Modernization of agricultural sector: financial support measures for producers
In the new global reality, priority is given to the accelerated development of the agricultural sector. In the near future, the production and processing of agricultural products should become the main source of diversification and the driver of economic growth. The new role of the agro-industrial complex will balance the country’s sustainable development, increase labor productivity and ensure the improvement of the living standard of the population’s main part.
As noted, in the Address of the President of Kazakhstan “New Opportunities Under the Fourth Industrial Revolution,” the agro-industrial complex faces the task of dramatically increasing labor productivity and export of agricultural processing by at least 2.5 times within five years.
The government conducts systematic work to support the development of agriculture. Thus, the State Program for the Development of the Agro-Industrial Complex provides for subsidizing seed production, increasing the yield and quality of crop production, the cost of fertilizers, fuels and lubricants and other material necessary for carrying out spring-field and harvesting operations. In addition, state support measures include subsidizing the interest rate on credit and leasing obligations in the framework of the direction for financial recovery of agribusiness entities, interest rates on loans and leasing of equipment and agricultural machinery, for the purchase of farm animals. The state subsidizes the cost of laying and growing perennial plantations of fruit and berry crops and grapes, the development of livestock breeding, increasing productivity and product quality, and so on.
According to the Ministry of Agriculture, the index of the physical volume of gross agricultural products for the eight months amounted to 102.4% with an annual plan of 103.6%, including plant growing � 98.5% and livestock production � 103.9%. From the republican budget, the ministry allocated 355.5 billion tenge for 2018. The development plan for the reporting period amounted to 265.9 billion tenge, in fact, 254.3 billion tenge or 95.7% of the plan was actually spent.
So, to support agricultural cooperation in the form of concessional lending, 25.5 billion tenge were sent in 2017. Within the allocated funds, 342 agricultural cooperatives were provided loans for 3.4 billion tenge to purchase equipment for harvesting.
The ministry also informs that under the Program for the Development of Productive Employment and Mass Entrepreneurship, local executive bodies received 27.1 billion tenge in the form of a budget loan in 2017. As a result, almost 7,000 microcredits were issued, 4,000 people opened their own business, the recipients of loans additionally created 7,055 jobs and registered 3526 new IP.
In the framework of the AIC Development Program for 2013-2020, Agrobusiness-2017 envisaged the application of financial rehabilitation measures for agro-industrial complex subjects through restructuring, refinancing of existing debts with increasing maturities, mainly due to bonded loans, and reducing the rate of remuneration through subsidies from the republican budget.
KazAgro, being the operator of the most important strategic projects for the development of agriculture, is called upon to provide affordable, targeted and efficient use of state and attracted resources, carrying out further development of the industrial, information and service infrastructure of the agro-industrial complex. So, according to the information of the holding, in pursuance of these measures, two bonded loans were attracted in 2013 and 2014. These funds, in the period from 2013 to first quarter of 2016, provided support to financial institutions for up to 9 years as part of the Program for Financial Recovery of Agribusiness Entities at a rate of 10% per annum in tenge and 6% per annum in US dollars for restructuring the obligations of its borrowers � agribusiness entities.
Thus, the objective is to provide affordable loans to extend agricultural producers’ liabilities to banks, through raising funds in the capital markets. In particular, JSC Tsesnabank within the aforementioned events provided funding for the financial recovery of 46 agribusiness entities.
Acting as financial intermediaries, banks depend on the situation that develops in the economy and in foreign markets. The change in the situation may also affect the pace of development of the agricultural sector, which has a load in the form of foreign currency loans and is developing under the pressure of external shocks.
In this regard, the Government of Kazakhstan and the National Bank developed a package of additional measures to support agricultural producers. The main goal is to create conditions for accelerated growth of the industry in a new global reality, without slowing down the pace of modernization.
September 19 the Government and the National Bank approved a mechanism for the purchase of a portfolio of agricultural loans from Tsesnabank JSC for 450 billion tenge. Over the next few days, the mechanism will be implemented, which will improve the conditions for agricultural producers, as well as increase the sustainability of Tsesnabank by dramatically improving the quality of the loan portfolio. Also, the amount and exact schedule of additional capitalization of Tsesnabank JSC by its shareholders are determined.
The bank jointly with KazAgro approved a mechanism for converting foreign currency loans granted to agricultural producers into tenge loans with an extension of the terms of lending. This will reduce the debt burden of enterprises of the agro-industrial complex and reduce the dependence on exchange rate fluctuations caused by external factors.
As part of the measures taken, the state provides support to the country’s agricultural sector, as well as the sustainability of Tsesnabank, which holds leading positions in lending agricultural producers and which is of systemic importance for the financial sector of the country.
It should be noted that earlier in his interview to the newspaper Delovoy Kazakhstan, Chairman of the National Bank Daniyar Akishev noted that the bank, carrying out measures to clean up the financial sector from unscrupulous institutions (for example, depriving a license to conduct banking and other operations of the Bank of Astana), in parallel strengthens those institutions which conduct a sound financial policy, in every possible way providing a competitive environment.
“As part of risk-based supervision, we will stimulate the development of banks with the correct risk management systems, mitigating regulatory requirements,” explained the chairman of the National Bank of Kazakhstan.
According to him, from next year for healthy banks it is supposed to use lightened standards and requirements of prudential regulation.
“But we have to see that banks use favorable conditions not for their own purposes, increasing the risk of preserving money, but only in order to ensure greater profitability of their depositors’ funds. We also need to understand that banks, acting as financial intermediaries, depend on the situation that develops in the economy and on foreign markets. At the same time, the situation can change rapidly,” he said.
According to him, among the measures, special attention is paid to reducing the debt burden of agribusiness enterprises and reducing their debt burden. As the head of the National Bank reminded, JSC Tsesnabank is an active participant in the implementation of the Agrobusiness 2020 program and state programs to support entrepreneurship. It accounts for more than 65% of the volume of lending to the industry. In this regard, the bank has begun work in conjunction with KazAgro on refinancing foreign currency loans, as well as increasing their terms.
The mechanism developed by the Government and the National Bank will allow to ensure financial recovery of the enterprises of the agro-industrial sector � the borrowers of the bank, and also strengthen the financial stability of Tsesnabank.
The shareholders of Tsesnabank will take part in the recovery of borrowers at their own expense by capitalizing the bank. These measures will help protect the interests of domestic agricultural producers, increase lending and support the policy of modernization of the agricultural sector.
In the context of measures implemented by the Government of Kazakhstan and the National Bank, KazAgro plans to participate in activities to ensure financial stability of Tsesnabank JSC by restructuring its existing liabilities to the holding.
Source: The Prime Minister of Kazakhstan