96195 Kazakhstan Economic Update No.1 | Spring 2015 Low Oil Prices; an Opportunity to Reform Macroeconomics & Fiscal Management Global Practice Kazakhstan: Low Oil Prices; an Opportunity to Reform ________________________________________________________________________________________ Kazakhstan Economic Update Spring 2015 Government Fiscal Year: January 1 – December 31 Currency Equivalents: Exchange Rate Effective as of April 10, 2015 Currency Unit = Kazakhstan Tenge (KZT) US$1 = 185.65 KZT Weights and Measures: Metric System Abbreviations and Acronyms FX Foreign exchange HBS Household Budget Survey IFI International financial institution NBK National Bank of Kazakhstan NPL Non-performing loan PLF Problem Loans Fund PPP Purchasing power parity RIA Regulatory impact assessment SEC Social-entrepreneurial Corporation SMEs Small- and medium-sized enterprises SOEs State-owned enterprises UAPF Unified Accumulative Pension Fund ii| Table of Contents Foreword................................................................................................................................................................................................v Overview ............................................................................................................................................................................................... 1 A. Recent Political Developments........................................................................................................................................ 1 B. Recent Economic Developments .................................................................................................................................... 2 C. Economic Policies................................................................................................................................................................... 3 D. Structural Policies .................................................................................................................................................................. 9 E. Outlook ......................................................................................................................................................................................10 F. Focus Section: Employment and Shared Prosperity in Kazakhstan ..........................................................12 Annex. Kazakhstan: Key Macroeconomic and Social Indicators, 2011-17 .......................................................18 Figures Figure 1. Tenge devaluation affected severely private domestic demand in 2014........................................ 2 Figure 2. Industrial growth slowed; growth was underpinned by the service sector .................................. 2 Figure 3. Job creation in services contributed to further decline in unemployment .................................... 3 Figure 4. Better paid jobs in cities attract labor from rural areas, reducing poverty incidence ............. 3 Figure 5. Government launched two economic support programs, financed from the Oil Fund............ 7 Figure 6. As a result of the support programs, non-oil deficit widened in 2014–15 ..................................... 7 Figure 7. Despite a significant fall of oil prices in H2-2014, the authorities maintained the peg ........... 7 Figure 8. Official reserves started declining due to the fiscal stimulus and the peg support ................... 7 Figure 9. Oil price fall drags GDP growth down, exacerbating weakened external demand ..................11 Figure 10. The oil price shock hits the current account and fiscal balances....................................................11 Figure 11. Employment by sector, 2003–13.....................................................................................................................13 Figure 12. Wages and poverty reduction, 2003–13......................................................................................................13 Figure 13. Working age population profile, 2013 ..........................................................................................................14 Figure 14. Official unemployment rates, 2001–13 ........................................................................................................14 Figure 15. Income growth, 2006–13 ....................................................................................................................................14 Figure 16. Growth in consumption, 2006–13 ..................................................................................................................14 Figure 17. Employment by region, 2013 ............................................................................................................................15 Figure 18. Employment type and upward mobility ......................................................................................................15 Figure 19. Upward mobility, 2006–13.................................................................................................................................15 Figure 20. Household status, 2006–13 ................................................................................................................................15 Figure 21. Distribution of poverty reduction by region .............................................................................................16 Figure 22. Education by consumption decile, 2013......................................................................................................16 Figure 23. Employment growth by job type, 2003 –13 ..............................................................................................17 Figure 24. Employment and value added per worker .................................................................................................17 |iii Tables Table 1. Kazakhstan: The Economic Support Package for 2014–17 ...................................................................... 4 Table 2. Kazakhstan: Republican Budget and Oil Fund Transactions, 2011–15 ............................................. 5 Table 3. Kazakhstan: Real Effective Exchange Rates...................................................................................................... 8 Table 4. Kazakhstan: Public Debt Sustainability, 2013–20.......................................................................................11 Box Box 1. How Changes in Public Spending Are Likely to Affect GDP Growth in Kazakhstan......................... 