Economic growth in Kazakhstan reaches 3.1% in Jan-Aug

At the Government session chaired by Prime Minister Alikhan Smailov, the results of social and economic development and execution of the republican budget for Jan-Aug 2022 were considered. The Deputy Prime Minister, Minister of Finance Yerulan Zhamaubayev, Minister of National Economy Alibek Kuantyrov, Deputy Chairman of the National Bank of Kazakhstan Akylzhan Baimagambetov reported on the issue.

According to the Minister of National Economy Kuantyrov, in Jan-Aug, the growth rate of Kazakhstan's economy amounted to 3.1%. Growth in the real sector was 3.3%. Business activity in services grew by 2.3%. Among the sectors, construction, information and communication, transport and warehousing, trade, manufacturing, agriculture and mining showed positive growth.

There was an acceleration in the growth rate of investment in fixed assets to 5.7%. Investments in public administration and social security have doubled, investments in education have increased by 59%, in administrative and support services by 30%, in trade by 22%, in financial and insurance activities by 20%, in real estate operations by 18.8%, in construction by 15.7%.

In the regional context, the best indicators are observed in the cities of Shymkent, Almaty, as well as in Almaty, Kyzylorda and West-Kazakhstan regions.

In Jan-Jul this year, foreign trade turnover rose by 37% to $74.3bn, including exports rose by 53% to $49bn.

In this case, exports of processed goods increased by 35.7% to $14.3 billion. Imports of goods amounted to $25.3 billion. Overall, the positive trade balance amounted to $23.6 billion.

The manufacturing industry maintains a positive growth rate. During Jan-Aug of this year, production increased by 4.8%. Positive growth is recorded in 16 regions. The largest increase is noted in East Kazakhstan, Zhambyl and Kostanay regions, as well as in the city of Almaty.

"In terms of sectors of manufacturing industry, there is an increase of production in machine-building by 7.9% including automobile production by 18.2%, production of electrical equipment by 8.3%, food production by 3.5%, drinks by 7.5%, plastic products by 5.1%, ready-made metal products by 2.4%, chemical products by 11.8%, clothes by 7.1%. In the mining industry production increased by 0.7%. By sectors, production increased in the provision of services in the mining industry by 18.5%, gas extraction by 2.7%, coal by 2.2%, metal ores by 0.5%. In the extraction of other minerals recorded a decrease of 8.3%," Kuantyrov informed.

In the marked period the volume of construction work performed increased by 7.5%. Positive growth was recorded in 16 regions. The greatest growth of construction and assembly works was noted in Almaty, Ulytau and Akmola regions, as well as in the cities of Shymkent and Almaty.

In Jan-Aug of this year 8.8 mln. sq. m of housing was commissioned that is 1.2% less than analogous period of 2021. Positive growth was recorded in 14 regions. The highest rates are observed in Turkestan, Almaty and Pavlodar regions, as well as in the city of Shymkent.

Reduction was observed in the newly formed Ulytau and Zhetysu regions, as well as Mangystau, Atyrau regions, in the cities of Almaty and Nur-Sultan. 

The volume of gross output in agriculture increased by 4.3%. Positive growth of production in the industry was recorded in 16 regions. The largest growth was shown by Mangystau, Kostanay, North Kazakhstan, Abay and Akmola regions.

The overall situation in the regional context by 7 economic indicators is as follows. For all indicators positive growth is observed in 4 regions, such as Akmola, Karaganda, Kostanay regions, as well as in the city of Shymkent. For 6 indicators there is a growth in 8 regions. These are Aktobe region, Almaty region, Zhambyl region, Kyzylorda region, North-Kazakhstan region, East-Kazakhstan region, as well as Nur-Sultan and Almaty cities.

Central and local executive bodies are invited to focus on the following measures.

1. Ensuring the availability of food products with effective control of trade markups and investigation of intermediary schemes;

2. Achievement of planned harvest figures with the provision of necessary logistical conditions;

3. Formation of favorable conditions for attracted investors and their systematic support at all levels;

4. Promotion of uninterrupted supply of Kazakhstani exports, including through alternative transport routes;

5. Provision of comprehensive support to businesses within the existing instruments, ensuring a timely response to emerging requests. Full implementation of the above-mentioned measures will ensure acceleration of economic growth in the country.

The Deputy Chairman of the National Bank of Kazakhstan, Akylzhan Baimagambetov, noted that the situation on the global markets in August this year remained volatile against the background of continuing high inflation and risks of recession in developed countries. At the same time, the growth of prices in the world is showing signs of slowing down. Global business activity declined to 49.3 in August. Global output fell in both manufacturing (50.3) and services (49.2). The decline was concentrated in developed markets.

