In 2014, Kazakhstan experienced two external shocks that impacted economic growth, revenue performance, and the government’s ability to reduce the effects through countercyclical expenditures. The first comprised spillover effects from the economic slowdown and uncertain situation of the Russian Federation, which triggered a downward adjustment in the tenge exchange rate. The second was the steep fall in global oil prices, which precipitated a negative external balance as oil then accounted for 70% of the country’s exports.
To help mitigate the significant negative economic impact of these external shocks, the Asian Development Bank (ADB) approved in August 2015 a loan of $1 billion for the Countercyclical Support program in Kazakhstan. The loan, requested by government in December 2014, originally aimed to support government’s 2015 budget. However, as financing came only in 2016, during which time the country was already suffering the consequences of a third economic shock, the loan had to shoulder part of new and additional countercyclical efforts implemented in response to the third shock. Abandonment of the foreign exchange peg, which resulted in a sharp devaluation of the tenge against the US dollar and a sudden scarcity of liquidity in the banking sector, sparked the third shock in late-2015.
The loan took relatively long to process because of two special features ─ the amount exceeded the $500 million limit available for each developing member country from ADB’s Countercyclical Support Facility (CSF) and disbursement of the $500 million second tranche was linked to reforms. These features became the subject of an extensive time-consuming debate within ADB as they ran counter to the general expectation that the approval and disbursement of CSF funds are to be expedited in view of the nature and objectives of the modality. Delays in loan signing and effectiveness due to legal requirements in Kazakhstan further hampered loan progress.
The processing and disbursement delays were important setbacks that diminished the program’s relevance and made it less than efficient. The poor definition of outcome, outputs, and activities and inadequate identification of risks in the design and monitoring framework (DMF) also did not allow for a thorough and complete assessment of accomplishments.
Nevertheless, as it supported the government’s countercyclical efforts in 2016 when the risks that had not been identified were already occurring and exacerbating the economic downturn, the program remained relevant and highly effective as an external financial support measure, according to the program completion report (PCR). Using as basis the implementation of government’s announced initiatives since 2014, the PCR also confirms that planned targets in two output areas ─ increased employment and maintenance of priority expenditures to sustain jobs and social spending ─ had been achieved. Attainment of targets in promoting non-oil and private sector development could not however be assessed at project completion.
Overall, the PCR rated the program successful. The Ministry of Finance (MOF) was the executing agency. The Ministry of National Economy, the Ministry of Healthcare and Social Development, the Ministry of Energy, and the National Bank of Kazakhstan were the implementing agencies.