6 iv| Foreword This report is part of series aimed at monitoring developments in Kazakhstan. It presents a broad overview of macroeconomic, political and structural developments in the country in 2014 and early 2015. The authors are Dorsati Madani and Ilyas Sarsenov (Senior Country Economists for Kazakhstan). Victoria Strokova (Young Professional), Sarosh Sattar and Joao Pedro Wagner de Azevedo (Senior Poverty Economists), and Judy Yang (consultant) provided valuable contributions to the special focus section. The report benefited from the comments of Aurelien Kruse and Naoko Kojo (Senior Economists) and guidance from Ludmilla Butenko (Country Manager for Kazakhstan). Sarah Nankya Babirye and Zakia Nekaien-Nowrouz provided excellent support in the preparation of the report. Miria A. Pigato Practice Manager Macroeconomics and Fiscal Management Global Practice |v Overview Kazakhstan’s GDP growth slowed in 2014 because of weak demand and the fall in oil prices. It fell from 6.0 percent in 2013 to an estimated 4.3 percent in 2014, and is projected to drop to 1.3 percent in 2015. Domestic demand was affected by the loss of consumer purchasing power and of consumer confidence after the February 2014 devaluation.1 Investor sentiment was affected by regional geopolitical developments, the fall in oil prices, and expectations of further exchange rate adjustment. Weaker external demand (from China and Russia) and lower oil prices have caused Kazakhstan’s current account and fiscal balances to deteriorate. Government policies were directed to mitigating the impact of lower oil prices on growth. The authorities have combined a modest fiscal expansion with tighter monetary policy to manage the pressure on the tenge. The fiscal expansion—two economic support packages launched in 2014— has been mitigated by simultaneous budget cuts in other areas. Although it is expected to marginally boost growth in 2015, the expansion is not likely to be sufficient to counteract the downturn. However, it is expected to have a positive impact on the labor market because more labor-intensive public works are expected. Tighter monetary policy, introduced to support the exchange rate, has led to lower credit growth, raised the cost of borrowing, and affected domestic demand. So far labor market and poverty reduction outcomes do not seem to have been affected by the downturn, thanks to continued job creation, inter-sectoral and geographic mobility, and new employer “social arrangements.” As services continued to expand in urban areas in 2014, the sector continued to create jobs—the main driver of poverty reduction—which helped to absorb significant migration from rural to urban areas. The official unemployment rate declined from 5.2 percent in 2013 to 5.0 percent in 2014. Social arrangements, in which companies retain employees on rosters but with fewer hours or leave without pay, may have helped to keep official unemployment rates low. The same factors that slowed growth in 2014 are also clouding the outlook for the medium term. Given the anticipated slowdown in China and the recession in Russia, prospects for external demand are not promising. Lower oil export revenues are likely to translate into current account and fiscal deficits. Trade and transport services will be affected by a knock-on effect from lower mining and industrial exports. However, GDP growth is projected to recover gradually along with oil prices. Continuing the current policy mix of modest fiscal expansion and tight monetary policy will not boost the economy; for the medium term a more neutral monetary policy stance and a more flexible exchange rate regime would more sustainably support growth. A. Recent Political Developments Kazakhstan continues to be politically stable, and the government has plans to build up public and market institutions. Presidential elections are scheduled for April 26, 2015, with President Nazarbayev considered as the front-runner, and parliamentary elections will follow in 2016. The authorities are committed to continuing their efforts to heighten the transparency, accountability, and legitimacy of public institutions. The program of institutional reforms is designed to (1) improve the delivery of public services by focusing on skill-building and meritocratic processes within the civil service; (2) improve the business environment by streamlining regulations; (3) strengthen the 1 On February 11, 2014, the tenge was devalued by 19 percent against the U.S. dollar. |1 rule of law by guaranteeing property rights, protecting contracts, and improving the judicial and law enforcement system; and (4) promote the development of a national Kazakhstani identity based on multiculturalism, trilingualism (Kazakh, Russian, and English), cemented by social mobility. B. Recent Economic Developments Output growth slowing significantly to a five year low. Output growth slowed in 2014 due to weaker demand, and adverse terms of trade developments. For 2010–13, real GDP growth averaged 6.5 percent, buoyed by high oil prices (Figure 1). However, it slowed from 6 percent per year- in 2013 to 4.3 percent in 2014 due to slackening domestic demand after the tenge was devalued in February 2014, less demand from China and Russia for Kazakhstan’s metals and metal products, and the oil price shock in the second half of the year. Private consumption in particular was affected by the negative wealth effect of the devaluation, the tightening of conditions for consumer loans, and the delayed impact of slower growth in real wages in 2013. During the second half of 2014, oil prices fell by about 50 percent, affecting not only export and fiscal revenues but also investor confidence in the Kazakhstani economy. Investment growth slowed from 6.2 percent y/y in 2013 to about 2 percent in 2014. Figure 1. Tenge devaluation affected severely Figure 2. Industrial growth slowed; growth private domestic demand in 2014 was underpinned by the service sector (Percentage point) (Percent/percentage point) GDP Growth Decomposition by Demand Sources GDP Growth Decomposition by Main Sectors 10 200 10 Percent/percentage point 7.3 7.5 8 180 8 6.0 Index (2000=100) Percentage point 6 160 6 5.0 4 4.3 140 2 4 120 0 2 -2 100 0 -4 80 -6 60 -2 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 Other services Trade and transport Private consumption Private investment Government Industry and construction Agriculture Net exports RER, USD/KZT (RHS) Total GDP growth Source: Statistical Office of Kazakhstan. Source: Statistical Office of Kazakhstan. Industrial production stagnated, and growth of services continued to slow. Industrial output growth dropped to 0.2 percent in 2014, down from 2.3 percent in 2013, mainly because oil production contracted. Capacity constraints pushed oil output down by 1.2 percent in 2014, after growing 3.2 percent in 2013. A general contraction in mining output (by 0.3 percent y/y in 2014) was offset by modest 1 percent growth in manufacturing. Almost all manufacturing industries expanded in 2014 except for non-ferrous metals (the second yearly decline in a row due to capacity constraints) and transport vehicles (whose competitiveness was undermined by the impact of the February 2014 devaluation on prices of imported components). Growth of the services sector also slowed from 6.8 percent in 2013 to 6.0 percent in 2014 because of weaker domestic demand and a knock-on effect of the fall in export earnings. Trade, transport, and real estate services were the main supports for economic growth in 2014 (Figure 2). In the first two months of 2015, growth in services slowed further, hitting trade activity the hardest, as the oil price shock began to affect both export earnings and domestic demand. Agriculture grew marginally, by 0.8 percent, in 2014. 