Regions and Countries

	Table of Contents
p. 5 of 7 BACK | NEXT Executive Summary I. Current Development Trends and Issues II. The Government's Development Strategy III. The Asian Development Bank's Development Experience IV. The Asian Development Bank's Strategy V. The Asian Development Bank's Assistance Program VI. Risks and Performance Monitoring and Evaluation

Country Strategy and Program Update 2004-2006: Kazakhstan

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IV. The Asian Development Bank's Strategy

A. Summary of Key Development Challenges

35. Kazakhstan faces two opposing prospects: mounting oil wealth, and not achieving half the MDGs. Recent government initiatives have focused on using oil wealth to achieve the MDGs.³⁴ The Government thus plans to increase the ratio of public investment to GDP by 2 percentage points each year in the medium term, which is fiscally sustainable. Institutional capacity to manage increased public spending is inadequate due to the Government’s weak strategic planning capacities; weak strategic and project implementation capacities all around; and weak fiscal management capacities of subnational governments, which manage the bulk of social sector investments. The second key challenge is to improve the climate for private investment to wean the economy away from excessive dependence on the commodity exports. Low-quality infrastructure; poor health and education standards; weak institutions (such as the judiciary, customs, and police); highly concentrated ownership; and lack of long-term finance are serious obstacles to achieving high-quality and broad-based growth. The newly approved industrial innovation strategy has to be deployed carefully to avoid distorting incentives and misallocating resources. The third challenge is halting the deterioration of the environment; much of which has been degraded and continues to be under threat from a variety of mostly human-made causes.

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B. Country Strategy and Program Strategic Focus

36. The CSP has been prepared against the following backdrop: (i) adoption of the MDGs by the international community, including Kazakhstan and ADB; (ii) adoption of ADB’s poverty reduction strategy in 1999 and its incorporation in the long- and medium-term strategic frameworks; and (iii) Kazakhstan’s spectacular economic turnaround since 2000. The CSP should help the Government use its newfound economic prowess to reduce income and human poverty as encapsulated in the MDGs. Clearly, ADB will have to partner with other development agencies according to individual comparative advantage, past development experience and core competencies to deliver an assistance program fully responsive to client needs and owned by the client.³⁵ Given the serious risks Kazakhstan faces in achieving the MDGs, the CSP’s strategic focus has been organized along their lines.

Box 4: Strategic Framework for the Country Strategy and Program

37. The strategy developed on the basis of these considerations is summarized in Box 4 (see Appendix 2 for the CSP formulation process). The proposed strategy (i) is directly linked to achieving specified MDGs; (ii) is highly selective in sector and thematic spread, consisted with the priorities of the Government’s accelerated development strategy; (iii) includes a comprehensive menu of ADB instruments, including private sector operations and regional cooperation; and (iv) links governance interventions to specific concerns under strategic themes. The following four focal areas provide a structure for project assistance and policy dialogue:

1. Private sector development for inclusive growth. Broad-based and high-quality growth based on a competitive market economy is an overarching priority of the Government’s development strategy. Attracting private investment on a competitive basis in labor-intensive manufacturing and agriculture has been a problem. The booming oil sector, with its attendant negative consequences for the non-oil traded goods sectors, aggravated the poor climate for private investment in the broader economy. ADB will support inclusive growth by crowding in private investment through public investment in rural areas and transport infrastructure to improve national and regional linkages. ADB will help alleviate financing constraints on private enterprises, particularly SMEs, through private sector operations. Institution building will be supported to strengthen the competition policy and to support customs and trade facilitation agencies.
2. Human Development. ADB will focus its resources on education and rural water supply.³⁷ While MDG education targets have been achieved, there are risks to preserving these achievements. The Government is struggling with fundamental policy issues in the education sector (for example, whether investment per capita should be increased), and ADB has the requisite sector and country experience to help the Government resolve policy dilemmas. Improving access to safe drinking water faces enormous institutional and investment hurdles. ADB will concentrate on rural areas. Reversing the decline in drinking water supply is a major development issue in Kazakhstan and needs substantial investment, policy reforms, and capacity building.
3. Environmentally Sustainable Development. Environmental degradation is rapidly constraining inclusive growth. The quality and quantity of water are major concerns. Misuse and overuse of irrigation water and excessive diversions of major rivers have resulted in shortages of surface water. Poor irrigation practices and harmful drainage have contributed to water logging and extensive desertification. Country-level sector policies and institutional reforms and cooperative arrangements with neighboring countries are critical to resolve a number of environmental issues, especially those to do with water. Support for improved management of water resources will help preserve environment and promote inclusive growth. ADB has been providing nonlending assistance to strengthen environmental management since 1994 and will continue to do so.
4. Regional Cooperation. Kazakhstan is a member of a number of regional groupings, including the Central Asia Regional Economic Cooperation Program (CAREC) assisted by ADB. Regional cooperation is a major theme in the 2030 vision and 2010 strategic development plan. Besides promoting inclusive growth, human development, and environmental management, regional cooperation is critical to maintain regional stability that is an important factor in the development of a landlocked country.

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C. Progress on the Poverty Partnership Agreement

38. The poverty partnership agreement (PPA) was signed on 24 July 2003. It incorporates the CSP strategy that reflects the Sector Program for Poverty Reduction, 2003–2005, and other strategies. The PPA was prepared after a highly consultative process. A comprehensive poverty assessment was completed in 2002 jointly with UNDP and discussed in a large government- hosted high-level forum of national and local government officials, civil-society institutions, and development partners. The poverty assessment and deliberations of the forum resulted in the national poverty reduction strategy. The next step was drafting the PPA. A high-level inter-ministerial group discussed and commented on the PPA’s first draft in April 2003. Based on these comments and an ADB internal review, the second draft was prepared and sent to the Government in May 2003. Finalizing and signing the PPA received high government priority and attracted much media interest.

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