Tuesday, 11 August 2020, 10:13:00
At the government session chaired by Prime Minister Askar Mamin, Chair of the National Bank Erbolat Dossaev made a report on the results of socio-economic development and execution of the republican budget for January-July 2020.
As Dossaev noted, the consequences of the coronavirus pandemic have led to record reductions in the economies of both developed and developing countries. In the second quarter of this year, the US GDP fell by 9.5% compared to the previous quarter, in the European Union — by 14.4%, including in Spain — by 18.5%, in Germany — by 10.1%, which is the lowest ever quarterly count for both countries.
According to the World Bank, the world economy has faced the deepest recession since the Second World War, it is expected to decline by 5.2% by the end of this year.
“Nevertheless, the major economies of the world declare that the bottom has passed and the recovery of the world economy has begun as a results of large-scale government spending to support business and the population. China, the EU countries and the United States recorded significant improvements in industrial business performance. The Global Manufacturing PMI index for the first time since January 2020 went into the positive zone and reached 50.3 points,” Dossaev noted.
Against the background of a smooth recovery of the economy and growth in energy consumption, oil quotations for July 2020 rose moderately by 5.2% — from $41.2 to $43.3 per barrel.
At the same time, despite the recovery of the global economy, the risks of a second wave of coronavirus in the world remain. In July this year, uncertainty increased in foreign markets due to the growing spread of the coronavirus. This increased investor fears about the economic outlook and led to an increase in the value of defensive assets such as gold, as well as a weakening of emerging market currencies.
In Kazakhstan, the business activity index after recovering to 46.8 points in June 2020 decreased to 44.7 points in July 2020 against the background of the imposed quarantine restrictions, which is associated with a decrease in activity in the service sector.
“According to operational data, according to the results of the first half of 2020, Kazakhstan's GDP decreased by 1.8% in annual terms, while the National Bank's forecast was 1.5%, which is due to a deep recession in the service sector, in particular in trade and transport. Against this background, taking into account the stabilization of inflationary expectations, the National Bank on July 20, 2020, reduced the base rate to 9% with the narrowing of the interest rate band to +/- 1.5 percentage points. to support the recovery of economic growth in Kazakhstan,” Dossaev stressed.
The annual inflation is formed in accordance with the forecasts of the National Bank, amounting to 7.1% in July 2020. The annual growth in food prices amounted to 11.3% and continues to make the main contribution to inflation. The maximum growth rates are maintained for bakery products and cereals, fruits and vegetables, while the growth rate of prices for meat and meat products has slowed down somewhat.
The annual growth in prices for non-food products remained at the level of 5.4%, while prices for fuels and lubricants continued to decline. The annual growth in the prices of paid services increased from 3% 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 this year increased by 0.9%.
In the coming months, further acceleration of annual inflation is expected within the forecast path of 8-8.5% until the end of 2020.
“One of the priorities of the National Bank's work is to redirect excess liquidity to the needs of the economy. For this, since last year, the National Bank, together with the Ministry of Finance, has been actively working to increase the supply of government securities in the medium-term segment while reducing the number of issues of long-term securities,” Dossaev noted.
As a result of coordinated work, liquidity is gradually rebalancing from short-term notes of the National Bank to government securities of the Ministry of Finance. Since May of this year, the Ministry of Finance began to issue short-term government securities with a maturity of up to three years. In turn, since July this year, the National Bank has suspended the issue of notes with a maturity of 1 year, which stimulates investors' interest in purchasing the corresponding government securities of the Ministry of Finance.
In July of this year, the volume of short-term notes of the National Bank decreased by 13.5% to 2.8 trillion tenge. Compared to the maximum value as of Feb. 21, the decline was 31.6%, and since the beginning of the year — 16.9%.
At the same time, there is an increase in the volume of bonds issued by the Ministry of Finance. The volume of government securities of the Ministry of Finance in circulation since the beginning of this year increased by 19.9% — from 8.2 trillion tenge to 9.8 trillion tenge.
At the suggestion of the National Bank, the Ministry of Finance has updated the plan for issuing government securities with the most popular maturities from 1 to 3 years in the amount of 1 trillion tenge.
Further development of the securities market with the subsequent construction of an adequate yield curve and the inclusion of Kazakhstani securities in the international indices of developing countries will help attract investors, develop the financial market and stabilize the economy, diversifying the sources of financing the budget deficit.
As the Chair of the National Bank noted, due to the growing fears of investors of the second wave of coronavirus, the trend for a general weakening of currencies in developing countries continues.