2| Sectoral and geographic mobility keep labor market and poverty reduction positive. As services continued to expand (although more slowly) in urban areas in 2014, the sector continued to create jobs. Official unemployment declined from 5.2 percent of the total labor force in 2013 to 5.0 percent in 2014 due to job creation in the services sector. Some 227,000 services jobs were created in 2014 (Figure 3). Figure 3. Job creation in services contributed Figure 4. Better paid jobs in cities attract labor to further decline in unemployment from rural areas, reducing poverty incidence (Million people and percent of labor force) (Percent of total population) Labor Market Developments Official Poverty Rate Dynamics 10 5.6 7 Percent of total population 5.4 6 Percent of labor force 8 5.2 5 Million people 6 5.0 4 4.8 4 3 4.6 4.4 2 2 4.2 1 0 4.0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2012 2013 2014 2012 2013 2014 Agriculture Industry and construction Rural Urban Total Services Unemployment rate (RHS) Source: Statistical Office of Kazakhstan. Source: Statistical Office of Kazakhstan. Poverty reduction was also driven by internal migration from rural to urban areas, where jobs are better paid. The incidence of poverty as measured by the national poverty line, dropped from 3.8 percent of the population in 2012 to 2.9 percent in 2013 and further down to 2.8 percent in 2014 (Figure 4). While the incidence of poverty in cities remained low at about 1.2 percent, some 4.6 percent of the rural population fell below the poverty line, with agriculture-intensive regions worst- off. The disparity between rural and urban living standards has been driving internal migration: agriculture lost about 96,000 (5 percent) of its labor force in 2013 and another 167,000 (8 percent) in 2014 (see section F). C. Economic Policies Fiscal Policy Developments The Fiscal stimulus, balanced by budget cuts, is modest The launch in 2014 of two economic support programs was intended to encourage growth by dismantling major barriers to private sector activities. Immediately after the devaluation and amid early indications of an economic slowdown, the government launched an economic support program for 2014–15 of one trillion tenge (about US$5.5 billion), to be used mainly to relieve credit problems in the banking sector by addressing a long-standing issue with non-performing loans (NPLs) and providing subsidized loans to small- and medium-sized enterprises (SMEs). With oil prices falling and external uncertainties heightening, the government announced a supplemental economic support program (Nurly Zhol) of US$14 billion for 2015–17 (half to be financed by international financial institutions [IFIs]) to build transport and social infrastructure and continue providing subsidized credit to SMEs (Table 1). |3 Table 1. Kazakhstan: The Economic Support Package for 2014–17 (Billion tenge and Billion US$) KZT 1 T Nurly Zhol support program Total Total 2014 2014 2015 2015 2016 2017 2014-17 2014-17 (Billion tenge) (US$ billion) Oil Fund use for economic support 150 600 400 686 394 205 2,435 13.2 Targeted transfers 150 325 360 423 342 205 1,805 9.8 NPL resolution 250 250 SEZ infrastructure 50 81 131 EXPO-2017 46 25 29 100 Transport infrastructure 60 198 150 107 514 Utilities network modernization 60 90 150 Social infrastructure 33 33 34 100 Subsidized housing 52 28 80 Co-financing projects with IFIs 39 41 64 145 Other infrastructure 41 41 Industrial support 45 45 Contingency fund 250 250 Direct lending to SOEs 275 40 263 53 630 3.4 SME support 200 170 15 385 Subsidized housing 88 13 100 Industrial support 75 5 10 90 EXPO-2017 40 15 55 Investment loans committed by IFIs 7.0 Source: Government of Kazakhstan. Note: NPL: non-performing loans; SEZ: special economic zone; IFIs: international financial institutions; SOEs: state-owned enterprises; SMEs: small and medium enterprises; EXPO: World Specialized Exhibition. The totals do not add up fully due to rounding-up. The two economic support programs contributed to the narrowing of the consolidated fiscal surplus in 2014. The surplus of the consolidated budget narrowed from 3.4 percent of GDP in 2013 to 0.9 percent in 2014, mainly due to additional spending on economic support (see annex table).2 Total spending went up from 20.8 percent in 2013 to 22.8 percent in 2014, while revenues fell slightly, from 24.2 percent of GDP in 2013 to 23.7 percent in 2014, due to the economic slowdown. The non-oil deficit widened from 8.4 percent of GDP in 2013 to 10.8 percent in 2014. The government initiated a fiscal adjustment as oil prices dropped. The planned 2015 Republican budget was cut by 611 billion tenge (US$3.3 billion), pared down mainly by postponing non-priority investment expenditures and delaying increases in public salaries until January 1, 2016 (Table 2). Budget cuts were partially offset by additional 339 billion tenge disbursements from the Oil Fund for the Nurly Zhol program. Assuming relatively stable external conditions, in the near term the Nurly Zhol program is expected to have a positive impact on employment, though its impact on GDP growth is likely to be marginal due to the budget cuts (Box 1). 2The consolidated budget includes the Republican Budget (central government budget), oblast budgets (14 provincial budgets and the cities of Almaty and Astana), and the Oil Fund. 4| Table 2. Kazakhstan: Republican Budget and Oil Fund Transactions, 2011–15 (Billions of tenge, unless otherwise indicated) 2011 2012 2013 2014 2015 2015 Planned Revised Total revenue and grants, of which: 4,452 4,763 5,179 5,909 6,745 5,875 Oil Fund transfer to support the economy 475 708 783 KZT 1 trillion package 325 360 360 Nurly Zhol program 150 348 423 Total expenditure and net lending 5,028 5,670 5,907 6,991 7,742 7,134 Total expenditures 4,602 5,259 5,700 6,471 7,210 6,865 Current expenditure 3,567 4,270 4,696 5,393 6,147 6,093 Capital expenditure 1,035 989 1,004 1,078 1,063 772 Net lending 85 49 38 39 85 78 Targeted transfers to SOEs 341 362 168 480 448 190 Oil Fund direct lending to SOEs, of which: 75 73 200 275 40 303 KZT 1 trillion package 275 40 40 Nurly Zhol program 263 Republican Budget deficit -576 -906 -718 -1,081 -997 -1,257 Republican Budget non-oil deficit -2,343 -2,969 -2,915 -4,087 -4,256 -4,473 Memorandum items: Spending on social sectors 1,848 2,130 2,307 2,654 3,037 2,833 As percent of total expenses 40.2 40.5 40.5 41.0 42.1 41.3 Republican budget deficit (% of GDP) -2.1 -3.0 -2.0 -2.7 -2.3 -3.0 Republican budget non-oil deficit (% of GDP) -8.5 -9.8 -8.4 -10.8 -9.7 -10.8 Source: Government of Kazakhstan. Note: The Republican Budget captures the fiscal transactions of the central government. During the fiscal adjustment the government protected critical social expenditures. Social spending (on health, education, social protection, and culture) as a share of GDP was held at 6.9 percent, higher than in the preceding two years.3 As a share of total expenses, spending on social sectors is planned to be 41.3 percent of GDP in 2015 (Table 2). Pensions and social assistance obligations were protected from sequester; while some non-priority capital spending in the social area, especially education, was postponed to next year. 3 The fiscal adjustment exercise reduced social spending by 204 billion tenge in nominal terms relative to the initial budget. |5 