Countries and Regions

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p. 2 of 4 BACK | NEXT I. Development Situation II. Implementation of the Country Strategy and Program III. Portfolio Management Issues IV. Country Performance and Lending Levels

Country Strategy and Program Update 2003-2004: Kazakhstan

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II. Implementation of the Country Strategy and Program

A. Progress under the Poverty Partnership Agreement

9. With technical assistance (TA) from ADB, the Government is preparing a state program for poverty reduction for 2003-2005. Final approval of the program is expected by the end of 2002. Based on a comprehensive poverty assessment and extensive analytical studies undertaken with ADB support, the state program sets out a medium-term strategy to reduce income and nonincome poverty by (i) stimulating broad-based, sustainable growth and job creation; (ii) improving public sector efficiency in delivery of basic social services and targeted social assistance; and (iii) encouraging good governance and empowerment.

10. As the state program nears completion, the Government is interested in entering into a poverty reduction partnership agreement with ADB to set out long-, medium-, and short-term cooperation activities to support the poverty reduction program. The agreement will be prepared jointly by a working group of relevant government authorities and ADB and is expected to be signed in 2003.

B. Progress in the Country Strategy and Program Focus Areas

11. ADB's lending operations in Kazakhstan have shrunk. By the end of 2002, only two projects (comprising three loans) from the existing portfolio are likely to remain. No new lending operations were approved in 2001. Of the three loans approved in 2000, one became effective in May 2002⁵, and the Government declined the other two after approval by the ADB Board.⁶ For 2002, only the proposed rural water supply and sanitation sector project is likely to be fully processed. The sporadic nature of lending operations in Kazakhstan makes systematic pursuit of strategic sector objectives difficult. Within this constraint, ADB has kept its focus on education, agriculture and rural development, and transport and communications. The planned country strategy and program (CSP) will allow ADB to dialogue with the Government on the constraints to the systematic structuring of ADB operations.

1. Economic Growth

12. Growth in the nonoil sectors is the key to achieving pro-poor sustainable growth. The ongoing Water Resources Management and Land Improvement Project⁷ and its planned second phase aim to increase agricultural production and productivity on a sustainable basis with active participation of stakeholders in planning, implementation, and maintenance of farm infrastructure. The planned rural area development project aims to stimulate rural economic growth by providing integrated and area-focused assistance. The ongoing and planned investments in road infrastructure aim to stimulate economic growth and contribute to economic diversification. Road infrastructure investments focus on rehabilitating roads in international transport corridors. The Almaty-Bishkek Regional Road Rehabilitation Project aims to develop an efficient and safe road link to move trade between Kazakhstan and Kyrgyz Republic. The rehabilitation of the Almaty-Astana road jointly financed by ADB, World Bank, and Islamic Development Bank (IDB) connects two major cities of Kazakhstan and joins it with a major transit highway in the Russian Federation.

2. Human Development

13. The status of achievement of the MDGs is in Appendix 1, Table A1.1, and the detailed social indicators are in Appendix 1, Table A1.3. No new trends are available compared to the information provided in the last country strategy and program update (CSPU). Recently completed detailed poverty analysis has enhanced ADB's knowledge of the underlying issues in human and social development. Despite the Government's improving resource position and expressed intention to finance social sector investments domestically, increased resources do not seem to be flowing to these sectors. Maintaining high levels of public spending (as a share of GDP and of the total budget) for health and education is the key to sustain Kazakhstan's head start in achieving the MDGs.

14. ADB has accumulated valuable experience in the education sector in Kazakhstan through lending and nonlending operations. ADB assistance has laid the foundation for education reforms and played a major role in developing education management, providing teacher training, and supporting the state program to computerize schools. ADB is considering helping the Government comprehensively review the education sector, including resource requirements and sources of funding. Based on the findings of this review and reconsideration of the Government's borrowing strategy, ADB could support investment to strengthen basic education. The proposed rural water supply and sanitation sector project will improve public health standards and living conditions.

3. Governance

15. Kazakhstan has made considerable progress in developing a modern governance framework. Governance reforms have improved macroeconomic stability, investment climate, and access to international capital markets. Public expenditure management improved with a new treasury system in place and greater transparency in managing extrabudgetary flows, although weaknesses remain in the management of the National Fund. A comprehensive tax code was passed in 2001, the procurement law in 2002 and audit law is being prepared. The Government has begun annual budgeting within a 3-year framework. Key areas that deserve attention include intergovernmental fiscal relations, civil service law, and public sector management. Substantial progress in governance reform is needed to improve perceptions of transparency of public sector operations. The ADB country governance assessment is under way and will provide an action plan to address the key weaknesses in governance. Building on the ongoing or recently completed TAs to the Prime Minister's Office, Ministry of Economy and Trade, and Agency for Strategic Planning, ADB has programmed support for strategic planning in these agencies, Ministry of Finance, and selected line ministries.⁸ An advisory technical assistance (ADTA) will help implement fiscal decentralization.

