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. Last Updated: 07/27/2016

Kazakhstan Set for Major IMF Loan

ALMATY, Kazakhstan -- A preliminary $450 million loan agreement Kazakhstan with the International Monetary Fund demands that Almaty continue strict economic reforms and improve its tax collection.

"If we sign the accord it would mean that the world has regained trust in the Kazakh economy," Zhannat Ertlesova, first deputy economics minister, said last week. "This marks a new stage in our economic development, from an economy characterized by production decline and high inflation to an economy characterized by stabilization."

The three-year Extended Fund Facility, if approved by the IMF board this summer, would be a step beyond earlier one-year standby facilities. The IMF in March approved a $10 billion facility for Russia.

Like Russia, Kazakhstan passed a major hurdle to the loan in April, when it cut export tariffs on oil in half and pledged to phase out all export tariffs later this year. Unlike Russia and Ukraine, however, Kazakhstan will not face a tough monthly review by the IMF but gain access to the credit every three months.

Uraz Dzhandosov, chairman of Kazakhstan's National Bank, said his government had pledged to cut inflation to 26 to 28 percent by the end of the year, down from 160 percent in 1995 and 1,258 percent in 1994. Bank financing of the budget deficit should go down to 0.8 percent of gross national product, with government securities and foreign credits covering the remainder of a 2.8 percent deficit, Ertlesova said.

Russia, by contrast, has pledged a deficit of 3.85 percent, to be covered fully by state treasury bills and foreign credits.

Kazakhstan will be hard put to stick to a tight budget as it faces a looming payment crisis that has brought hundreds of enterprises to a near standstill. Ertlesova said the government would toughen control over natural monopolies, especially in energy and transport, which have pushed many enterprises in debt by raising prices.

Ertlesova said her government had pledged to boost tax revenues from 15 percent of GDP to 20 percent, but had resisted IMF pressure to raise existing taxes. Instead, the government would boost returns mainly by improving tax collection and by introducing new taxation on natural resources.

That too will be difficult as most current investors in the Kazakh oil, gas and gold sectors have obtained tax exemptions. But some, including a large British Gas venture, may face tax hikes because they have yet to sign a production sharing agreement. Ertlesova said the government would continue interest payments on foreign debts to regain trust abroad after a number of defaults in previous years. The government will now only guarantee viable investments in infrastructure and social projects, relying on private investments for other sectors, she said.