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DEBT LOAD OF THE POPULATION: CASE ANALYSIS

The population’s debt load has surely been one of the most debated societal issues in the last year. It sparked numerous public debates, including separate parliamentary hearings [1]. All of this resulted in a package of adjustments to tighten the issuing of loans to the population, rather than a reconfiguration of the state’s social policy.

 

Accepting that this will affect millions of Kazakhstanis, we decided to assess the severity of the problem before taking such drastic actions.

 

1. International context

What exactly is “debt load”? How is it calculated? Is there a point beyond which the situation worsens (conventionally, “red zones”)?

 

First and foremost, it is necessary to rely on authoritative foreign sources used by experts and the government. These include the Basel Committee on Banking Supervision, which standards the Republic of Kazakhstan introduces. Many refences to it can also be found in the newly established Concept for Financial Sector Development until 2030 [2].

 

Its host organisation (the Bank for International Settlements) issued a study [3] on the true consequences of household debt on short- and long-term development.


Main conclusions:

  • There is a distinct indicator – debt as a proportion of GDP.

  • The 80% threshold for increasing the negative impact on GDP growth.

  • 60% of GDP is the threshold for increasing the negative effect on household consumption.

  • Extremely low debt level – 20% of GDP.

Thus, systemic hazards emerge when debt levels approach 60-80% of GDP. But suppose we aren’t concerned with macroeconomic stability; what matters is the social component, which is households’ ability to service debt.


Kazakhstan seeks to meet OECD standards, which are shared by nearly all developed countries. The ratio of household debt to annual net [4] disposable income in rich OECD [5] countries averages 124%. However, the rate varies: it is higher in richer countries (north-western Europe) and lower in poorer ones (eastern Europe). In Norway, for example, it reaches 247% of annual income, whereas in Latvia, it is 37%.

 

There is also no clear image for other countries: Colombia – 52%, Brazil – 45%, Russia -37%, and Mexico – 26%.


Let’s keep track of all these numbers for future analysis.

 

2. Domestic context

What is Kazakhstan’s debt level? How serious is the issue?


Beginning with macroeconomic risks, the Agency of the Republic of Kazakhstan for Regulation and Development of Financial Market reports that as of November 1, 2023, loans granted to individuals totalled 17.3 trillion KZT [6], and when individual entrepreneurs are excluded, this figure is 15.9 trillion KZT. With the GDP for 2023 projected at 119.1 trillion KZT [7], this places the debt-to-GDP ratio at 13.3%, which falls below the internationally recognised “extremely low” threshold of 20% and is 4.5 times lower than the 60% level, where systemic issues start to emerge.

 

Interestingly, when it comes to household debt, the ratio to GDP is often overlooked. For instance, the need for business lending is based on a low GDP level, as is justifications for raising taxes and government spending. The GDP consists of assets of the National Fund and the level of government debt, assets of the quasi-public sector, wages, GVA of industries and much more. But not household debt.

 

Now, let's consider the social component, which is the population’s income level. Historically, (from 2019 to 2021), the net disposable income of households, as recorded by the National System of Accounts, has averaged 44% of GDP. Following this trend, in 2023, it is expected to amount to approximately 52 trillion KZT (+/-), which translates to about 219,000 KZT per person per month, and 311,000 KZT for each adult (if we exclude children under 15 years old). Notably, this figure aligns closely with the average salary statistics (335,000 KZT in the second quarter of 2023).

 

Therefore, in Kazakhstan, the ratio of household debt to annual net disposable income stands at 30%. This is lower than the minimum observed in Eastern European countries (Latvia) and also less than that of Russia. When compared to the average for affluent OECD countries, the disparity widens to fourfold.


In summary:

  • There is no systemic, massive (horizontal) problem with household debts.

  • Judging by the gap from other countries, the problem will not occur soon.

  • Perhaps, if the discussion continues, there is a problem of a vertical nature affecting certain groups of the population and market players.

  • However, these are not matters of national concern or broad regulation but rather require targeted and preventative measures.

It is important to note that in recent years, state authorities have been encouraging the population to take out loans through initiatives like pension reform (withdrawals for improving living conditions) and preferential car loans. Plans are underway to further stimulate borrowing by reducing the cost of loans from the marginal rate of 56% to 44%, (cheaper product = higher demand).

