| Project Detail |
Project Name COVID-19 Active Response and Expenditure Support Program
Project Number 54188-001
Country Kazakhstan
Project Status Approved
Project Type / Modality of Assistance Loan
Source of Funding / Amount
Loan 3940-KAZ: COVID-19 Active Response and Expenditure Support Program
Ordinary capital resources US$ 500.00 million
Loan 3941-KAZ: COVID-19 Active Response and Expenditure Support Program
Ordinary capital resources US$ 500.00 million
Loan: COVID-19 Active Response and Expenditure Support Program
Asian Infrastructure Investment Bank US$ 750.00 million
Strategic Agendas Inclusive economic growth
Regional integration
Drivers of Change Gender Equity and Mainstreaming
Governance and capacity development
Partnerships
Sector / Subsector
Health / Disease control of communicable disease
Public sector management / Economic affairs management - Social protection initiatives
Gender Equity and Mainstreaming Effective gender mainstreaming
Description
Kazakhstans economic growth was relatively strong in early 2020 above 4% and the macroeconomic outlook for 2020 2022 of 4% growth on average and continuous fiscal consolidation was in line with the good performance of recent years. But the recessionary effects of the global coronavirus disease (COVID-19) pandemic have now significantly worsened Kazakhstans macroeconomic outlook. The countrys non-oil fiscal deficit as a percentage of its gross domestic product (GDP) for 2020 is now set to widen to 11%, from 8% in 2019 and an originally expected 7% for 2020, which is also a result of the current discretionary countercyclical efforts. This situation will interrupt the downward trajectory from 10% in 2017.
Early health and epidemic-control responses. The pre-COVID-19 efforts in early January to build health system response capacity were effective, as were the strict social containment measures implemented since March (i.e., right after the first confirmed cases in the country). But the medical emergency remains a challenge.
Economic and social costs of COVID-19 response. The non-pharmaceutical interventions (NPIs) to slow down the spread of the virus imposed significant restrictions on Kazakhstans non-oil economy and seriously hurt the countrys macroeconomic outlook. Several enterprise surveys undertaken in early April indicate that (i) by the end of March, 48% of employees had been put on leave without pay and 13% had been terminated; and (ii) for the second quarter of 2020, an estimated 40% of employees could be put on leave without pay and 12% could be terminated. Tourism, hospitality, education, food services, retail trade, and manufacturing were among the areas hit hardest. Also, women tend to be particularly affected by restrictions on economic activity they account for more than 65% of the labor force in areas such as hospitality, education, and wholesale and retail trade; own or manage most of the microenterprises; and also represent a significant share of the informal labor market. Various estimates point to a loss of 1% of GDP per week of social lockdown.
Pandemic-caused global recession reaching Kazakhstan. The economic difficulties that Kazakhstan began experiencing in March are now being compounded by (i) a new oil price shock (and the collapse in the prices of other commodities), and (ii) the sudden stop of global capital flows into emerging markets. These direct consequences of the global pandemic halved the prices of 85% of Kazakhstans export goods . Exchange rate pressures were eased by allowing a 20% depreciation of the tenge and by raising the policy rate, which increased the debt-servicing costs across the economy. Pressures on the asset quality of banks are already constraining the provision of new liquidity to microenterprises and small and medium-sized enterprises (SMEs). This added to the ongoing disruptions outlined in para 4. Without a fiscal response, the economy will contract by 5% or more. The poor and vulnerable, including women, can be disproportionately affected. Poverty rates may reach 11% 13% (from 6.6% now).
Robust and comprehensive government response. To counter this sequence of shocks, the government decided on a comprehensive package of medical, public health, and countercyclical fiscal measures totaling T5.9 trillion (8% 9% of GDP, or about $13 billion). The government will self-fund more than 81% of this, including with additional transfers of $4.7 billion $5 billion from the National Fund of the Republic of Kazakhstan (NFRK). The remaining $2 billion of net new financing needs require foreign and domestic debt issuance. The sound pre-shock macroeconomic management record of the government is instrumental in giving credibility to its recent monetary and macroprudential policy decisions in banking and exchange-rate markets. The proposed assistance from the Asian Development Bank (ADB) will help the government mitigate the medical and economic impacts of the COVID-19 pandemic on Kazakhstan, and support its (i) immediate COVID-19 health policy response, (ii) social protection and employment recovery measures, and (iii) overall stimulus measures. Kazakhstans CPRO eligibility is summarized in Table 1 and detailed in Appendix 4. The proposed program is aligned with ADBs Strategy 2030, including its operational priorities of addressing remaining poverty risks, accelerating progress in gender equality, and fostering regional cooperation and integration. |