In Kazakhstan, long lead times for raw materials and lower employment in some sectors continued to restrain real sector business activity. The business activity index declined to 47.8 in August from 48.0 in July this year.

According to Baimagambetov, global price pressures are showing signs of reversing. Growth in global input costs has been slowing for three months in a row and reached its lowest level since March 2021. The cooling of price pressures follows the most aggressive monetary tightening seen globally in modern history.

The realization of geopolitical risks and monetary tightening by developed country central banks continue to weigh on global stock indexes.

"Monthly dynamics of inflation in Kazakhstan, despite the decline from the peak after the shock value of March this year, recalling 3.7%, is still high, exceeding the annual average. In annual terms inflation reached 16.1%. The greatest contribution continues to be made by rising food prices, which reached 20.8% in annual terms. The acceleration of inflation occurs against the background of continuing significant inflationary pressure in the context of the restructuring of logistics and production chains. An additional factor of price growth is high and not stated inflation expectations," Baimagambetov said.  

Non-food inflation also accelerated to 15.5% due to the continued rise in the cost of imported goods. Inflation of paid services reached 10.1%. Tariffs for services of monopoly enterprises changed in almost all regions due to the end of the moratorium on tariff increases until July 1, 2022.

"At the end of this year, according to updated forecasts, inflation is expected to be 16-18%, which is higher than our previous estimates and is associated with higher-than-expected actual inflation, fiscal impulse and acceleration of sustainable components of inflation," Deputy Chairman of the National Bank said.

Taking into account the balance of risks, the National Bank kept the prime rate at 14.5% on September 5 this year. In the medium term, the expected decline in external prices and a slowdown in inflation in the Russian Federation will be offset by fiscal stimulation of domestic demand. Inflation in 2023 is forecasted at the level of 7.5-9.5%, while in 2024 - 5.5-7.5% under the baseline scenario. The exchange rate of tenge appreciated by 1% against the dollar in August this year, to 472,29 tenge per dollar.

As Baimagambetov emphasized by, the main factor in strengthening the national currency in August was the sale of foreign currency by exporters for quarterly tax payments.

At the same time, pressure on the exchange rate of tenge, as well as on the currencies of emerging markets, continue to have an active tightening of monetary policy of the U.S. Federal Reserve System and the global strengthening of the U.S. dollar. In Jan-Aug, tenge was supported by sales of foreign currency proceeds by quasi-state sector entities, sales of currency to secure transfers from the National Fund to the Republic of Belarus, and currency interventions by the National Bank.

"Freely floating exchange rate allowed the economy to adapt to external shocks. Since April this year, the National Bank has not intervened in the sale of foreign currency. According to the preliminary results of the first half of this year, the current account of the balance of payments was in surplus of $6.6 billion due to high commodity prices. The trade surplus amounted to $21.6 bln, having increased by $12.5 bln due to outrunning growth of goods exports over imports. Nevertheless imports of goods by balance of payments methodology grew by $2.9bn or nearly 16% to $20.7bn. Income of foreign direct investors increased by $2.8bn to $13.5bn," Baimagambetov explained. 

Under a scenario of a gradual reduction in oil prices to $90 per barrel in 2023, the current account of the balance of payments is expected to move into surplus territory. According to estimates, the surplus will amount to $7 billion and will be provided by improvement of the trade balance. Exports of goods by balance of payments methodology will increase by 35%, to $81.6 billion. Export growth will be due to high world prices for oil, metals, uranium and crops. Imports of goods by methodology of balance of payments will remain at high levels and will amount to $44.2 billion. The growing consumption of foreign products will be a consequence of insufficiency of Kazakh production to cover domestic needs and will continue to be stimulated by increasing volumes of fiscal expenditure.

According to the Deputy Chairman of the National Bank, the current account surplus is unstable and is a consequence of high levels of world commodity prices, primarily oil, while maintaining the volume of exports of finished goods at a fairly low level.Ensuring sustainability of the balance of payments to external shocks requires increased efficiency in implementing the objectives of the Government, aimed at increasing the non-commodity exports and saturation of the domestic market with domestically produced goods.

"Gross international reserves for August increased by $382 million and amounted to $86.5 billion, including foreign exchange assets of the NBK $32.7 billion, assets of the National Fund $53.8 billion. For allocation of transfers to the national budget by 3.3 trillion tenge since the beginning of the year were sold currency assets of the National Fund by $3.3 billion. Against the background of a significant increase in oil prices, revenues to the National Fund amounted to 4.6 trillion tenge from the beginning of the year, having increased almost 3.3 times. The average annual return of the National Fund from the beginning of its establishment until the end of August of this year is 3.05%, and for the last 5 and 10 years 1.29% and 1.39% per annum, respectively," Baimagambetov informed.  