16. The Government is aware that corruption is a serious issue and is taking significant steps to counter it. Recently, Kazakhstan became one of 18 signatories to the Anticorruption Plan for Asia Pacific of ADB and the Organisation for Economic Co-operation and Development (OECD).

4. Private Sector Development

17. A private sector assessment is under way and, when completed, will help identify major constraints on and opportunities for private sector development, and guide ADB assistance strategies. Discussions are continuing with the Government on the framework agreement for ADB private sector operations. They will focus on investing in infrastructure, the lack of which is considered to be one of the major impediment to sustainable private sector growth. ADB will also support public-private partnerships for public sector disinvestment and for improvement of public service delivery. ADB envisages supporting capital markets and strengthening financial intermediaries. ADB is considering a bank-intermediated loan facility for small and medium-sized enterprises. Processing of this facility depends, among other factors, on the Government signing the framework agreement for private sector operations. Where appropriate, ADB will use direct loans as well as the political risk guarantee and partial credit guarantee to catalyze foreign direct investment and local currency financing.

5. Regional Cooperation

18. Kazakhstan participated in the Ministerial Conference on Central Asia Economic Cooperation in March 2002 and supported the establishment of the institutional framework and sector coordinating committees to implement the ADB-supported regional program. Regional cooperation activities in Kazakhstan focus on the trade, transport and energy. The proposed road rehabilitation and reconstruction projects in the forward program will advance closer integration of Kazakhstan with its neighbors. The proposed Borovoe-Petropavlovsk road rehabilitation project will improve the road linking Kazakhstan's capital, Astana, with the north Kazakhstan's main border crossings with the Russian Federation. The road is the northern section of Kazakhstan's main north-south transport corridor, which runs from Almaty to the Russian Federation. The road is on a key transit route linking the People's Republic of China, Kyrgyz Republic, and Uzbekistan with Europe through the Russian Federation. The proposed Atyrau-Aktau road rehabilitation project is to help rehabilitate a section of road connecting Kazakhstan, Russian Federation, and Uzbekistan. Rehabilitation of the Atyrau-Aktau road will also strengthen the road connection between Kazakhstan and Turkmenistan. A regional customs harmonization TA for approval in 2002 will support capacity building of customs operations for all Central Asian developing member countries (DMCs), including Kazakhstan. Kazakhstan is participating as a nonborrower in the proposed regional power transmission modernization project in the Central Asian republics. A list of planned subregional projects that benefit Kazakhstan is in the tables on lending and nonlending products and services. (The relevant appendixes are cited in Section IV.)

6. Environmentally Sustainable Development

19. Achieving environmentally sustainable development is a challenge for Kazakhstan, given the past damage and lack of effective environmental policies and institutional capacity. ADB will support initiatives emphasizing (i) environmental legislation and institutional strengthening through nonlending activities; and (ii) improved management of water, land, energy, and other natural resources through integrating environmental considerations into sector development projects. A country environment analysis is being prepared to address Kazakhstan's environment, Government's priority, and its implications for ADB's operations, and the analysis findings will serve as a core input to ADB's environmental strategies and programs as part of the forthcoming CSP. The country environment indicators are in Appendix 1, Table A1.4.

C. Highlights in Coordination of External Funding and Partnership Arrangements

20. ADB has maintained close coordination with other development partners in Kazakhstan (Appendix 1, Table A1.5). No formal consultation meeting with development partners has been held since 1996 because of the Government's reluctance to call one. However, development partners have been holding regular informal meetings and coordinating with each other.

21. ADB closely coordinated with the United Nations Development Programme (UNDP) in helping the Government develop its medium-term poverty reduction strategy. ADB has been active in the transport sector, especially in road rehabilitation, and has coordinated assistance with European Bank for Reconstruction and Development (EBRD), World Bank, and IDB. ADB has maintained close coordination with the World Bank, IDB, EBRD, Japan Bank for International Cooperation (JBIC), and Japan International Cooperation Agency (JICA) in the water supply and sanitation sector. ADB and IDB will cofinance the proposed rural water supply and sanitation sector project, while the other development partners support the urban water supply sector. ADB supports education; the World Bank, health.

22. Specific cofinancing proposals have been discussed with EBRD and IDB for the proposed Atyrau-Aktau and Borovoe-Kokshetau-Petropavlovsk road rehabilitation projects, respectively. The proposed loan amounts for these projects take into account cofinancing by EBRD and IDB. The proposed nonlending program is in excess of the core TA indicative planning figure available for Kazakhstan and will require cofinancing.

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