Government • 26 March, 2019

Agreement between Government and National Bank is aimed at ensuring sustainable economic growth and price stability

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At the meeting chaired by the Prime Minister Askar Mamin, the draft Agreement between the Government of the Republic of Kazakhstan and the National Bank on the coordination of macroeconomic policy measures for 2019 was considered.

In order to fulfill the instructions of the President Kasym-Jomart Tokayev on the implementation of strategic initiatives and structural reforms of the First President – Elbasy Nursultan Nazarbayev, the National Bank takes the initiative to sign the Agreement on the Coordination of Macroeconomic Policy Measures for 2019 with the Government of Kazakhstan.

According to the Chairman of the National Bank Erbolat Dossaev, this Agreement will establish the principles and main directions of joint activities of the Government and the National Bank to ensure sustainable growth of the economy and maintain a stable price level. The agreement defines 10 main tasks.

1) Balanced fiscal policy fully within the purview of the Government.

2) Effective monetary policy and measures to control inflation.

The National Bank will retain the inflation targeting regime with an emphasis on maintaining low inflation, as well as the sustainability of the country's economic development and the growth of the population’s standard of living.

At the same time, the inflation target is specified. It is proposed to keep the corridor 4-6% until 2021, and from 2022 to reduce it to 3-5% and maintain in the long term.

3) Ensuring the stability of the foreign exchange market.

The National Bank sets itself the task of increasing the predictability of the tenge dynamics. While maintaining the policy of non-interference in currency trading, the National Bank reserves the right to conduct smoothing interventions.

4) Accessibility of funding the economy.

Special attention will be paid to the development of the market of institutional investors, time and savings deposits.

To improve the pricing efficiency, the formation of market indices and indicators in the interbank and securities markets will be ensured.

5) Development of the government securities market.

As Dossaev stressed, the National Bank will ensure the construction of a short-term risk-free yield curve.

“We ask the Ministry of Finance to reduce and consolidate the issues of its securities in order to build the medium and long-term segments of the yield curve. The government securities will be included in international global indices of developing countries. This will allow attracting the inflow of foreign investments and reducing the cost of borrowing,” said Dossaev.

6) Financial support programs for the development of the economy.

According to Dossaev, the main role here belongs to the Government. The National Bank will focus on the implementation of the three programs.

"Under the Program 7-20-25, the National Bank will continue financing it on previously approved conditions. It is proposed to provide borrowers with an initial contribution of over 20% and to expand the number of banks participating in the program. The development of long-term liquidity by banks in the amount of 600 billion tenge will ensure timely lending to priority projects of the economy,” said Dossaev.

7) Improving the enterprises of the real sector. According to the National Bank, the implementation of the priority right of secured creditors will contribute to the recovery of enterprises and the loan portfolio of banks. Work will continue with the highest judicial authorities on the development of bankruptcy law enforcement practices.

8) Stability of the financial system.

The work on strengthening the banking system will be continued by the bank, the full implementation of the lender will be important.

9) Reducing the shadow economy and the development of non-cash payments.

In this direction, measures to increase the availability of non-cash payments and improve their infrastructure will be continued. Large transactions will be transferred to non-cash form.

10) Protection of the rights of consumers of financial services and improving their financial literacy.

To implement the above measures, the National Bank will come up with a corresponding proposal to the Government to introduce legislative changes, including those providing for the expansion of the mandate of the National Bank. The agreement is not limited to the specified areas of joint actions of the National Bank and the Government. Coordination will be carried out through regular monitoring and discussion of actions taken and proposed.

In turn, the Minister of National Economy Ruslan Dalenov noted that within the framework of a balanced fiscal policy, work will be aimed at stimulating revenue growth and expansion of the tax base. Budget rules will be directed to the accumulation of funds of the National Fund.

“The joint measures of the Government and the National Bank on effective monetary policy and control of inflation are aimed at ensuring economic growth. Within this direction, it is planned to improve the tariff policy and develop measures aimed at the production of consumer goods,” said Dalenov.

At the same time, the balance of the foreign exchange market, in addition to the measures of the National Bank, will ensure coordination of actions of large entities of the quasi-state sector, the Ministry of Finance and budget operations for the conversion of guaranteed transfer from the National Fund.

At the same time, the National Bank will continue the policy of a freely floating exchange rate with the right to conduct an intervention.

As the minister emphasized, in attracting investments and the availability of funding for the economy, as well as the development of the government securities market, work will continue on the attractiveness of the investment climate and the availability of funding. At the same time, it is envisaged to consolidate the issue of government securities to form indicators of the cost of debt capital.

The efficiency of the state programs of financial support for the development of the economy will be increased. This will allow to implement projects with maximum efficiency.

In addition, work will be continued to improve bankruptcy procedures. This will remove barriers that prevent lenders from exercising their rights to settle a debt.

“For reducing the shadow economy and developing non-cash payments, financial and non-financial incentives will be introduced to reduce cash turnover. In order to protect the rights of consumers and improve financial literacy, measures will be taken to regulate the activities of non-bank loan providers. Thus, the implementation of this Agreement will ensure the achievement of economic growth and keeping inflation,” Dalenov said.

The First Deputy Prime Minister – Minister of Finance Alikhan Smailov emphasized that within the framework of the President’s instructions and for the implementation of the tasks and reforms, this Agreement is very important. The document coordinates macroeconomic policy measures in the long term and to rallies the cooperation of the Government and the National Bank. To implement this Agreement, a Roadmap will be developed.

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