UAPF pension assets at the end of August this year amounted to 13.9 trillion tenge, having increased from the beginning of the year by 919 billion tenge, or 7%. The volume of investment income since the beginning of this year amounted to 718 billion tenge, pension contributions amounted to 1,097.3 billion tenge, pension payments - 175.7 billion tenge, early withdrawals to 848.4 billion tenge. The yield of pension assets for the last 12 months amounted to 8.6%. At the same time, in terms of sustainability of the funded pension system, it is advisable to consider indicators of yield and inflation over a long time horizon. For example, accumulated yield on pension assets over 5 years was 56.8% with accumulated inflation of 51.4%.

Deputy Prime Minister and Minister of Finance Yerulan Zhamaubayev said that for the first 8 months of this year, the state budget received 10 trillion 85 billion tenge or 105% of the plan. The republican budget revenues amounted to about 6.8 trillion tenge or the plan was implemented by 102%.

The plan was over-fulfilled by 125 billion тã, including taxes by 69 billion тã, non-tax revenues by 56 billion тã.

The minister said the over-fulfillment of taxes mainly accounted for VAT and export customs duties on crude oil.

Factors of overfulfillment of the plan on VAT compared to the same period last year are: 

  • increase in the turnover of sales of goods, works and services by 30%.
  • decrease in the amount of VAT refunds by 27 billion tenge;
  • increase in the volume of imports from third countries by 22%.

The plan for ETP for crude oil was overfulfilled due to growth of average world price for crude oil, as well as weakening of tenge to US dollar exchange rate.

The plan was not fulfilled by corporate income tax and import customs duties.

According to the Minister, non-fulfillment of the plan on corporate income tax was caused by a 26% decrease in the amount of declared advance payments for 8 months of 2022 on 629 major taxpayers compared to the same period last year.

"Failure to fulfill the plan for import customs duties is due to the geopolitical situation and sanctions," Zhamaubayev said.

Revenues of local budgets were executed by 111.6% and amounted to 3.3 trillion tg. The plan was overfulfilled by 345 billion tenge, including 323 billion tenge on taxes. Plans for revenues are overfulfilled in all regions except for Turkestan and Mangystau regions.

"State budget expenditures are executed by 98.4%, republican expenditures by 99.5% and local budgets by 97.6%. The republican budget expenditures amounted to 11.7 trillion tenge. The default amounted to 60 billion tenges, of which 11 billion tenges were savings. Unused - 49 billion tenge. The largest amounts of under-utilization were in the Ministries of Interior, Defense, Emergency Situations and Education," Deputy Prime Minister said in his report.

As Yerulan Zhamaubayev said, the main reasons for under-utilization: the long holding of competitive procedures, late provision of acts of work performed, invoices, the lengthy procedure for concluding contracts, additional agreements, payment made for the actual amount of services rendered, the lack of need for spending funds in the reporting month.

During the report, the head of the Ministry of Finance also reported on the expenditure items of local budgets.

"Expenditures of local budgets amounted to 6.3 trillion tg. Not executed is 155 billion tenge. This year, target transfers of 3.3 trillion tg are envisaged to the regions. By September 1, 1.9 trillion tenge was allocated to them. Of these, 95.6% has been absorbed. There is 85 billion tenge, of which 7 billion tenge was saved and 78 billion tenge was not mastered," the Minister of Finance said.

According to the Minister, the greatest under-utilization was in the following regions: Almaty, Mangystau, Karaganda and Turkestan regions.

As noted by the head of agency, the main reasons for the lack of implementation: adjustments to the design and estimate documentation, late provision of acts of completed works, a long tender procedures, late submission of the bill for payment to the treasury.

At the same time, during the Government meeting, Minister of Finance Zhamaubayev reported on the results of the state audit.

During 8 months of this year cameral control covered almost 392 thousand procedures for public procurement worth about 8.7 trillion tenge.

As a result of inspections, violations were found on 26,241 procedures. 1,645 audit activities were carried out. The audit covered about 3.3 trillion tons of budget funds.

Financial violations of 249 billion tenge were identified. Violations were eliminated by 236 billion tenge by restoring the supply of goods, services and works.

According to the Minister of Finance, 1,442 recommendations were given to improve and enhance the effectiveness of the audited objects.

Also, Yerulan Zhamaubayev reported at the Government session on the data on management of state assets.

"The comprehensive privatization plan for 2021-2025 provides for the realization of 675 objects. During the reporting period, sold and transferred to the trust management with the right to subsequent redemption of 240 objects in the amount of 57 billion tenge. 65 objects are in the auction. 36 objects were sent for reorganization and liquidation. 334 objects are in pre-sale preparation. These are the results of execution of public finances for the reporting period," Deputy Prime Minister, Minister of Finance of the Republic of Kazakhstan Yerulan Zhamaubayev summarized.

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