This year, Kazakhstan will not be able to return to the pre-crisis economic growth rates. Although the dynamics of GDP will be positive, it will not reach the pre-crisis level of 4.5%. The production of goods and services in 2021 will grow by only 2.5%, in 2022 by 3.5%. Such forecasts are given by analysts of the World Bank, which has published a country report on Kazakhstan.
According to WB experts, 2020 has become the most difficult year for the economy of Kazakhstan over the past two decades. The pandemic and falling prices for Kazakhstan's main export commodity have led to much worse consequences than the crises of 2008 and 2015. For the first time since the early 2000s, the dynamics of GDP showed negative values. According to the Minister of National Economy Ruslan Dalenov, voiced by him at a government meeting, in January-November 2020, this macroeconomic indicator was minus 2.8%, in the first half of the year it was even lower at minus 3%.
According to the forecasts of the World Bank experts, the final level of GDP decline over the past year in Kazakhstan will be minus 2.5%. This assessment is comparable to the economic scenarios voiced by other international development institutions. The Eurasian Development Bank predicts a fall in the economy of Kazakhstan by the end of 2020 by 2.5%, the International Monetary Fund by 2.2%. The results, summed up by the specialists of the Ministry of National Economy of Kazakhstan, showed that the economy of the republic fell by 2.6%.
The World Bank report presents a basic scenario for economic development for 2021-2022, which is most likely provided that the pandemic is brought under control. The document says that this year the dynamics of GDP will change direction from negative to positive, up to plus 2.5%. This is possible under the conditions of a gradual easing of restrictive measures, the beginning of vaccination of the population both in Kazakhstan and around the world. 2022 should be the year of the beginning of a slow recovery in economic growth rates, up to plus 3.5% by December.
The cost of a barrel of crude oil on world markets in 2020 fell to a record low over the past 17 years at $25. The demand for this product, according to the International Energy Agency, has been reduced by 8.6%.
According to the Ministry of National Economy of Kazakhstan, in January-November, oil production decreased by 4.8% and amounted to 78.5 million tonnes. World Bank data provide insight into the potential losses in this industry. WB analysts believe that the oil sector in Kazakhstan fell by 8.5% by the end of the year.
Lockdown, the decline in economic activity over the past year has further increased the dependence of Kazakhstan's economy on black gold. As of the end of September, revenues from oil sales amounted to 10% of GDP, having increased by 2.2% over the year. The deficit of tax revenues to the budget of Kazakhstan, associated precisely with the consequences of the pandemic and the oil crisis, is estimated by WB experts at $2.6 billion.
"The second wave of the pandemic and restrictions in the Eurozone countries, in Kazakhstan's main export market, continue to pose a threat to the rapid recovery of demand in the short term," the WB report said.
Experts agree that prices will stabilise on key export markets this year, and a barrel of oil will be sold at $40. Global production will grow slightly. Production in Kazakhstan is expected to grow by 2.1% in 2021 and by 1.2% in 2022.
The gross inflow of foreign direct investment in the first nine months of 2020 amounted to $12.6 billion, which is 31% lower than the same period in 2019 at $18.4 billion. This data provided by the National Bank of Kazakhstan.
The overall figure was influenced by the decline in foreign direct investment in the oil sector. Foreign investors in January-September 2020 invested $4.9 billion in oil and natural gas production in Kazakhstan, which is almost half less than in the three quarters of 2019 at $9.4 billion. The manufacturing industry was missing 10% of FDI or $2.3 billion, trade at 17% of the volume of investments in the nine months of 2019 or $1.8 billion.
The World Bank gives this indicator in terms of GDP. If in 2019 the total FDI in Kazakhstan was equal to 3% of the gross domestic product, then by the end of 2020 they will decrease to 2.2%. A slight increase is projected this year, up to 2.6%, a significant increase in 2022, up to 5.1% of GDP. Everything will depend on the general level of uncertainty in the financial markets.
The banking system of Kazakhstan has survived the crisis thanks to the relaxation of regulatory requirements and the development of consumer lending programs. The authors of the WB report came to such conclusions by analysing the information of the National Bank of Kazakhstan. Compared to 2019, 2020 showed a significant increase in consumer loans by 6%.
“The ratio of NPLs to total loans increased to 8.7% by September 2020, up from 8.1% at the beginning of the year. This indicates an increase in the frequency of forthcoming defaults, as economic activity in the country remains weak. For some banks, the deterioration in asset quality is accompanied by significant volumes of long-standing problem loans,” the WB experts note.
Higher food prices were the main driver of inflation in 2020. In December 2020, according to the Bureau of National Statistics, it was 7.5%. The target range of the NBK assumed that the growth would not exceed 6%.
According to the report of the Chairman of the NBK Yerbolat Dossayev, voiced by him at a government meeting, food inflation as of November amounted to 10.8% against the background of increasing imbalances in the markets of certain food products, in particular sugar and vegetable oil. Non-food products in late autumn increased by 5.7% due to the rise in clothing prices. Inflation of paid services amounted to 4.1% due to an increase in utility tariffs, services in the field of culture and recreation.
The WB analysts who worked on the report believe that apart from the factor of depreciation of the national currency, the increase in the price tag for food is probably caused by increased demand. This is a consequence of the savings that people made because of fears that there would be food interruptions. The rise in the cost of non-food products and services indicates that many companies were simply passing the increased costs onto their customers.
The baseline scenario for the development of events in the next two years assumes that in 2021 inflation will be at the level of the target range of the NBK up to 6.6%, in 2022 up to 5.9%.
The scale of the consequences of the pandemic, according to the WB study, will erase all the progress Kazakhstan has made over the past 20 years in poverty reduction.
According to the World Bank, the proportion of citizens living on less than $5.5 per day or 2.3 thousand tenge, may grow from 6% to 14% or 1.5 million people.
Moreover, this indicator can differ significantly in urban and rural areas. Under the most optimistic scenario of economic development, in megalopolises this figure will be 4%, in small towns at 9%, in villages at 13%. In the worst case, in Almaty, Nur-Sultan and Shymkent, the number of poor people will be at 9%, in other cities at 13%, in villages at 17%.
“In the long term, prompt and well-thought-out social assistance to the population is necessary, but it will not be enough to help Kazakhstanis return to the dock level of well-being. We need additional support for the labour market, the provision of high-quality basic public services, the development of flexible forms of employment, and advanced training of workers," the WB economists recommend.
By Irina Osipova for Kursiv (Kazakhstan).