 

At the same time, state authorities themselves are raising concerns about widespread indebtedness.

 

3. Dissecting the Numerator – Debt

What is the structure of the debt? Is it evenly distributed, or is there a vertical issue, where a small group contributes disproportionately?


As of November 1, 2023, the structure of the 15.9 trillion KZT in loans to the population is:

  • Consumer loans: 9.6 trillion (61%);

  • Mortgages: 5.2 trillion (33%);

  • Others: 1.1 trillion (7%).

The main increase since the beginning of the year has been in consumer loans (72%), although this is still only 3.7% of the population's disposable income.

 

A significant portion of this consists of unsecured loans, specifically the now-common zero-interest instalment loans. Utilising these is rational since paying the entire sum at once isn’t beneficial – it’s better to keep money in a deposit, earn interest, and gradually pay off the loan.


In May 2023, the First Credit Bureau released the structure of unsecured consumer loans. The man conclusions:

  • The credit portfolio is extremely unevenly distributed.

  • For 80% of borrowers, the debt does not exceed 1.5 times their salary:

  1. For 20% of borrowers (1.5 million people), the average debt is equivalent to the minimum wage – 66,000 KZT.

  2. Another 30% of borrowers (+2.2 million people) have an average debt equivalent to a monthly salary – 294,000 KZT.

  3. Another 30% of borrowers (+2.2 million people) have an average debt equivalent to three monthly salaries – 906,000 KZT.

  • The remaining 20% of the population accounts for 64% of the total debt, with amounts starting from 1.5 million KZT per person in unsecured consumer credit.

  • Notably, for the top 2% (147,000 people), the average unsecured consumer credit amount is comparable to the cost of a car – 8.7 million KZT per person.

Regarding the dynamics, debt sizes are increasing due to the upper minority, not the lower majority. Over a quarter, the growth rate was:

  • 1.1% for the “bottom 50%,” less than inflation;

  • 3.3% for the “middle 40%,” at the level of inflation;

  • 5.3% for the “top 10%.”

Interestingly, the median loan size over two years has even decreased, despite historic price rises. This again points to an uneven distribution, implying a vertical problem.

 

4. Dissecting the Denominator – Population Income

Is the approach to calculating incomes correct? Are we overestimating them, thus understating the indebtedness ratio? What is the income structure?


The issue of indebtedness is closely linked to the widespread poverty of the population. The following logic emerges: a) the vast majority are poor, b) consumption is growing, c) thus, it is happening due to loans and instalments, d) their repayments force savings on essentials, e) therefore, lending needs to be tightened.

 

Firstly, let’s understand the source. Detailed statistics on the living standards of the population come from the National Statistics Bureau “Expenditure and Income of the Population” [8]. From this, it is commonly derived that:

  • The income per person per month is 95,000 KZT (284,000 KZT per quarter).

  • Food products account for 52% of all expenses (“half is spent on food”).

  • Salaries are the main source of income, as they comprise 65% of all incomes (“wage employment”).

Many overlook the methodological explanations for these tables, which is a shame:

  • It is a sample survey, not statistics from state databases.

  • It involves ≈12,000 households out of 5.6 million – that is 0.2%.

  • A household includes children and the elderly, so per capita incomes are not equivalent to the salaries of adult working people.

  • “Food products” include dining out in cafes and restaurants, as well consumption of alcohol and cigarettes. 

Many also ignore the process of collecting such data [9] [10]:

  • When searching for households for the survey, large cities are not divided into smaller units, so all from the outskirts could hypothetically be surveyed.

  • Households can refuse to participate in the survey, so 1/3 of the base can be replaced with reserves.

  • If a household does not fully complete the questionnaire, employees can fill it out themselves based on the average picture of the region.

  • The journal to be filled is 30 pages long.

  • Another 30 pages for food expenses to be filled out over two weeks.

Now let’s address the inconsistencies in the final figures.


А) The total population income equals 95,000 KZT *12 months* 19.9 million people = 22.6 trillion KZT. But the GDP in 2023 is forecasted to be 119.1 trillion KZT:

  • Just the wages (31.6% of GDP) will amount to 37.6 trillion KZT, which is already 1.7 times more.

