Transcript Volume of inflows

Dealing with Inflows:
Kazakhstan’s Experience, 2004-06
Aasim M. Husain
April 2007
Outline
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


Impressive macro performance
Volume and types of inflows
Outflows
Scaling the net inflows
Policy responses
Lessons
Macro Achievements
Real GDP growth around 10% or more since 2000
16
14
12
10
8
Construction
and services
Agriculture and
manufacturing
Oil
6
4
2
Other
0
GDP growth
-2
-4
1999 2000 2001 2002 2003 2004 2005 2006
Per capita quadrupled; unemployment fell
6000
16
14
5000
12
4000
10
3000
8
6
2000
4
1000
2
0
0
1999
2000
2001
2002
2003
2004
2005
GDP per capita (dollars; left scale)
Unemployment (percent; right scale)
2006
Social indicators improved
40
36
35
34
30
25
32
20
30
15
10
28
5
0
26
1999
2000
2001
2002
2003
2004
2005
Inequality (GINI index; right)
Poverty (share of population with income lower than subissitence level; left)
Inflation was tamed
14
(In percent)
12
10
8
6
4
2
0
1999
2000
2001
2002
2003
2004
2005
2006
Confidence in banks improved,
dollarization declined
35
70
30
60
25
50
20
40
15
30
10
20
5
10
0
0
1999
2000
2001
2002
2003
2004
2005
2006
Total deposits (In percent of GDP; left)
Forex deposits (In percent of total deposits; right)
Kazakhstan’s Forex Inflows
Types of inflows, 2004-06
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Oil export receipts
Non-oil exports
FDI
Bank borrowing
Volume of inflows
30
(In billions of dollars)
60
25
50
20
40
15
30
10
20
5
10
0
0
Average
2002-03
Oil exports
2004
2005
Non-oil exports
2006
FDI
2004-06
Cumulative
(right scale)
Bank borrowing
Types of outflows
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Imports (goods and services)
FDI debt amortization
Income to direct investors
Bank lending abroad
Volume of outflows
0
(In billions of dollars)
0
-10
-20
-20
-40
-30
-60
-40
-80
-50
-100
Average
2002-03
2004
2005
Imports of goods and services
FDI debt amortization
Income to direct investors
Bank lending abroad
2006
2004-06
Cumulative
(right scale)
Net inflows
18
(In billions of dollars)
36
16
32
14
28
12
24
10
20
8
16
6
12
4
8
2
4
0
0
Average
2002-03
2004
2005
2006
2004-06
Cumulative
(right scale)
Scaling the inflows
25
1400
20
1200
15
1000
10
800
5
0
600
2002-03
(avg.)
2004
2005
2006
2004-06
cumulative
(right scale)
Net inflows (In percent of GDP)
Net inflows (in percent of end-2003 reserve money)
Policy Responses
Handling the monetary impact
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Policy: offset through NFRK
Other outflows (bank assets, E&O, labor rem.)
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Result: reserve increase (one half of net inflows)
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Policy: partial sterilization through:
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– Issuance of paper
– NBK deposit window
– Reserve requirements
Monetary impact of inflows
5000
(In billions of tenge)
4000
3000
Net
inflows
2000
NFRK
1000
0
Other
-1000
NIR
increas
e
-2000
-3000
2004
2005
2006
2004-06
Cumulative
Monetary response to inflows
2500
(In billions of tenge)
2000
NIR
1500
Paper
1000
500
NBK
deposits
0
Required
reserves
Other
-500
Reserve
money
-1000
-1500
-2000
2004
2005
2006
2004-06
Cumulative
Result: rapid money growth
140
120
100
80
60
40
20
0
Jan-02
Jan-03
Jan-04
Bank credit to economy
Jan-05
Jan-06
Reserve money
Jan-07
Broad money
Prudential measures
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Open forex limits
Forex liquidity
Tighter classification and provisioning
Risks weights for cross-border lending
External borrowing limits
Exchange rate policy
120
(Index; Jan 2000=100)
115
110
105
100
95
90
85
Jan-00
Jan-01
Jan-02
Dollar/tenge
Jan-03
Jan-04
Rouble/tenge
Jan-05
Jan-06
REER
Jan-07
Tenge: De Facto Flexibility
(Proportion of monthly exchange rate changes
that were less than +/- 1 percent)
120
110
100
90
80
70
60
50
40
30
20
10
0
Jan-00
Jan-01
Jan-02
1-year centered band
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
6-month centered band
Tenge appreciation has helped with inflation
20
(In percent)
18
16
14
12
10
8
6
4
2
0
Jan-02
Jan-03
Jan-04
Inflation w/o appreciation
Jan-05
Jan-06
CPI inflation
Jan-07
Fiscal policy—saving oil revenue
20
(In percent of GDP)
15
10
5
0
2002
2003
2004
2005
2006
-5
-10
Oil revenue
NFRK accumulation
Overall surplus
2007 (proj.)
Fiscal policy—prudent stance but monetary
impact
8
24
6
22
4
20
2
18
0
16
2002
2003
2004
2005
Overall balance (in percent of GDP; left)
2006
2007
(proj.)
Expenditure (% change; right)
Lessons and Policy Implications
Managing the inflows
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Monetary, exchange rate, prudential, and
fiscal policies have played a role
But money/credit growth remains very
high
External indebtedness of banks
continues to rise (rapidly)
And inflation persisting at a relatively
high level
Implications for near-term policy mix
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Further monetary tightening absorb liquidity
Further prudential tightening to mitigate risks
– Measures to slow external borrowing
– Measures to slow credit growth and maintain loan
quality
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Exchange rate appreciation/flexibility
– Help with inflation
– Remove one-way bet to facilitate flexibility
– Which should reduce speculative inflows
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These steps needed to permit the planned fiscal
easing without pushing up inflation