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FSAP Concludes Evaluation of Kazakhstan's Financial Sector, Recommends Reforms

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Salman Akhtar
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FSAP Concludes Evaluation of Kazakhstan's Financial Sector, Recommends Reforms

After rigorous evaluation, the 2023 Financial Sector Assessment Program (FSAP) conducted by the International Monetary Fund (IMF) has concluded its examination of Kazakhstan’s financial sector. The appraisal, steered by Senior Economist Pierpaolo Grippa from the IMF’s Monetary and Capital Markets Department, is part of the IMF’s 2023 IV Article Mission.

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Assessing Stability Post-Asian Financial Crisis

The FSAP was conceived in the aftermath of the Asian financial crisis over two decades ago, with the primary aim to forestall systemic crises. It conducts comprehensive assessments of countries' financial systems to ensure stability. In this context, Kazakhstan has made significant strides in banking supervision. A pivotal transition has been observed from compliance-based to risk-based approaches, a development that has drawn commendation from Grippa.

Guidelines for Regulatory Leadership Changes

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While acknowledging progress, Grippa highlighted the importance of clear guidelines to govern regulatory leadership changes. Such guidelines are essential to foster transparency and allay suspicions of government control. Grippa emphasized that Kazakhstan’s economy, heavily reliant on the oil and gas sector, needs to diversify considering the global trend towards decarbonization.

Impact of Decarbonization on Banking Sector

The FSAP conducted an in-depth analysis of the potential impact of accelerated decarbonization on Kazakhstan’s banking sector. The findings reveal that in such a scenario, credit losses could escalate by up to 30%. Grippa also touched upon solvency stress tests, which indicated a degree of resilience. However, he suggested that some banks need to bolster their financial buffers.

Recommendations for Kazakhstan’s Financial Sector

Grippa expressed concern over the risks of economic and geopolitical fragmentation, underscoring the necessity for domestic reforms for sustained growth. The FSAP suggests reforms to improve crisis preparedness, institutional stability, and transparency in Kazakhstan’s financial sector. These measures would enable the sector to adapt more efficiently to the changing global financial landscape.

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