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Country Strategy and Program Update 2004-2006: Kazakhstan
II. The Government's Development StrategyA. Development Goals and Strategy22. The Government first systematically articulated its development goals and strategies in 1997 through Kazakhstan Long-Term Development Strategy 2030 (2030 Vision), which envisioned the country as a modern market economy, with the state playing only a catalytic role. In 2001 the Government announced the 2010 strategic development plan to achieve two goals: (i) build a sustainable long-term base for a competitive economy and (ii) double the 2000 GDP by 2010. The strategy called for an interventionist state to act as the locomotive of growth until the private sector was able to make “large-scale and long-term investments in new and complex technological industries.”24 This strategy was seen as a means to achieve, and not as a deviation from, Kazakhstan 2030 Vision. 23. The three-year rolling indicative plans for socio-economic development set out medium-term public investment priorities. The 2004–2006 indicative plan is being prepared. As a prelude to preparing the 2004–2006 indicative plan, the Government announced key areas of public investment strategy: (i) Sector Program for Poverty Reduction, 2003–2005; (ii) 2003–2005 as a period of rural revival that has been encapsulated in a state program entitled Rural Area Development Program, 2004–2010; and (iii) Industrial Innovation Strategy, 2003–2015, to enhance productivity, accelerate manufacturing growth, and in the long term, shift to a service-and technology-based economy. All in all, the overly cautious fiscal policy is being transformed into a strategy of accelerated development as evidenced by the Government’s announcement of increasing public investment by 2 percentage points of GDP annually in the medium term. The Government is mindful that these plans should not translate into uncontrolled spending and is thus developing a medium-term fiscal framework to fix the upper limit for the budget deficit. B. Performance-Monitoring Indicators24. The 2010 strategy target is to double the 2000 GDP by 2010. The Sector Program for Poverty Reduction, 2003–2005, sets out targets to measure medium-term government performance (Table 1).
C. Public Resource Mobilization25. Oil revenue contributes significantly to the budget, ranging from 3.3% to 6.6% of GDP during the past 3 years. Non-oil revenues have stagnated at 18–19% of GDP. Privatization receipts have shown a broadly declining trend, except in 2001 (Table 2). Limited budget financing required during the last three years led to small net foreign financing (Table 2). Even this order of financing was needed due to the decision to keep a part of oil revenue and most privatization receipts offshore in the off-budget National Fund, which was created in 2001 (Table 2).
D. Assessment26. The transition to an accelerated development strategy is a welcome move. Oil wealth has to be used systematically and recycled through the public investment program to lay the basis for broad-based growth and reduced dependency on oil.25 While the 2010 strategy’s goal of doubling GDP appears achievable, the real challenge lies in building a sustainable long-term base for a competitive economy in the face of difficulties in achieving the MDGs. Greater investments in human capital—education and health—will increase productivity, attract private investment, and improve the business climate. More rural investment will increase sustainable development potential by raising productivity and boosting demand for manufactured goods. Information and communication technology (ICT) use and distance education have tremendous potential given the many small, sparsely populated settlements. Given the country’s fiscal resource base, finding financial resources for the accelerated development strategy is not foreseen as a constraint in the medium term. Weak capacities for strategic planning, sector and regional planning, and project planning and implementation are the major hurdles to increasing public investment and require support from development partners. The Government recognizes the need to improve the capacity of line ministries to make strategic investments through better approaches to improve outcomes, including quality and efficiency. E. Role of External Assistance27. New commitments of three of the four largest official lenders—the World Bank, ADB, and Japan Bank for International Cooperation (JBIC)—sharply declined during 1999–2002 compared to 1993–1998. Public sector lending of the EBRD, however, increased, although mostly to national companies and guaranteed by the Government. Private sector operations of EBRD and International Finance Corporation (IFC) were sustained at broadly similar levels during 1993–2002. Kazakhstan withdrew substantial funds from the IMF before 1999 but ceased borrowing since then. Preliminary indications are that external borrowing from International Financial Institutions (IFIs) could be scaled down further in the medium term. While details of the medium-term fiscal framework are being worked out, the budget deficit will be kept within 2.0% of GDP, and foreign financing limited to nearly 0.5% of GDP.26 Details are not available on the split between commercial and official sources of financing. The volume of borrowing notwithstanding, the Government is likely to contract funds from IFIs as IFI-funded projects are seen as a source of new ideas, better project management, best international experiences and practices, and leverage to implement reforms. The Government’s policy of not borrowing for social sectors (education and health) and for TA significantly restricts development assistance to achieve the MDGs and to build capacities in critical government agencies, even though the Government has expressed interest in establishing a joint education research program with ADB. ____________________
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