Reforms Bring about Economic Growth in Kazakhstan

3 may 2017

Global economic growth is becoming more and more sustained, which means forecasting is becoming more effective, and more accurate estimates can be made about investment projects. This factor has had a positive effect on the economy of Kazakhstan, which was dealt a harsh blow by the collapse of oil prices in 2014-2016. 2016 saw significant growth in the construction, agriculture, transport, and warehousing sectors in Kazakhstan. However, the rather modest GDP growth projections for 2017 mean the country needs to look for new growth drivers and new ways to modernize its economy. That is the conclusion arrived at by Analytical Center experts in their new bulletin on the current trends in the global economy.

One of the most important sectors in the economy in Kazakhstan is production and exports of natural resources, including natural gas and oil. When the energy prices collapsed in 2014-2015, GDP growth in Kazakhstan fell significantly (by 3.1 %) as the country was dependent on raw materials exports for growth. In order to compensate for the decline in commodity prices, the government adopted a two-year program to support the economy in 2014-2015 as well as the Nurly Zhol infrastructure development program for 2015-2020.

An important measure in combating the slowing down of economic growth in 2014-2015 was the decision to float the national currency, tenge, which resulted in a two-fold deprecation of KZT relative to USD (even as it actually appreciated relative to the Russian ruble). A stabilizing factor was the raising of the key interest rate by the National Bank of Kazakhstan.

The country also experienced a decline in industrial production in 2015-2016 (by 0.3 %) as well as a decrease in external demand for its commodity goods resulting from the slowing down of economic growth in China and the economic recession in Russia (this resulted in a significant decline in Kazakhstan's foreign trade in 2015). The consumer inflation began to increase rapidly in the second half of 2015, with the result that the real household income fell by 2.4 %.

Despite the challenging economic situation in recent years, between 2000 and 2014 Kazakhstan's economy managed to grow threefold thanks to the market reforms of the 1990s, increased output of the mining industries and rising exports of natural resources. The economic growth momentum achieved by the countries economy allowed it to maintain positive GDP growth throughout 2016. In addition, increases were also recorded in the export and imports towards the end of 2016, while inflation stabilized at 8 %.

As for the trends and goals of accelerated development, experts note that the state plans to reduce spending, first of all by reducing subsidies to the so-called quasi-state companies, implementing a large-scale program of institutional reforms to stabilize the economic situation as well as a set of reforms aimed at reducing the share of the public sector in the economy, increasing the inflow of direct foreign investments, improving the efficiency of public asset management. In 2017, IMF expects the Kazakh GDP growth to accelerate to 2.5 % a year.

For more see the bulletin In Focus: Kazakhstan: 25 Years of Reforms.

Other bulletins on current trends in the world economy can be found in Publications.