Box 1. How Changes in Public Spending Are Likely to Affect GDP Growth in Kazakhstan The short-run impact of changes in public spending on GDP growth is expected to be limited. Two methodologies to assess the effect of a change in public spending on GDP were used in this analysis. The first is the standard government spending equation, where the impact of the additional government expenditures on national output is defined by the fiscal multiplier: 1 ∆y = ∆G × 1−b 1−b +b Where, ∆y is the change in output (equivalent to GDP growth), ∆G is the change in government spending, bc is marginal propensity to consume (MPC, set at 0.7), bT is the original income tax rate (set at 28.6 percent), and bM is marginal propensity to import (set at 0.3). The fiscal multiplier for Kazakhstan is assessed at 0.2– 0.3 in the short run: For every extra dollar spent by the government, for either consumption or investment, the short-term effect on output would be 20–30 cents. A new approach to assessing the size of the fiscal multiplier was also used. Batini, Ayraud, and Weber (2014) provide a simplified approach to assess the main characteristics and policy environment of a country and how they would affect the relationship between government spending and economic growth.a The main characteristics considered are economic openness, labor market flexibility, size of automatic stabilizers, exchange rate regime, level of public indebtedness, effectiveness of public revenue administration, and public expenditure management. The methodology also allows for flexibility in adjusting the value of the multiplier based on the business cycle and monetary policy stance but does not adjust for the composition of spending. Using this methodology, Kazakhstan’s fiscal multiplier would be 0.20–0.40: For every extra dollar spent by the government, for on either consumption or investment, the short-term effect on output would be 20–40 cents. Since the government is directing a large share of its Nurly Zhol expenditure to public investment, in the medium term the economic impact of these investments will depend on the magnitude of the fiscal multiplier associated with investments. Ilzetzki et. al. (2010)b found that the public investment multiplier is as high as 0.6 for developing countries; for every dollar of public investment, the effect on output is about 60 cents. Increasing the impact of public investment would entail improving the targeting and efficiency of this type of expenditure. Source: World Bank staff. a Batini, N., L. Eyraud, and A. Weber. 2014. “A Simple Method to Compute Fiscal Multipliers.” Washington, DC: International Monetary Fund. b Itzetzki et al. 2010. “How Big (Small?) are Fiscal Multipliers?” Washington, DC: International Monetary Fund. The non-oil deficit widened in 2014-15, but debt remains low. Driven by the economic support program, government expenditure went up from 20.8 percent of GDP in 2013 to nearly 23 percent in 2014–15, financed predominantly by the Oil Fund (Figure 5). As a result, the non-oil deficit widened from 8.4 percent of GDP in 2013 to 10.8 percent in 2014 and an estimated 10.8 percent in 2015 (Figure 6). The fiscal adjustment helped the government to bring the 2015 non-oil deficit down by 1.5 percent of GDP, based on lower assumptions for oil price and GDP growth. At the same time, the net borrowing plan (the Republican budget deficit) for 2015 was adjusted up, from 2.3 to 3.0 percent of GDP, leading to a rise in public debt from 15.1 percent of GDP in 2014 to 17.1 percent in 2015. Nevertheless, the expansionary fiscal stance should not threaten medium-term fiscal sustainability because of ample reserves (close to 34 percent of GDP as of end-February 2015) saved in the Oil Fund. 6| Figure 5. Government launched two economic Figure 6. As a result of the support programs, support programs, financed from the Oil Fund non-oil deficit widened in 2014–15 (US$ billion) (Percent of GDP) Oil Fund Transfers for the Economic Support Government Budget Balances 16 8 14 6 12 4 Percent of GDP 2 US$ billion 10 0 8 -2 6 -4 4 -6 2 -8 0 -10 2013 2014 2015 plan 2016 plan -12 Regular annual transfer Counter-cyclical component 2010 2011 2012 2013 2014 2015 2014-2015 economic support program Investment program Nurly Zhol Consolidated budget balance State budget deficit Non-oil deficit (full coverage) Infrastructure loans to SOEs Source: Kazakhstan Ministry of Finance. Source: Kazakhstan Ministry of Finance. Exchange Rate and Monetary Policy Developments Growing external imbalances put pressure on the tenge. In the second half of 2014, the fall in oil prices affected the external balance and put pressure on the exchange rate. Lower oil prices and weaker external demand led to a narrowing of the trade balance surplus and a deficit in the current account, which is estimated to have deteriorated from a surplus of US$6.9 billion in the first half of 2014 to a deficit of US$2.2 billion in the second half. Nevertheless, the National Bank of Kazakhstan (NBK) kept strict control of the exchange rate, with the nominal tenge-dollar rate holding at about the same rate as the February 2014 devaluation (Figure 7). However, between July 2014 and February 2015 the real effective exchange rate appreciated by 26.7 percent (Table 3), reflecting the external structural imbalance. Devaluation expectations were expressed in high demand for foreign currency and a rise in dollarized deposits (from 44.6 percent of total deposits in June 2014 to over 55 percent in December), in anticipation of a new exchange rate adjustment. To defend the pegged exchange rate, the NBK spent about US$14 billion of its foreign exchange reserves, two-thirds of the total, during the second half of 2014 (Figure 8). Figure 7. Despite a significant fall of oil prices Figure 8. Official reserves started declining due in H2-2014, the authorities maintained the peg to the fiscal stimulus and the peg support (US$ per barrel and USD/KZT rate) (US$ billion) Trends in Oil Price and the Exchange Rate Total Official International Reserves 120 0.0056 120 110 0.0054 100 100 US$ per barrel 0.0052 80 US$ billion 90 USD/KZT 80 0.005 60 70 0.0048 40 60 50 0.0046 20 40 0.0044 0 Jun Sep Jan Feb Mar Apr Mar May Nov Aug Jul Dec Oct Jun Sep Jun Sep Jun Sep Jun Sep Jun Sep Feb Mar Mar Mar Mar Mar Dec Dec Dec Dec Dec 2014 2015 2010 2011 2012 2013 2014 15 Oil price, Brent (LHS) USD/KZT (RHS) FX fiscal reserves FX monetary and gold reserves Source: National Bank of Kazakhstan. Source: National Bank of Kazakhstan. |7 Monetary authorities attempted to Table 3. Kazakhstan: Real Effective Exchange Rates achieve dual objectives, but tightened (Index, Dec 2000=100) liquidity in Q4 2014 to defend the Year Month Including Excluding Oil Oil exchange rate. 2013 Jan 111.8 107.3 Since the February 2014 devaluation, 2014 Jan 112.8 109.6 monetary policy has attempted to both Feb 103.5 101.3 alleviate the pressure on the tenge and Mar 99.4 98.5 Apr 100.1 99.2 address the scarcity of long-term tenge May 99.9 98.3 funding. It increased the interest rates on Jun 99.5 97.5 tenge-denominated deposits of non- Jul 100.0 97.6 banking legal entities from 4.9 percent per Aug 103.2 101.0 annum in January 2014 to 12.8 percent per Sep 105.8 