“From the end of June to Aug.10, 2020, the Turkish lira fell by 6.9%, the Indonesian rupee — by 3%, and the Argentine peso — by 3.3%. Against the background of the general trend, the Russian ruble also weakened by 3.6%, which was also facilitated by a decrease in the sale of the Russian Central Bank currency within the framework of the budget rule, the withdrawal of investors after the key rate cut, as well as the conversion of dividends of Russian companies received by investors into foreign currency,” informed Dossaev.
Against the background of the indicated weakening of the currencies of developing countries, the exchange rate of the tenge has weakened by 3.5% since the beginning of July, from 404.07 to 418.31 tenge per US dollar as of Aug. 10, 2020.
The weakening of the tenge is held back by oil quotations, which were fixed at the level above $40 per barrel. As of Aug. 7, the oil price consolidated at $44.4 per barrel amid news of declining oil reserves and compliance with the OPEC + deal.
Domestic support for the national currency was provided by the conversion of assets of the National Fund in order to allocate a guaranteed transfer to the republican budget, as well as extended measures for the mandatory sale of a part of export foreign exchange earnings by companies of the quasi-public sector.
According to preliminary estimates, the current account of the balance of payments for the first half of this year formed with a surplus of $2.1 billion due to a 3.5-fold decrease in income payable to direct investors.
The trade surplus decreased by 12.3% to $9.9 billion compared to the first half of 2019. Exports of goods decreased by 10.7% or by $3.1 billion, which is associated with a drop in exports of oil and gas condensate by 8.5% or $1.4 billion due to a decrease in contract prices.
Imports of goods decreased by 9.7% or by $1.7 billion as a result of a decrease in the import of investment goods by 15.8% or by $1.1 billion.
In general, the surplus of the current account of the balance of payments in the first half of this year was the result of a relatively high oil prices and growth of its supplies at the beginning of the year, as well as a significant drop in the income of direct investors. This effect will be exhausted in the second half of the year and will lead to a deficit in the balance of payments for the current year.
Gross international reserves at the end of July this year, according to preliminary data, amounted to $93.5 billion, an increase of 3.2%. In July this year, the gold and foreign exchange reserves of the National Bank increased by 7.3% or by $2.4 billion to $35.3 billion due, first of all, to an increase in gold prices.
The assets of the National Fund amounted to $58.2 billion, having increased by $0.5 billion (+ 0.9%) over the month due to the investment income received in July of this year in the amount of $1.6 billion, while in order to allocate a guaranteed transfer, conversion of assets of the National Fund for $1.1 billion.
Deposits in the banking system at the end of June 2020 amounted to 19.9 trillion tenge, having increased from the beginning of the year by 4.4% or 846 billion tenge due to the growth of tenge deposits. Deposits in national currency increased by 10.2% to 11.9 trillion. Foreign currency deposits decreased by 3.1%, amounting to 7.9 trillion tenge at the end of June this year. As a result, the level of dollarization of deposits decreased to 40% in June of this year.
Loans to the economy increased by 0.4 since the beginning of the year to 13.9 trillion tenge at the end of June this year as a result of the growth of long-term loans. Short-term loans increased slightly — by 9.8 billion tenge or 0.5% to 2.1 trillion tenge. At the same time, there is a slowdown in the growth rate of lending to the economy against the background of a slowdown in business activity.
The rate on tenge loans to legal entities decreased from 11.4% in May 2020 to 11% in June 2020, including on short-term loans — down to 11%, on long-term loans — up to 11.1%. Lowering the base rate in July 2020 will reduce the cost of loans and compensate for the increased credit risks in the banking system, as well as support the recovery of the Kazakh economy.
As part of supporting the economy, the implementation of the anti-crisis initiatives of the Head of State continues.
- Under the Economy of Simple Things, as of Aug. 7, 2020, banks approved 618 applications for a total amount of 454.3 billion tenge, issued 536 loans worth 266.6 billion tenge.
- Under the Program of Concessional Lending to SMEs affected by the introduction of the state of emergency, as of August 6, 2019, entrepreneurs submitted 2,207 applications for the amount of 535.9 billion tenge, issued 1,279 applications for 341.4 billion tenge.
In addition, Dossaev informed that according to the program 7-20-25 as of Aug. 6, 2020, 20,693 applications for 240.7 billion tenge were approved, of which 16,868 loans were issued for 199.3 billion tenge.
Under the Baspana Hit market mortgage program, 34,904 applications for the amount of 296.4 billion tenge were approved as of August 6 of this year, 28,347 loans were issued for 235.6 billion tenge.