In 2025, the Kazakh financial system is ready to develop at a comparatively good clip, roughly 4.6 % in response to the IMF. This could give the federal government a possibility to maneuver on from current financial challenges, such because the pandemic and financial dislocation from the struggle in Ukraine, and concentrate on the subsequent 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 financial system and enhance dwelling requirements.
On the core of the technique is the popularity that Kazakhstan must encourage better home and international funding by lowering the function of the state, each as an actor and as a regulator of markets. This method 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 financial system. Throughout an interview with a neighborhood media outlet, he described the work of his financial crew as “mediocre,” including that “there’s an excessive amount of rhetoric of worldwide monetary establishments and too little concrete motion.”
The statements exhibit a underlying contradiction within the Tokayev administration’s method to the financial system. On the one hand, it has developed an financial technique centered on liberalization. On the opposite, it has referred to as for a better function of the state within the financial system and, at instances, embraced financial populism.
The “Social State” has its Limitations
In the course of the interview, Tokayev described Kazakhstan as a “social state.” He’s right. State-owned enterprises generate round 35 to 40 % of GDP and state lenders present backed credit score throughout the financial system, to assist all the things from family mortgages to industrial initiatives. The federal government additionally makes use of value controls to restrict the price of key commodities for households resembling fuel and electrical energy, in addition to gasoline and different gasoline merchandise.
The Tokayev administration has additionally launched populist financial measures, resembling providing automotive loans and paying down the private debt of a major proportion of the inhabitants. In his interview, Tokayev cited as a significant coverage win for 2024 a brand new scheme that transfers 50 % of the revenue from the Nationwide Oil Fund to financial savings accounts arrange for every youngster born after 2006.
Given the current financial shocks that Kazakhstan has confronted, there’s completely a have to assist the inhabitants. The Kazakh financial system is especially susceptible 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 because of the closely dilapidated state of its energy era amenities. The poor state of those amenities could be attributed to authorities value caps on electrical energy, which have led to constant underinvestment within the vitality sector. Shortages of electrical energy and fuel may even make Kazakhstan extra depending on provides from Russia this yr.
Eradicating caps on commodity costs is crucial to unlocking funding within the vitality 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 financial system and dwelling requirements of the inhabitants.
A key drawback is the function 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 properly in the course of the current world inflation disaster, bringing down headline inflation from a peak of 21.3 % in 2022 to eight.6 % final yr.
Nevertheless, it has not been in a position push inflation under 8.3 % to its goal of 5 %. Whereas world inflationary dynamics play a task, the NBK and impartial analysts persistently level out that ever-increasing authorities spending stays a significant driver of inflation.
Extreme authorities spending additionally has critical fiscal implications. Given the current financial difficulties – in addition to crises resembling final yr’s devastating flooding – the federal government continues to spend past its means.
To make up price range deficits, the federal government has more and more dipped into the Nationwide Oil Fund, which gives between a 3rd and half of all price range income. Additionally it is borrowing extra, making debt an rising concern. This yr, the Kazakh authorities experiences that it plans to spend 24 % of its price range servicing debt. It has additionally tried to make up the shortfall with tax reforms, however has persistently delay the adoption of a brand new tax code.
Privatization Stays an Ambition – However Not But a Actuality
The federal government has sought to foster better competitors and dynamism by lowering the function of the state within the financial system. But the fact of coverage means that vital privatization is unlikely.
The federal government is prone 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 situations is probably not appropriate for listings this yr, there’s additionally little proof of urgency throughout the authorities to arrange these corporations for listings.
The federal government has additionally handed laws allowing it to extend the state’s presence within the financial system. On the finish of 2023, it handed amendments that will give nationwide oil firm KazMunaiGas a 50 % stake in any new oil enterprise. In response to media experiences, comparable measures for nationwide uranium firm KazAtomProm are additionally into account and could possibly be adopted in 2025.
Kazakhstan Must Display Resolve on the Financial system
Regardless of the turbulence of current years, the Tokayev administration has made some good strides on the financial system. Numerous this work has gone unnoticed, however measures to scale back the function of monopolies and develop inside (in addition to regional) transport and infrastructure have stimulated financial exercise. Digitalization is one other space that has progressed properly underneath Tokayev.
Tokayev has additionally signed strategic agreements with america and European Union on new industries, resembling hydrogen and demanding 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 essential 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 fuel might grow to be way more aggressive.
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 might see Kazakhstan remodeled by 2029, even when his administration doesn’t attain its objective of doubling GDP.