103.6 annum in February 2015; while foreign Oct 108.7 106.9 currency-denominated deposits went up Nov 113.8 113.6 from 0.9 percent to 1.9 percent. Also, after Dec 118.7 120.8 the devaluation the NBK had injected 2015 Jan 125.1 126.9 tenge liquidity via the repo market to Feb 126.7 128.9 stabilize expectations and restore trust in Source: National Bank of Kazakhstan. the currency. In May the Unified Note: A higher index indicates appreciation of the tenge. Accumulative Pension Fund (UAPF) adopted a new strategy of limiting investments in low-yield government securities to 50 percent of total UAPF assets and increasing deposits in local commercial banks from less than 25 percent to 50 percent of total assets, on condition that the banks use the money to lend to the economy rather than for speculative foreign exchange (FX) operations. As a result of the increased tenge liquidity, money market interest rates stabilized significantly in May-September 2014. Since mid-October 2014, however, as oil prices continued to plummet and devaluation expectations mounted, the NBK started curbing short-term tenge liquidity to discourage FX speculation, though continuing to support longer-term tenge- denominated lending to SMEs. As a result, money market interest rates averaged 33 percent in December 2014 and 15 percent in January 2015. Continued tight monetary policy and targeted policy interventions affected both the rate of credit growth and its composition. Credit growth slowed from double digits in the first half of 2014 to 2.3 percent y/y at yearend and has stagnated since then. Corporate sector credit had grown only by 5.5 percent y/y by yearend and stagnated in early 2015. Growth in consumer credit fell from nearly 50 percent y/y at the beginning of 2014 to 17 percent by yearend and has been flat since. Meanwhile, subsidized loans to SMEs grew from –9 percent y/y in January 2014 to nearly 33 percent in December, supporting growth in credit overall. The tenge devaluation and expectations of further adjustments heightened inflationary pressures. After the February devaluation, prices rose steadily, despite short-term controls on the prices of basic foods, public transport, and utilities. Consumer price inflation rose steadily from a low of 4.5 percent y/y in January 2014 to 7.4 percent in December. Meanwhile prices of imported products rose by 10 percent, contributing to the CPI increase, which was only partly mitigated by the price controls. Nevertheless, in August 2014, controlled gasoline prices were raised to address emerging supply shortages, driving up the prices of other goods and services. Producer prices had jumped from about 1 percent y/y in January-February 2014 to about 20 percent in June-July before falling back to 8| 9.7 percent in September. As with the CPI, higher prices for imported inputs were the main reason prices of products made in Kazakhstan went up. The drastic fall in oil and fuel prices led to lower price inflation for consumers (6.1 percent y/y) and producers (–21.4 percent) in February 2015. D. Structural Policies Structural reforms to boost private sector participation continue apace. The authorities are moving ahead with their ambitious agenda of regulatory and institutional reforms to diversify the economy and increase private sector participation. The agenda was laid out in several vectors of reforms discussed in previous editions of this biannual report. The reform agenda has suffered from an implementation gap. The most recent developments include: The authorities launched an ambitious plan for 2014–16 to privatize some state-owned enterprises (SOEs); results to date have been mixed. President Nazarbayev announced the plan in April 2014; his stated objective was to reduce the number of organizations with public ownership and quasi-public sector institutions by 36 percent (270 organizations).4 In 2014, the privatization strategy included the public float of 10 SOEs active in electricity generation and distribution, railway transportation, and uranium extraction. The government is also expected to sell its interests in 32 smaller companies to strategic investors through auction. The program started with the “People’s IPO”, an initiative to sell minority stakes in selected major companies to citizens, pension funds, and other investors. In May 2014 a management committee was created to manage and monitor the privatization program. The authorities are continuing reforms to address the lingering issue of NPLs that has held back recovery of the Kazakhstan banking sector since the 2007–08 crisis. In 2014, the NBK and the government introduced a series of coordinated measures to incentivize banks to clean up their loan portfolios and strengthen creditor rights. The NBK broadened the mandate of the Problem Loans Fund (PLF) to purchase a wider range of assets, and in December 2014 the Oil Fund injected 250 billion tenge into the PLF to enable it to be more active in the distressed assets market. In spring 2014, Parliament amended the Tax Code to provide for (a) full deductibility of losses associated with bank write-offs of NPLs through 2017; (b) release of loan-loss provisions not to be treated as taxable income; and (c) specific tax breaks for write-off and write-down of NPLs at BTA Bank. Parliament also amended the insolvency law to strengthen the rights of collateralized creditors and expedite insolvency procedures for legal entities. Further amendments to support NPL resolution are awaiting enactment.5 The NBK is also working to build up its supervision; the transition from compliance verification to risk-based oversight will be critical to mitigate the risk of NPLs again accumulating. The measures appear to be bearing fruit—NPLs fell to about 23 percent in January 2015 compared 4 In particular, Samruk-Kazyna is expected to transfer up to 106 assets to the private sector, JSC National Management Holding Baiterek 15 assets, JSC National Management Holding KazAgro 32, holding company Parasat 8, and holding company Zerde 2. Also slated for privatization are 174 companies defined as social- entrepreneurial corporations (SECs), and another 28 SECs will be reorganized or liquidated. Also 416 organizations currently in communal ownership are part of the Privatization Program. 