Ways to solve problems related to the economic estimations

The National Bank of the Republic of Kazakhstan while elaborating the Monetary Policy Guidelines of the Republic of Kazakhstan studied the scenario forecasts for the three subsequent years.

The scenarios are synchronized and coordinated with the estimates made by the Government of the Republic of Kazakhstan when building up the Forecast for the Socio-Economic Development of Republic of Kazakhstan for 2012-2016.

Given the extent of impact on the Kazakh economy, an annual average level of the world oil prices was determined as a key criterion for distinguishing between scenarios when formulating the monetary policy for 2012-2014. Three scenarios for the development of macroeconomic situation were reviewed, which assume the following oil prices (Table 1)

Table 1- Oil prices

Note completed on the base of source from official site of National Bank of the Republic of Kazakhstan

The forecasts for the key monetary policy indicators of the Republic of Kazakhstan are based on the forecasts of the balance of payments (when doing the forecast for the balance of payments for 2012-2014, assumptions and expectations of ministries and agencies of the Republic of Kazakhstan in respect of incoming foreign investments in large projects existing at July-August 2011 were also taken into account) that are quite conservative.

Scenarios were designed based on the data from the Ministry of Economic Development and Trade of the Republic of Kazakhstan in respect of increased expenditures of the republic budget for social security and public welfare during 2012-2014. Such expenditures mean the increase in the aggregate demand that should be balanced by the relevant aggregate supply. The latter should be ensured by the production sphere as well as by appropriate measures for creating favorable conditions for the output growth.

In 2012-2014 the inflation background is expected to remain unchanged. As before, the major risks of acceleration of inflation are underdeveloped domestic competitive market environment, high monopolization of the market, poorly developed trade infrastructure as well as unstable situation in the global commodity markets. As for the global commodity markets, economic interests of Kazakhstan are primarily dependent on the world oil prices and, accordingly, fuel and lubricants. The latter have a double impact on the inflation rate – both indirect impact through prices for fuel and lubricants and through prices for other goods and services whose costs invariably include the cost of fuel and lubricants.

At the same time, the impact of monetary factors on the buildup of inflationary processes in the Republic of Kazakhstan will be minor in 2012-2014. This will be ensured by maintaining the money supply at an adequate level by the National Bank of the Republic of Kazakhstan.

In the implementation of all scenarios concerning the development of the Kazakh economy in 2012-2014 the main objective of the National Bank of the Republic of Kazakhstan is to ensure the price stability, which implies that the inflation will be kept within the band of 6.0-8.0%.

Scenario One – assumes pessimistic projections in case of deterioration of the situation in the global commodity and financial markets in the mid-term.

With the implementation of this Scenario, an insignificant contraction of the Kazakh economy is expected in 2012 with subsequent recovery in real growth of the economy to 2% in 2014.

Under this Scenario, the reduced business activity, contracted aggregate demand, deteriorated balance of payments performance and decreased money supply are anticipated.

The worst case scenario of the balance of payments takes into account a significant reduction in the export of goods by 45.1% to US$ 43.1 bln. in 2012 and its subsequent growth by 2.2% to US$ 44.1 bln. in 2014 as compared to 2012. The import of goods is also expected to reduce during the forecast period as a result of a slowdown in the growth rates and decreased revenues in the economy, by 23.4% to US$ 30.4 bln. in 2012 with its subsequent minor growth to US$ 31.3 bln. in 2014. Concurrently, the reduced export of goods will be also offset by the decrease in revenues payable to non-residents. For which reason, the current account deficit is expected not to exceed 5% of GDP throughout the forecast period.

Global financial markets will be generally closed for foreign borrowings. Nonetheless, during the initial years of the forecast period significant volumes of foreign investments in Kazakhstan will be observed that will be mainly ensured based on the earlier contracts including those intended for project financing under the Government Program of Forced Industrial and Innovation Development. In the environment of decreasing net revenues to the National Fund of the Republic of Kazakhstan and retained level of the guaranteed transfer to the national budget, an inflow of resources from foreign assets of the National Fund of the Republic of Kazakhstanwill be observed in the reviewed period. The combination of the above factors will allow decreasing the outflows on the capital and finance account.

