In 2025, the Kazakh economic system is ready to develop at a comparatively good clip, roughly 4.6 p.c based on the IMF. This could give the federal government a chance to maneuver on from latest financial challenges, such because the pandemic and financial dislocation from the struggle in Ukraine, and concentrate on the following stage of the nation’s improvement. And it has plan to take action.
Final yr, Kazakh President Kassym-Jomart Tokayev adopted a goal of doubling GDP to $450 billion by 2029, when his presidency is scheduled to finish. Whereas that is extraordinarily formidable, the accompanying technique units out a reputable plan to develop the economic system and enhance dwelling requirements.
On the core of the technique is the popularity that Kazakhstan must encourage higher home and international funding by lowering the position of the state, each as an actor and as a regulator of markets. This strategy has been lengthy advocated by main native policymakers, in addition to worldwide monetary establishments.
Nevertheless, final week, Tokayev made feedback that raised questions on his dedication to the plan and Kazakhstan’s long-standing ambitions to develop a market economic system. During an interview with a local media outlet, he described the work of his financial staff as “mediocre,” including that “there may be an excessive amount of rhetoric of worldwide monetary establishments and too little concrete motion.”
The statements reveal a underlying contradiction within the Tokayev administration’s strategy to the economic system. On the one hand, it has developed an financial technique centered on liberalization. On the opposite, it has referred to as for a higher position of the state within the economic system and, at occasions, embraced financial populism.
The “Social State” has its Limitations
Throughout the interview, Tokayev described Kazakhstan as a “social state.” He’s right. State-owned enterprises generate round 35 to 40 p.c of GDP and state lenders present sponsored credit score throughout the economic system, to help every thing from family mortgages to industrial tasks. The federal government additionally makes use of value controls to restrict the price of key commodities for households comparable to gasoline and electrical energy, in addition to gasoline and different gas merchandise.
The Tokayev administration has additionally launched populist financial measures, comparable to providing automobile loans and paying down the non-public debt of a big proportion of the inhabitants. In his interview, Tokayev cited as a serious coverage win for 2024 a brand new scheme that transfers 50 p.c of the revenue from the Nationwide Oil Fund to financial savings accounts arrange for every baby born after 2006.
Given the latest financial shocks that Kazakhstan has confronted, there may be completely a must help the inhabitants. The Kazakh economic system is especially weak to exterior shocks given its dependence on revenues from oil and different globally traded commodities.
Nevertheless, the restrictions of state intervention have gotten more and more obvious. In 2022 and 2023, Kazakhstan suffered extreme blackouts throughout the nation as a result of closely dilapidated state of its energy technology amenities. The poor state of those amenities might be attributed to authorities value caps on electrical energy, which have led to constant underinvestment within the power sector. Shortages of electrical energy and gasoline may even make Kazakhstan extra depending on provides from Russia this yr.
Eradicating caps on commodity costs is crucial to unlocking funding within the power sector. But, this implies rising the price of utilities for companies and – critically – households, a measure that the federal government has been reticent to implement.
Whereas much less instantly seen, authorities coverage is having different, extra pernicious, impacts on the economic system and dwelling requirements of the inhabitants.
A key drawback is the position of presidency spending in driving inflation. Kazakhstan has a well-respected and comparatively arms-length central financial institution, the Nationwide Financial institution of Kazakhstan (NBK). It carried out effectively through the latest international inflation disaster, bringing down headline inflation from a peak of 21.3 p.c in 2022 to eight.6 p.c final yr.
Nevertheless, it has not been ready push inflation under 8.3 p.c to its goal of 5 p.c. Whereas international inflationary dynamics play a task, the NBK and impartial analysts persistently level out that ever-increasing authorities spending stays a serious driver of inflation.
Extreme authorities spending additionally has critical fiscal implications. Given the latest financial difficulties – in addition to crises comparable to final yr’s devastating flooding – the federal government continues to spend past its means.
To make up funds deficits, the federal government has more and more dipped into the Nationwide Oil Fund, which gives between a 3rd and half of all funds income. It’s also borrowing extra, making debt an rising concern. This yr, the Kazakh authorities studies that it plans to spend 24 p.c of its funds servicing debt. It has additionally tried to make up the shortfall with tax reforms, however has persistently postpone the adoption of a brand new tax code.
Privatization Stays an Ambition – However Not But a Actuality
The federal government has sought to foster higher competitors and dynamism by lowering the position of the state within the economic system. But the truth of coverage means that vital privatization is unlikely.
The federal government is more likely to delay preliminary public choices (IPOs) of QazaqGaz and Kazakhstan Railways – scheduled for 2025 – after underwhelming IPOs of nationwide oil firm KazMunaiGaz and nationwide airline Air Astana within the final two years. Whereas market circumstances will not be appropriate for listings this yr, there may be additionally little proof of urgency throughout the authorities to organize these corporations for listings.
The federal government has additionally handed laws allowing it to extend the state’s presence within the economic system. On the finish of 2023, it handed amendments that may give nationwide oil firm KazMunaiGas a 50 p.c stake in any new oil enterprise. Based on media studies, related measures for nationwide uranium firm KazAtomProm are additionally into account and could possibly be adopted in 2025.
Kazakhstan Must Exhibit Resolve on the Financial system
Regardless of the turbulence of latest years, the Tokayev administration has made some good strides on the economic system. Lots of this work has gone unnoticed, however measures to scale back the position of monopolies and develop inner (in addition to regional) transport and infrastructure have stimulated financial exercise. Digitalization is one other space that has progressed effectively below Tokayev.
Tokayev has additionally signed strategic agreements with america and European Union on new industries, comparable to hydrogen and important minerals. This yr, it’s doable that the federal government will enhance the tax setting for such ventures by adopting a royalty system within the mining sector.
Except for the financial advantages, deregulation can be crucial for assembly Kazakhstan’s goal of reaching web zero by 2060. Market costs within the electrical energy sector will stimulate the transition from coal, on which the electrical energy community at the moment relies upon. At present, authorities direct and oblique subsidies have lowered the patron value of coal by as a lot as 35 per cent. With out such subsidies, it’s doable that renewable sources and gasoline may turn into far more competitive.
This yr, Tokayev will mark his sixth yr in workplace. The structure states that he has solely 4 years left to make his mark. Supply of those reforms may see Kazakhstan reworked by 2029, even when his administration doesn’t attain its aim of doubling GDP.