5 This includes amendments to the Law on Bank Secrecy that relax secrecy requirements specifically in the context of restructuring and facilitating debt assignment and allow for the transfer of NPLs collateralized by assets with third-party liens in the absence of third-party agreement. In draft and awaiting submission to Parliament are two NBK measures that would amend the Tax Code to exempt from VAT the positive difference in the value of seized collateral upon re-sale and free banks from the obligation to withhold tax against the value of forgiven loans to physical persons. |9 to about 30 percent in January 2014—but much work is still necessary to make the PLF functional and regulation and oversight more effective . Finally, the authorities continue to work on improving regulatory governance and the business environment by streamlining the extensive portfolio of laws that affect the private sector. Kazakhstan has launched a number of initiatives to reduce regulatory costs. For instance, there is high-level commitment to cut the number of permits by 50 percent and introduce new laws governing self-regulation. The authorities are establishing systemic procedures to ensure the quality of both new and existing regulations, such as expanding the mandate of the Interdepartmental Commission for Regulation of Entrepreneurship and setting out obligations for systematic use of Regulatory Impact Assessments (RIAs) when new regulations are proposed. Finally, Kazakhstan is working to attract and retain investment; in addition to the generous incentives adopted in early 2014, the authorities are setting up a system to prevent investor-government disputes by appointing an “investment ombudsman.”6 E. Outlook Oil price changes and economic developments in China and Russia—two very important trade partners, and sources of FDI inflows—will directly affect Kazakhstan. The Russian economy is expected to contract by 3.8 percent in 2015 and 0.3 percent in 2016 because of lower oil prices and geopolitical tensions related to the Ukraine situation. Contraction of the Russian industry is expected to continue, which will affect Kazakhstani exports of metal products. Russian domestic demand is also expected to slacken: weak business sentiments are expected to continue to discourage investment, and higher inflation, declining wages and incomes, and high credit costs are expected to further undermine consumer demand. Economic growth in China is now expected to slow to about 7 percent per year in 2015–17, with investment growth moderating. As with the case of Russia, all else being equal, the slowdown of China would lower demand for Kazakhstani exports. The prospect in the short term is thus for a double “demand deficit,” internal and external. Kazakhstan's GDP growth is likely to reach a low point in 2015 but gradually recover thereafter. Based on an oil price assumption of $53 per barrel, growth is expected to slow from 4.3 percent in 2014 to 1.3 percent in 2015 (Figure 9). In 2015, the low oil revenues can be expected to lead to deficits in both the current account and the consolidated fiscal balance (Figure 10). The outlook is highly sensitive to oil price assumptions. Our baseline scenario assumes that if oil prices start to recover to $57 in 2016 and $61 in 2017 (the latest projections from the World Bank Group), export earnings and domestic demand would gradually recover, allowing growth to reach 2.8 percent in 2016 and 3.9 percent in 2017.7 This scenario assumes that oil production will remain almost flat until the end of 2017, when the off-shore Kashagan oil field is expected to come on line and boost production. The economic support programs may stimulate GDP growth for 2016 and onward; to avoid procyclical fiscal expenditures, the authorities have committed to eliminate them if the economy is recovering well. 6 This incentive framework was presented in the Fall 2014 Biannual Economic Report for Kazakhstan. 7 Government’s projections use a conservative assumption of a $50 per barrel oil price for 2015–17, which translates into GDP growth of 1.5 percent in 2015, 2.2 percent in 2016, and 3.3 percent in 2017. 10| Figure 9. Oil price fall drags GDP growth down, Figure 10. The oil price shock hits the current exacerbating weakened external demand account and fiscal balances (Percentage point and US$ per barrel) (Percent of GDP and US$ per barrel) Oil and Non-oil GDP Growth and Oil Prices Current Account and Fiscal Balances Outlook 8 120 8 120 7 6 100 100 6 4 Percentage point Percent of GDP 5 US$ per barrel US$ per barrel 80 80 4 2 3 60 0 60 2 -2 1 40 40 -4 0 20 20 -1 -6 -2 0 -8 0 2010 2011 2012 2013 2014 2015 2016 2017 2010 2011 2012 2013 2014 2015 2016 2017 Oil sector contribution Non-oil sector contribution Oil price (RHS) Current account Consolidated budget balance Oil price (RHS) Source: World Bank staff estimates. Source: World Bank staff estimates. The outlook is subject to downside risks. These stem essentially from a possibly greater than anticipated slowdown of the Chinese and Russian economies, and from heightened investor risk perceptions if the Russia-Ukraine situation remains unresolved. Moreover, oil prices may stay at their current level for several years, undermining further Kazakh consumer and business sentiments. Fiscal policy is expected to normalize in 2016–17. Government spending in the last decade averaged 22 percent of GDP (excluding countercyclical economic support programs in 2008–09 and 2014–15). In 2008–09 government spending exceeded 27 percent of GDP and is estimated to be close to 23 percent in 2014–15 due to the economic support programs. The government plans to bring its total spending back to about 22 percent of GDP in 2016–17. As a result, assuming non-oil revenues rise as the economy starts to recover, the non-oil deficit is projected to decline gradually from 10.8 percent of GDP in 2014 to 8.8 percent in 2017. Total government debt is expected to go up but remain low; there are ample reserves in the Oil Fund to cover it. External debt is expected to jump from 3.9 percent of GDP in 2014 to about 6 percent in 2015–17 because the government is borrowing US$7–10 billion from IFIs as part of the Partnership Framework Arrangement, to support the Kazakhstan-2050 development strategy. Although domestic indebtedness would increase from 11 percent of GDP in 2014 to over 13 percent in 2017 because of the budget deficit, Kazakhstan’s net financial asset position will remain solid— the Oil Fund’s FX reserves will continue to vastly exceed total government debt (Table 4). The ratio of total external debt to GDP and the debt service ratio are expected to stay steady and sustainable over the medium term. Table 4. Kazakhstan: Public Debt Sustainability, 2013–20 (Percent of GDP, unless otherwise indicated) 2013 2014e 2015p 2016p 2017p 2018p 2019p 2020p Government net financial assets 17.8 19.6 22.6 20.6 19.4 18.9 18.9 19.3 Oil Fund FX assets, stock 30.5 34.7 39.7 38.9 38.8 38.8 39.3 40.3 Government debt, stock 12.7 15.1 17.1 18.3 19.4 19.9 20.4 21.0 External debt and guarantees 2.4 3.9 5.9 6.1 6.1 6.3 6.4 6.1 Domestic debt and sureties 10.2 11.1 11.2 12.2 13.3 13.6 14.0 14.9 Debt service (% of total revenue) 5.9 6.6 8.3 8.6 8.3 8.4 8.4 8.6 Source: Ministry of Finance of Kazakhstan, World Bank staff estimates. Note: e=estimate, p=projection. |11 Monetary policy may need to adjust in response to devaluation pressures. The authorities have made it clear that financial and monetary stability are the ultimate objectives of their short-term monetary and exchange rate policies. In the medium term, they intend to move to inflation rate targeting and a more flexible exchange rate regime. They have therefore signaled their intention to launch a new interest rate instrument to help them better manage monetary policy. However, in the short term, there is continued pressure on the tenge to adjust; defending the peg from May 2014 to March 2015 has already cost about US$17 billion. Given the current external imbalances and the appreciation of the real effective exchange rate, and that oil prices will not recover dramatically in the next two to three years, exchange rate realignment