In 2012-2014 the overall balance of payments deficit will be at 2.5% of GDP, which will allow preserving international reserves at an adequate level to finance the import of goods and services.

The decreased money demand in the economy will be accompanied by reduced money supply in 2012. In 2013-2014 money supply will slightly increase however, its growth rates will be limited.

Multi-directional dynamics of money supply would be conductive to some decrease in the degree of monetization (Appendix 1).

According to the estimate made by the National Bank of the Republic of Kazakhstan, a probability of this scenario’s implementation is rather low.

Scenario Two assumes certain stabilization of the situation in the global commodity and financial markets.

Should the second scenario be realized, oil prices would be higher as compared to the first scenario but lower than the actual price level of 2011. As a result, growth rates of the Kazakh economy in 2012-2014 will slow down as compared to 2011.

With the world price of oil at US$ 90 per barrel in 2012 and US$ 70 in 2013-2014, a positive trade balance is expected to be within US$ 20-26 bln., which will be partially offset by revenue payouts to foreign investors. In general, the current account is expected to be in the range between (-)1.5% and (+)0.5% of GDP in the forecast period.

In 2012-2014, with an annual decrease in the inflow of direct investments to Kazakhstan, mainly due to decreased investments in the North-Caspian Project and decreased growth rates of foreign assets of the National Fund of the Republic of Kazakhstan, the capital and finance account deficit (including “Errors and omissions”) will be decreasing.

As a result, under this balance of payments scenario the overall balance is expected to be negative within the range between (-)2% and (-)0.5% of GDP and international reserves of the National Bank of the Republic of Kazakhstan will decrease accordingly. However, they will be maintained at a level higher than their minimal required volume covering at least 3 months of import of goods and services.

The rates of expansion in the money supply will be adequate to the growth rates of nominal GDP in 2012-2014. Alongside with that, a more favorable macroeconomic situation supported by positive dynamics of the economic growth will promote the growth in the level of monetization (Appendix 1).

Under Scenario Three, the economic growth rates in Kazakhstan in 2012-2014 are expected at a higher level as compared to the preceding scenarios.

Under this balance of payments scenario based on the assumption that the world oil price would be US$ 100, a positive effect of the corrective measures in the global economy and the continuation of trends which commenced in 2011 are expected. In doing so, significant export revenues will be offset by the increased demand for imports and revenues payable to non-residents. Based on that, the current account proficit will be within the range of 2.0-4.0% of GDP in 2012-2014.

In the capital and finance account (including “Errors and omissions”) the growth in the deficit is anticipated, mainly because of the increased growth rates of foreign assets of the National Fund of the Republic of Kazakhstan.

As a result, the overall balance of payments in the forecast period is expected to be within the range of (-)0.5% to (+)1.0% of GDP, which will allow preserving the international reserves of the National Bank of the Republic of Kazakhstan at the level of end- 2011.

The demand for money will also appear to be higher as compared to the preceding scenarios. Since in 2012 significant growth in real and nominal GDP is expected whose growth rates will stabilize in 2013-2014, the dynamics of money supply will be somewhat ahead of the dynamics of nominal GDP thus ensuring the growth in monetization in the forecast period (Appendix 1).

The National Bank of the Republic of Kazakhstan believes that the third scenario of the development of the Kazakh economy is most likely to be implemented. Based on these assumptions, monetary policy measures for 2012 have been developed. [1]

CONCLUSION

Monetary policy is an extremely powerful and therefore extremely dangerous tool. With the help of monetary policy the state can get out of a deep crisis, but ruled out and the sad alternative, for instance deepening prevailing in the market system of negative trends. Only very well-informed decisions taken at the highest management level after a serious analysis of the situation consider alternative ways of monetary policy on the economy of the state, will give positive results.

With the help of monetary government seeks to alleviate the economic crisis, to restrain inflation in order to ensure and to stimulate investment in various sectors of the economy.

State regulation of the monetary sphere may be carried out successfully only if the State through the central bank can effectively influence the extent and nature of private institutions as well as in developed market economies is the latter are the basis for the entire monetary system.

The tools of monetary policy are changes of refinancing rate, changes in reserve requirements, open market operations with securities and foreign currencies, and the introduction of credit restrictions.

