sector, there has been a dynamic growth of 11.7%. In 16 regions, growth was observed. The highest growth is noted in the Karaganda region by 50.8%.
Since the beginning of the year, 2.6 million squared meters of housing have been commissioned. The plan for 2020 is 15 million. Twelve regions showed growth dynamics. The largest increase is noted in Almaty (by 20.9%) and Zhambyl (by 20.6%) regions.
Agricultural output grew by 2.5%. For agriculture there is a positive trend in 15 regions. In terms of regions, six showed good results in terms of key indicators. These are Akmola, Aktobe, Karaganda, Kostanay, North Kazakhstan and East Kazakhstan regions.
“In order to minimize the negative effects of external factors, a number of comprehensive measures have been taken. These are tax incentives, support for SMEs and agribusiness, as well as measures to ensure employment,” Dalenov emphasized.
The minister also noted that in order to ensure macroeconomic stability, central and local executive bodies need to concentrate on the following aspects:
- accelerated launch of the season of active construction work under the Nurly Zher, Nurly Zhol and Employment Roadmap programs;
- quick public procurement with maximum payment of advance payments and support for domestic production;
- preventing price increases for socially significant foodstuffs above the established limit values, ensuring the active saturation of the market with foodstuffs;
- formation of a pool of projects for soft loans in the framework of the state programs Business Roadmap and the Economy of Simple Things;
- ensuring the achievement of the target level of investment in fixed assets for regional and national projects.
In conclusion, Dalenov noted that system monitoring of external and internal factors will continue.
Chair of the National Bank Erbolat Dossaev, in turn, noted that in March 2020, external conditions for Kazakhstan have significantly worsened amid the spread of the global coronavirus infection pandemic and a double drop in oil prices.
“To limit the impact of primary external shocks on the financial market of Kazakhstan and ensure financial stability on March 10, 2020, the base rate was increased to 12% with an interest rate band of +/- 1.5 percentage points The current exchange rate due to the aggravated external situation through the effect of the transfer to prices through the import channel strengthens the inflation risks,” Dossaev said.
Under the state of emergency introduced in Kazakhstan in March 2020, annual inflation rose to 6.4%, exceeding the 4-6% target corridor set for 2020.
The main contribution to inflation was made by the appreciation of food products, whose growth accelerated to 9.3%. Such dynamics was caused, on the one hand, by a seasonal increase in prices for vegetables, and on the other, by the spontaneous demand caused by the introduction of quarantine.
“Volatility in global financial markets, coupled with quarantine measures introduced everywhere, threaten a recession in the global economy. Such a negative prospect, along with a significant drop in oil prices, creates fundamentally new economic conditions and challenges for our country,” the chair of the National Bank emphasized.
Taking into account the anti-crisis measures initiated by the Head of State, the National Bank, for its part, adapted the monetary policy, reducing the base rate to 9.5% with an interest corridor of +/- 2 pp since April 6, 2020. Continued maintenance of a high base rate would limit economic activity. In combination with other anti-crisis measures, this will support business activity and will contribute to further lending to the economy.
As for the exchange rate, according to Dossaev, the situation in the foreign exchange market is developing under the influence of external fundamental factors.
“A sharp drop in oil prices by 2.9 times since the beginning of this year up to $22.7 per barrel in March 2020, as a result of the collapse of the OPEC + transaction, the weakening of the Russian ruble and increased volatility in the global financial markets amid the rapid spread of coronavirus put pressure on the domestic foreign exchange market. As a result, the tenge exchange rate for March 2020 weakened to 447.7 tenge per US dollar,” Dossaev explained.
In order to ensure financial stability and limit speculative transactions since March 10, 2020, the National Bank conducted interventions.
In addition, in the face of declining currency supply and sharp pressure on the tenge exchange rate, the Frankfurt auction method was activated for the first time in foreign exchange trading. This measure was aimed at reducing speculative pressure on the course.
To increase the balance of supply and demand in the foreign exchange market, together with the Government, a set of measures was taken to increase the supply of foreign currency. It includes the mandatory sale of a part of export foreign currency earnings and the transfer of foreign currency deposits by quasi-public sector entities to accounts with second-tier banks in the Republic of Kazakhstan, and the tightening of the requirements for buying / selling foreign currency by legal entities.
The increase in world oil prices, together with the measures taken, helped to strengthen the tenge exchange rate by 4.7% from the maximum value of 448.5 tenge per US dollar on March 19, 2020, up to 427.25 tenge per US dollar as of April 13, 2020.
Dossaev also spoke about the work carried out as part of the first package of anti-crisis measures initiated by the Head of State.
So, under the program of concessional lending to priority sectors of the economy as of April 10, 2020, banks accepted 619 applications for a total of 422.2 billion tenge, approved 470 projects in the amount of 292.2 billion tenge, issued 352 loans in the amount of 153 billion tenge.
The National Bank decided to expand financing of this Program by 400 billion tenge to 1 trillion tenge, which will be aimed at ensuring food security and reducing import dependence.
In addition, on behalf of the President Kassym-Jomart Tokayev, a soft loan program was developed and launched to support SMEs and individual entrepreneurs affected by the state of emergency. Under the program, banks were allocated conditional deposits for up to 12 months totaling 600 billion tenge. The disbursement of funds, which should be carried out in three months, has already begun. Entrepreneurs filed 647 applications, 45 loans worth 17.3 billion tenge were issued.
According to the program 7-20-25, on April 9, 2020, 17,328 applications for 199 billion tenge were approved, of which 14,616 loans worth 173.2 billion tenge were issued.
As part of the anti-crisis measures, the National Bank made changes to provide support for program borrowers by exempting from fines and penalties, deferring payments on principal and remuneration for up to 90 days.
As part of the second package of measures, the National Bank is working in several areas. In accordance with the order of the Head of State dated March 31, 2020, within the framework of the Economy of Simple Things Program, 100 billion tenge will be allocated for spring field work for one year.
The maturity of bonds of program participants will be increased from 7 years to 10.
As part of the second package of anti-crisis measures, the National Bank is considering the issue of financing measures to support business activity and employment in the amount of 600 billion tenge with a possible expansion to 700 billion tenge through the purchase of infrastructure bonds of Baiterek NMH JSC.
These funds will be allocated for further financing of local executive bodies and will be provided after allocation of 300 billion tenge from the republican budget to transfers to local budgets for the implementation of the Employment Roadmap.