may be unavoidable, though its timing, manner, and size—as well as its impact on the economy—need to be carefully assessed. F. Focus Section: Employment and Shared Prosperity in Kazakhstan Over the past 15 years Kazakhstan has made remarkable progress in creating jobs, reducing poverty, and sharing prosperity based on job creation and higher wages. Job creation has also led to upward social mobility and the rise of the middle class. Looking ahead, a major challenge will be to bridge the geographic poverty divide along regional and rural/urban lines. Also, it will be important to continue creating private sector jobs, with a focus on their quality and productivity and on building skills so that workers can move to higher-paying occupations. Jobs are increasingly leaving agriculture for urban services. Kazakhstan experienced solid job creation between 2003 and 2013, with gains in services (especially trade and education) and construction compensating for losses in agriculture.8 The economy added about 1.5 million jobs as employment grew by about 22 percent. Employment expanded in construction (contributing 21 percent of the total increase in employment), wholesale and retail trade (15 percent), education (18 percent), transportation and warehousing (10 percent), and “other services” (35 percent). Although employment in manufacturing increased 15 percent, it contributed only 4 percent to employment gains. Notably, employment in public administration and social sectors with a high share of public employees, such as health and education, contributed almost a third of the employment increases for 2003–13. Agriculture was the only sector that contracted: employment there declined by 14 percent in absolute terms. As a result of the rapid growth in jobs, between 2001 and 2013 unemployment was halved, from 10.4 to 5.2 percent (Figure 14). Youth unemployment was cut from almost 20 percent in 2001 to just under 4 percent and long term unemployment remains very low. The recent economic slowdown, from 6 percent of GDP in 2013 to 4.3 percent in 2014 and a projected 1.3 percent in 2015, has not yet translated into a rise in the official unemployment rate, which was holding steady at about 5 percent up to February 2015.9 This may be partly due to the “social arrangements” in which companies retain employees on rosters but with reduced hours or on leave without pay; it may also be partly due to the fact that, in the absence of extensive social safety nets, workers losing wage employment may shift, at least temporarily, to self-employment (not always full time), informal activities, or work in a field outside their expertise.10 8 Labor force participation and employment rates have traditionally been high in Kazakhstan, especially for women. In 2013, among those 15 and older, 77 percent of men and 67 percent of women were economically active. 9 Data for Q4 2014 from the Statistical Committee. 10 After the 2008–09 crisis in Kazakhstan, the number of self-employed, which had fallen by 2 percent a year on average between 2002 and 2007, began rising by 1 percent a year on average through 2011. 12| Figure 11. Employment by sector, 2003–13 Figure 12. Wages and poverty reduction, 2003–13 (Millions of persons) (Percentage point of poverty rate) 4,0 3 Poverty Rate ($5/day) (difference, percentage 2,0 Millions 1,9 0,5 3 0,0 0,1 -0,8 -0,4 -0,1 -1,2 -1,6 -2,4 -2,0 -1,6 -3,9 -2,7 -4,8 2 -4,0 2 point) -6,0 -6,8 1 -8,0 -10,0 1 -12,0 0 -14,0 Agriculture Mining Construction Public and social Share of Adults Share Employed Wages Other services Manufacturing Social Assistance Pension Agriculture Trade Other Income Source: WEO; Statistical Committee of RK. Poverty has fallen dramatically thanks to higher wages. From 2006 through 2013, Kazakhstan’s poverty rate declined significantly (based on international poverty lines) and prosperity has been broadly shared. Levels of extreme poverty are very low,11 and poverty at the international $5/day line dropped from 54 percent in 2006 to 34 percent in 2010 and is estimated to have continued down to about 20 percent in 2014. Further poverty reduction is expected, though at a slower pace. 11 The extreme poverty line is $1.25/day PPP per person. |13 Figure 13. Working age population profile, 2013 Figure 14. Official unemployment rates, 2001–13 (Millions of people and percent) (Percent) 25 20 15 10 5 0 Unemployment rate,% Youth unemployment rate,% (15-24 years) Long-term unemployment,% Source: Statistical Committee of RK. Source: WBG calculations using LFS 2013. Wage employment and real wages have grown together, making a significant impact on poverty. Wage employment went up from about 64 percent of total employment in 2006 to 70 percent in 2013, during which time wages increased by 64 percent in real terms. Economic growth and job creation in recent years have led to shared prosperity, with the bottom 40 percent of the population benefiting proportionally more in terms of income and consumption growth than the top 60 percent (Figures 15 and 16). Figure 15. Income growth, 2006–13 Figure 16. Growth in consumption, 2006–13 (Percent) (Percent) Growth of T60 Growth B40 Growth of T60 Growth B40 45% 50% 35% 40% Growth Rate Growth Rate 30% 25% 20% 15% 10% 5% 0% -5% 2006-2010 2007-2011 2008-2012 2009-2013 2006-2010 2007-2011 2008-2012 2009-2013 Source: Statistical Committee of RK, WBG staff calculations. T60: top 60 percent of population; B40: bottom 40 percent of population. The type and sectoral distribution of employment across regions mirrors trends in poverty reduction. The share of public employment among wage-earners is still high: the state still has a significant role as employer. However, private employment is increasingly contributing to the welfare of the population, especially the middle class (Figures 17 and 18). Those in the bottom deciles are much more likely to be self-employed, particularly in agriculture.12 Workers employed informally, especially in agriculture, construction, and other services, are disproportionately 12 Self-employment is high at 29 percent of the employed, of which 52.5 percent is in agriculture. 14| represented in the bottom 40 percent (Figure 18). Regions that are relatively specialized in extractive industries (Mangystau and Atyrau) and the cities of Almaty and Astana have particularly high concentrations of public wage-earners; in those areas poverty has been reduced much more significantly. Agriculture-intensive areas like North Kazakhstan, Zhambyl, and Kostanay have high shares of self-employed, many of them farm workers; in those areas poverty has not been reduced as much. Figure 17. Employment by region, 2013 Figure 18. Employment type and upward mobility (Percent of total employment by region) (Percent of employed aged 15 or above) 100 80 60 40 20 0 Wage formal public Wage formal private Wage informal Self-employed Agriculture Self-employed Non-agriculture Source: 2013 Household Budget Survey (HBS) data. Source: Household Budget Surveys 2006–13. Upward mobility has increased and contributed to the rise of the middle class. Since 2006, a large share of the population has escaped poverty and the numbers of chronically poor and those falling into poverty have fallen (Figure 19). Between 