  • The total household consumption (46.3% of GDP) will be 55.1 trillion KZT, 2.4 times more.


B) Regarding individual income components.


According to sample surveys, social transfers amount to 403 billion KZT per month. This is in alignment with sector statistics from the social block.

 

Income from employment – 1.2 trillion KZT per month, including various bonuses and benefits from employers. However, contributions to the Unified National Pension Fund alone show a minimum of 1.4 trillion KZT per month [11]. Legal entity reports indicate a pay-out of 1.7 trillion KZT [12], covering only official salaries and not including individual entrepreneurs and owner operated farms.

 

Income from self-employment and entrepreneurship – 175 billion KZT per month. Yet, the National Statistics Bureau has another survey on employment in which conducts interviews not with 0.2% of the population but 5%. According to it, the minimum income from self-employment is 300 billion KZT per month, which is already 1.7 times more.

 

Income from ownership is 9 billion KZT, including interest from deposits and rent from leased housing, dividends. For comparison, this is the equivalent of a deposit in KZT of 750–800 billion KZT, while personal deposits in KZT total 11.3 trillion KZT, 14 times more. And this doesn’t account for other assets like rented housing.

 

Thus, the potential portrait of a participant in this survey includes:

  • Complete coverage of socially vulnerable layers of the population;

  • Lower salary segment recipients – up to 300 thousand KZT or 180 thousand on average;

  • A significant lack of entrepreneurs;

  • Virtually no property-owning class.

In summary, the income and expense indicators, which most politicians and media rely on, are limited. The National Statistics Bureau provides clear methodological explanations that are often ignored. A more plausible source from the National Statistics Bureau is the “per capita nominal cash incomes of the population”:

  • Determined by a calculation method at the macro level;

  • Adjusted for the underreporting of wages and non-inclusion of the working population.

Interestingly, a significant reform of state statistics is expected in the near future. Recognising the limitations of outdated data collection methods, the National Statistics Bureau is expanding through “alternative data” which can be provided under agreements from private organisations (mobile operators, banks, natural monopoly entities).

 

The per capita income for the second quarter of 2023 was 180,000 KZT. When adjusted for the actively working population age (20–62 years), this is 340,000 KZT, again comparable to the average monthly salary.


Therefore, it is reasonable to consider the population’s debt in relation to the salary.

 

5. Additional Hypotheses

In this article, we haven’t touched upon several “blind spots” that could have better elucidated the real situation of indebtedness. For example:


A) How significant are the invisible mutual debts? As a developing country where informal relationships are more important than formal contracts, the population may borrow directly from each other, bypassing financial institutions. Moreover, informal relationships might transform into “debt” through culturally obligatory payments for events that cannot be avoided (toi). This could explain why, despite low official indebtedness to GDP, complaints about insufficient income persist.


B) How accurately are we viewing the incomes of different groups? Again, strong social ties might mask significant invisible incomes among the population. Some vulnerable groups may receive systematic support from relatives, managing debt more easily than working adults.


It is worth noting that 89% of Kazakhstani families were classified as “satisfactory” or “prosperous” by the Ministry of Labour and Social Protection. Remember, the “Digital Family Card” project reflects all official incomes and credits, as well as all property – housing, land, subsidiary farms, cars.


C) Are there issues on the credit supply side? At the same parliamentary hearings, it was mentioned that the problem lies not with the banks but with microfinance organisations. Experts highlighted that it is harder to get a loan from banks, so people turn to microfinance organisations where they can take out numerous loans at higher interest rates.


The Social Democratic Party mentioned that microfinance organisations had “cleaned up” by transferring problematic loans to collectors. As a result, the collectors’ portfolio grew fivefold, almost to 1 million people. Essentially, the entire increase in problematic borrowers was provided by microfinance organisations.


Regardless, specific figures on the dynamics of credit supply by type of financial organisation are still not given. Therefore, there is no clarity on precisely who is driving the intense discussion on indebtedness.


[4] За минусом амортизации – расходов на обновление активов (дома, авто, бытовой техники и т. д.)

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