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8.1% import growth expected in 2021 — National Bank

Tuesday, 25 August 2020, 09:57:46

At a government session chaired by Prime Minister Askar Mamin, the Forecast of Socio-Economic Development of Kazakhstan for 2021-2025 was considered. Chair of the National Bank Erbolat Dossaev made a presentation during the session.

The consequences of the coronavirus pandemic have led to a revision of the forecasts for the development of the world economy. Despite the beginning of the recovery of the largest economies in the world, the risks of a protracted recovery remain against the backdrop of the second wave of coronavirus and the escalation of political and trade disagreements between the United States and China.

Amid the beginning of the recovery of the world economy and the growth of energy consumption, oil quotations of the Brent brand rose 2.8 times from the minimum level in April 2020 to $45.1 per barrel on Aug. 25, 2020.

“Further growth in oil prices this year will be limited due to the possibility of a second wave of coronavirus, aggravation of trade relations between the United States and China, as well as against the background of an increase in oil production by OPEC + participants from Aug. 1, 2020. Surveys of Kazakhstani enterprises conducted by the National Bank indicate the expectation of low rates of economic recovery in the 3rd quarter of this year. Started in July 2020, the decline in business activity may continue in August 2020 against the background of quarantine restrictions,” said the chair of the National Bank of Kazakhstan.

Taking into account the updated macroeconomic data, the forecast of socio-economic development in terms of monetary policy indicators has been updated.

1. Inflation forecast

Against the background of weak domestic demand, which will have a disinflationary effect, the inflation forecast for 2020 has been revised from 9-11% at the first stage of the EDSP to 8-8.5%. 

Inflation will also be impacted by the exchange rate pass-through to prices amid the expected balance of payments deficit, as well as the increased fiscal impulse, which will continue to affect inflation in 2021. Accordingly, according to our estimates, in 2021, amid a gradual increase in oil prices and the recovery of the domestic economy, annual inflation will form closer to the upper border of the 4-6% corridor and will form in this corridor in 2022 as well.

In this regard, the inflation forecast corresponds to the following targets: 4-6% in 2021-2022, 4-5% in 2023-2024, and 3-4% in 2025. 

Non-food inflation remained at 5.4%, while prices for fuels and lubricants continued to decline (gasoline — by 0.2% in July). The annual growth in the prices of paid services increased from 3.0% to 3.2% in July against the background of the gradual exhaustion of the effect of the temporary reduction in tariffs for utilities during the state of emergency. Tariffs for regulated utilities for July of this year increased by 0.9%.

2. Balance of payments

In the first half of 2020, a surplus of the current account of the balance of payments was recorded (according to preliminary estimates, USD 2.1 billion) due to a decrease in income payable to direct investors and relatively high prices and volumes of oil supplies.

At the end of 2020, a deficit in the current account of the balance of payments is expected, despite a 13.1% reduction in imports of goods predicted in 2020 against the background of a decrease in effective demand and a slowdown in the implementation of investment projects due to the pandemic by the end of the year.

A deficit in the current account of the balance of payments in 2020 will form against the background of a decrease in exports of goods due to a general decline in oil prices compared to last year and compliance with the terms of the OPEC + deal to reduce oil production, as well as a gradual recovery in income payable to direct investors in the second half of 2020.

In the future, the projected dynamics of imports will be determined by the implementation of an active import substitution policy. At the same time, in 2021 imports are expected to recover and grow by 8.1% due to deferred demand and accelerated implementation of investment projects after their "freeze" in 2020.

The merchandise export outlook reflects expectations for an increase in non-commodity exports, which will lead to a phased increase in exports to above $50 billion by 2025. The National Bank supports the Government's plans to increase manufacturing exports by 42% by 2025.

3. Monetary policy

Monetary policy indicators, including money supply, deposits and loans, are projected based on the forecast of nominal GDP growth provided by the Ministry of National Economy for the medium term. 

At the end of 2020, a weak growth in deposits is expected, due to which part of consumer spending will be financed against the background of a decrease in real incomes of the population. Foreign currency deposits decreased by 0.2% tenge, amounting to 8.2 trillion tenge at the end of July of this year. As a result, the level of dollarization of deposits decreased to 39.5% in July of this year. (43.1% in December 2019). In addition to deposits, the volume of cash in circulation will grow amid rising social benefits, which together will increase the money supply in 2020.

We expect that loans to the economy will also grow slowly amid a slowdown in business activity this year. Since the beginning of this year, loans from second-tier banks have increased by 0.5% (or 67.1 billion tenge) to 13.9 trillion tenge at the end of July 2020.

The National Bank is currently conducting a forecast round "August-September", within which the forecasts of macroeconomic indicators will be revised. In particular, the current forecast of GDP contraction for 2020 will be updated, taking into account actual data on GDP contraction for 7 months of this year. by 2.9%.

4. Budget deficit and the National Fund

The draft republican budget provides for a significant increase in the state budget deficit and the volume of transfers from the National Fund.

As a result, according to the forecast, by the end of 2023, the funds of the National Fund will amount to 30.8% of GDP, approaching the level of the minimum balance – 30% of GDP.

In this regard, taking into account the introduction of the countercyclical budget rule in 2021, it will be necessary to take measures to maintain the saving function of the National Fund and reduce the oil deficit.

The volume of guaranteed transfers for 2021 – 2.7 trillion tenge, for 2022 – 2.4 trillion tenge, for 2023 – 2.2 trillion tenge. At the same time, for 2021, a targeted transfer of 1 trillion tenge is also provided. 

The funds of the National Fund at the end of 2020 are forecasted in the amount of 27.3 trillion tenge (38.5% of GDP), 2021 – 26.6 trillion tenge (34.7%), 2022 – 26.9 trillion tenge (32.7%), 2023 – 27.6 trillion tenge (30.8%).

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