In our country at the contemporary stage the main aim of a rational monetary policy is to minimize inflation and recession and prevent rising unemployment.

Thus, the state needs to regulate monetary policy, but within reasonable limits, it is necessary to make the liberalization of state regulation in the banking system in order to invest those sectors of the economy (processing, chemical, transportation, instrumentation), which will promote local production, improve macroeconomic indicators of GDP, percentage of employment and the level of real income.

In conducting monetary policy, the National Bank of Republic of Kazakhstan intends to use not only all the currently available tools at its disposal, but also to expand their quantity by setting of available methods for monitoring and managing the money supply that is fully adequate folding for general economic conditions. However, the possibility and effectiveness of specific instruments of monetary regulation is largely related to the restoration and development of financial market segments and strengthening the banking system. Achieving these goals will also depend on the availability of appropriate conditions created by the operation of all sectors of the economy and the necessary institutional reforms.

Examining the theoretical and practical bases of monetary policy of the National Bank of Kazakhstan, were made the following conclusions.

The content and objectives of monetary regulation were disclosed in details. Since the ultimate goals of monetary policy are to ensure price stability, economic growth, a high level of employment and sustainable balance of payments, it can be concluded that monetary policy is the most important part of economic policy of the State.

It should also be noted that the National Bank is not able to achieve the ultimate goals directly, it has a policy that by affecting intermediate objectives which may include the exchange rate, monetary aggregates, the increase in nominal GDP, or in the case of inflation targeting, the interim target coincides with the end goal of price stability ensuring.

Were identified the main instruments of monetary policy and given a description of the most popular ones. Were described the instruments used by the National Bank of Kazakhstan.

Were carried out an analyze of the existing drawbacks in the system of monetary regulation, which include high inflation, currency issue under the amount of gold reserves, non-functioning system of refinancing and a huge foreign debt. During the search for solutions of existing problems were identified further possible prospects of monetary policy, which include the reduction of refinancing and extension issue without regard to the amount of gold reserves. These measures have to run refinancing mechanism, through which it is supposed to expand its lending to the real sector in order to diversify the economy. Besides, this will be reflected on increasing of competition and reducing of imports dependence and a corresponding reduction of inflation.

An important part of the work is the analysis of the readiness of the Republic of Kazakhstan to the crisis. The main problem lies in the structure of the economy, which is mostly dependent on foreign economic conditions, and hence complicates control of inflationary processes in the country.

Also needs more development of the financial system and the development of the transmission mechanism, in order to obtain reliable information about influence of the tools of monetary policy on the target directions.

List of references:

1. Monetary policy guidelines of the National Bank of RK for 2012. Available from internet: http://www.nationalbank.kz/?docid=609

2. "B.M. Friedman, "Monetary Policy," Abstract.". International Encyclopedia of the Social & Behavioral Sciences. 2001. pp. 9976–9984.

3. http://www.antiessays.com/free-essays/202832.html

4. http://kalyan-city.blogspot.com/2010/09/monetary-policy-its-meaning-definitions.html

5. Lavrushin O. Деньги Кредит Банки: М.: 2004, Кнорус.

6. The Law March 30, 1995 № 2155 “On National Bank of Republic of Kazakhstan” (with amendments), Chapter 6, Article 29

7. Tattimbetova Zh. Учебно-методический комплекс для дистанционного обучения по дисциплине: Денежно-кредитное регулирование экономики, Караганда 2009г.

8. Baymanova Zh. Валютный рынок: история и современное состояние, перспективы развития.// Банки Казахстана, 2003, №1.

9. Zeynebgaldin A. Финансовая система: экономическое содержание и механизм использования. Алматы, Каржы-Каражат, 1995.

10. The Rules on minimum reserve requirements, approved by the Board the of the National Bank of Kazakhstan of May 27, 2006 № 38

11. Gabzhadilov H. Тенгe, А.:2003, Алматыктап

12. Monetary and credit statistics. Available from internet: http://www.nationalbank.kz

13. Concluding statement of 2012 IMF Mission. Available from internet: http://www.nationalbank.kz

14. Interbank rates. Available from internet: http://www.nationalbank.kz

15. Lis I. Казахстан в международном контексте, Деловой Казахстан № 35 (332) 14.01.2012

APPENDIX A

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