2006 and 2013 the middle class more than doubled. Figure 19. Upward mobility, 2006–13 Figure 20. Household status, 2006–13 (Percent of population) (Percent of households) 100% 100% Percent of Households 90% 80% 33,8 80% 50,5 51,8 55,5 70% 60% 60% 15,2 50% 40% 9,7 10,6 40% 25,9 7,6 20% 30% 28,5 26,3 28,5 20% 0% 10% 25,1 2006 2007 2008 2009 2010 2011 2012 2013 11,4 11,3 8,4 0% 2006-2010 2007-2011 2008-2012 2009-2013 Chronically Poor Escaped Poverty Middle Class ($10/day PPP) Vulnerable ($5/day PPP) Fell into Poverty Not Poor Poor ($2.5/day PPP) Source: HBS data. Note: The welfare aggregate is household consumption per capita; poverty line is $5/day PPP per capita. |15 The question now is how to expand access to good jobs. Challenges remain to ensuring continued shared prosperity. While nationally, poverty has declined markedly in recent years, it continues to be higher in rural than in urban areas and there does not appear to be a convergence (poverty in poorer regions is not being reduced faster than in wealthier regions). In fact, regions with lower initial incidence of poverty in 2006 saw poverty drop faster in the years through 2013 (Figure 21). Also, while employment and wages contributed the most to poverty reduction, highly skilled households seem to have been the main beneficiaries; households led by individuals with only basic secondary education are much more likely to be poor and their incomes grew least in 2006–10. Income growth in households led by individuals with only primary education was primarily related to pensions, social assistance, and other non-wage income. Employment growth has been higher for occupations that require medium to high skills, but many workers do not qualify. In line with changes in the economy, manual workers, operators, and skilled agricultural workers have been less in demand for the last decade than high and medium- skilled workers in other sectors. For instance, between 2003 and 2011, growth of jobs with high qualifications (as defined by educational attainment) increased by 5.8 percent, but demand for manual labor increased only by 1.6 percent and for skilled agricultural workers it went down by 3.6 percent (Figure 22) There was also significant growth in administrative occupations, but from a much smaller baseline. About 20 percent of workers today have manual jobs. As the Kazakhstan economy continues to evolve and diversify, there will be not only a need for high-skilled specialized employees but also opportunities for the low-skilled to upgrade their qualifications so they can secure better jobs. Figure 21. Distribution of poverty reduction by Figure 22. Education by consumption decile, region 2013 (Percentage and percent) (Percent) Educational attainment by Consumption Deciles 2013 100 80 60 40 20 0 1 2 3 4 5 6 7 8 9 10 No education Primary Secondary Post-secondary Source: Kazakhstan HBS. The welfare aggregate is household consumption per capita; poverty line is $5/day PPP per capita. Calculations by WBG staff. A large number of the employed still work in low-productivity sectors. Although employment in agriculture has been contracting, agriculture still employs about 2 million people, a quarter of all those working. Agriculture has very low labor productivity (Figure 24). Labor-intensive services, construction, and education were the main contributors to employment growth over the last decade. 16| Expansion in oil and mining was virtually jobless, and job creation in manufacturing was also slow. As a result, labor productivity in Kazakhstan, especially in the non-oil sectors, is lower than in other countries with similar GDP per capita (World Bank 2013 Country Economic Memorandum). Figure 23. Employment growth by job type, 2003 Figure 24. Employment and value added per –13 worker (Percent) (Millions of workers and thousands of US$, 2013) 2,5 10% 8,4% 8% 5,8% 5,3% Agr 6% 2 4% 3,0% 2,7% 2,1% 1,6% 2% 0% 1,5 Wholesale & -2% -1,3% retail trade -4% -3,6% 1 -6% Edu Health & Const Transp Manu 0,5 social work Public admin Elect Unclassified Water Food serv Entertainme Info & comProf Admin HH as supply nt Fin & ins 0 employer 0 10 20 30 40 50 Source: Statistical Committee of RK. Excluding mining and real estate activities. |17 Annex. Kazakhstan: Key Macroeconomic and Social Indicators, 2011-17 2011 2012 2013 2014e 2015p 2016p 2017p (Percent change, unless otherwise indicated) Real Economy GDP growth 7.5 5.0 6.0 4.3 1.3 2.8 3.9 Oil sector growth 5.5 0.0 -4.8 0.0 0.0 0.5 2.5 Non-oil sector growth 7.9 6.0 7.9 5.0 1.5 3.2 4.1 GDP per capita growth 6.0 3.5 4.5 2.9 0.0 1.6 2.8 GDP per capita (US$) 11,358 12,120 13,612 12,277 10,460 10,892 11,625 Private consumption growth 10.8 11.0 12.6 3.0 0.0 2.0 4.0 Gross investment (percent of GDP) 22.5 24.8 23.9 23.9 24.1 24.1 24.0 Consumer price inflation, year-end 7.4 6.0 4.8 7.4 6.3 7.8 8.5 Consumer price inflation, period average 8.3 5.1 5.8 6.7 6.0 7.5 8.2 (Percent of GDP, unless otherwise indicated) Fiscal Accounts Revenues 27.7 26.4 24.2 23.7 19.9 20.3 21.3 Oil revenue 14.4 13.8 11.8 11.7 7.5 7.5 8.2 Non-oil revenue 13.3 12.6 12.4 12.0 12.4 12.8 13.1 Expenditures 21.8 22.3 20.8 22.8 22.9 22.0 21.9 Current expenditures 14.9 16.1 15.5 16.1 17.0 17.0 17.2 Capital expenditures and net lending 7.0 6.2 5.4 6.7 5.8 5.0 4.8 Consolidated fiscal balance 5.9 4.0 3.4 0.9 -3.0 -1.7 -0.6 Consolidated non-oil budget deficit* -8.5 -9.8 -8.4 -10.8 -10.8 -9.3 -8.8 (Current US$ billions, unless otherwise indicated) Balance of Payments Merchandise exports, of which: 85.2 86.9 85.6 79.1 48.7 51.3 55.3 Oil exports 55.2 56.4 55.2 52.9 27.5 29.6 32.9 Merchandise imports -40.3 -48.8 -50.8 -43.4 -32.4 -33.7 -35.3 Services, net -6.6 -7.9 -7.1 -6.4 -5.1 -4.9 -4.7 Workers' remittances, net -1.5 -1.7 -1.8 -1.6 -1.5 -1.5 -1.5 Current account balance 10.2 1.1 0.9 4.6 -3.9 -3.3 -1.9 as percent of GDP 5.4 0.5 0.4 2.2 -2.1 -1.7 -0.9 Foreign direct investment, net 8.6 11.9 7.9 5.9 7.8 6.5 7.1 Total official FX reserves 68.8 80.0 90.0 95.1 91.8 93.1 95.9 FX reserves at the Central Bank 25.2 22.1 19.2 21.5 19.3 18.2 16.6 FX reserves in the Oil Fund 43.6 57.9 70.8 73.6 72.5 74.9 79.2 External debt, total 125.3 136.9 149.9 157.1 162.0 164.8 168.1 External debt, excl. intra-company loans 62.7 69.3 76.0 77.9 79.9 81.0 82.1 as percent of GDP 33.4 34.1 32.8 36.7 43.6 42.0 39.4 Multilateral debt (percent of external debt) 2.6 2.7 2.8 2.9 4.3 5.1 5.8 Debt service ratio (percent of exports) 18.8 20.6 21.3 21.1 35.0 32.2 28.9 Social Indicators Population, total (millions) 16.6 16.8 17.0 17.3 17.5 17.7 17.9 Population growth (percent) 1.4 1.4 1.5 1.5 1.3 1.2 1.1 Unemployment rate (% of labor force) 5.4 5.3 5.2 5.0 .. .. .. Poverty rate, national (% of population) 5.5 3.8 2.9 2.8 .. .. .. Source: Statistical Office of Kazakhstan, Ministry of Finance of Kazakhstan, National Bank of Kazakhstan. Note: e=estimate, p=projection. * Here the consolidated non-oil budget deficit is the same as the Republican non-oil budget deficit as oblasts do not borrow externally. Generally, the consolidated budget includes the Republican Budget (central government budget), oblast budgets (14 provincial budgets and the cities of Almaty and Astana), and the Oil Fund. 18| Kazakhstan Economic Update No.1 | Spring 2015