Countries and Regions

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p. 2 of 5 BACK | NEXT I. Current Development Trends and Issues II. Implementation of the Country Strategy And Program III. Portfolio Management Issues IV. Country Performance and Assistance Levels Appendixes

Country Strategy and Program Update 2005-2007: Kazakhstan

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II. Implementation of the Country Strategy and Program

A. Progress in Poverty Reduction

8. The Government continues to make efforts to achieve the MDGs. In 2003, the Government increased pro-poor expenditure to 4.5% of GDP, helping reduce the proportion of the population living below the subsistence minimum to 19.8%. Improved access to medical services helped lower the infant mortality rate from 17.4 in 2002 to 15.8 in 2003 (Appendix 1, Table A1.3). The Government envisions increasing potable water supply by 65% by spending 2.6% of GDP for the Sector Drinking Water Program for 2002–2010. delivered during the year. The situation demonstrates the need for greater flexibility, shorter processing time, and synchronizing processing timing with the Government’s budget cycle, if assistance projects are to meet Kazakhstan’s development needs effectively and efficiently.

B. Progress in the Country Strategy and Program Focus Areas

9. The CSP focal areas are private sector development for inclusive growth, human development, environmentally sustainable development, and regional cooperation. Kazakhstan’s fast-paced development has led to rapidly evolving development priorities and occasional shifts in their relative importance. This has added uncertainties to the delivery of assistance programs that are set annually and prepared in advance. Of one loan and five technical assistance (TA) grants originally planned for 2003, no loan and three TAs were

1. Inclusive Growth through Private Sector Development

10. The private sector remains a key engine for diversification of the economy and pro-poor growth. In 2003, the Government established various state-owned bodies⁴ to promote the private sector through investment and public-private partnerships, especially for SMEs. They include investment vehicles (investment fund, innovation fund) and complementary facilities (export insurance corporation, technology transfer center, and marketing research center). The need for infrastructure facilities, institutional reforms, and investment operations that support private sector development has been identified. In addition to the assistance program included in the CSP, the CSP Update includes support for the Government to strengthen financial governance (nonlending assistance) through three closely linked TAs, covering 2004–2006.

a. Transport

11. In 2003 the Government started to explore a holistic and integrated transport development strategy. The strategic importance of international transit corridors (north-south and east-west) to address regional linkages remains unchanged. Railroads have emerged as a key modality, along with road transport. For road transport, rural roads have become a priority development need as feeder links from rural areas to trunk routes. Loan processing for two road rehabilitation projects, expected in 2003 and 2004, has been pending, awaiting Government decisions on financing plans. The proposed Regional Rural Development Project, which was expected for 2004 approval, is now anticipated in 2005 due to late commencement of the project preparatory TA. ADB’s assistance program will retain possible assistance in road rehabilitation projects as previously planned, and expand to include knowledge transfer for railroad capacity strengthening for 2005. Investment operations for rural roads may be identified during the 2004 project preparatory TA for the Regional Rural Development Project. To optimize the impact of land transport infrastructure development, especially from the regional operations perspective, the Government is examining the need to expand port infrastructure capacity. Opportunities for collaboration in this area may be possible, especially in cooperation with other development partners.

b. Rural Development

12. Rural development remains a key Government priority program. In 2003, the Government developed the State Rural Development Program for 2004–2010. ADB helped prepare the program by developing a methodology to assess the growth potential of rural communities. In 2003, ADB provided a follow-on TA to help develop a regional rural development project by pilot-testing an approach to regional planning and development in one or two oblasts. The investment project is scheduled for ADB approval in 2005. ADB's operational focus is on rural poverty reduction and activities with regional impact. Rural poverty reduction will be supported with rural water supply, rural development, natural resources management, SME support, and rural education. Timely delivery of program results is of particular importance for its development impact on rural poverty reduction in the medium term: (i) rural unemployment reduction; (ii) SME development; (iii) diversification of the economy; and (iv) social infrastructure investments, such as water, education, and health.

c. Enabling Environment for the Private Sector

13. The first phase of a regional TA for financial sector development will introduce international accounting standards, international principles for corporate governance, and international standards for risk management in the banking system. The three financial sector TAs phased over 2004–2006 will provide complementary assistance. These efforts will also enhance the potential for ADB’s private sector operations in infrastructure projects in sectors such as water, wastewater, transportation, and oil- and gas-related services.

14. The Government has set SME development as a key vehicle for job creation. Kazakhstan needs assistance in implementing the policy and developing institutional capacity and capabilities for this. ADB’s possible involvement is to meet such development needs by providing credit lines to SMEs in urban and rural areas via domestic banks. ADB can also help domestic banks enlarge credit portfolios and strengthen their capabilities for credit appraisal and risk management. A proposed local currency swap will help to develop alternative financing for the private sector. ADB’s private sector operations have yet to start because of the pending signing of the Framework Agreement, expected late in 2004.

2. Human Development

a. Rural Water Supply

15. The United Nations Human Development Report reported that one third of the rural population lacked access to safe drinking water (Appendix 1, Table A1.4). The CSP formulation process has played a role in the Government's decision to make the provision of safe drinking water to the rural population an urgent national development priority. In 2003, ADB approved the Rural Area Water Supply and Sanitation Sector Project. The project, to be completed in 2009, will help improve living and health conditions for more than a half million people in rural Kazakhstan by providing basic water supply and sanitation infrastructure and services. The project includes knowledge transfer capacity building for institutional development. A follow-on rural water supply and sanitation project is programmed for 2006. The proposed schedule will allow efficient sharing of experience and lessons learned from the first project, facilitating successful implementation of the follow-on project.

b. Education

16. The Government made major progress in education in 2003 with the approval of its comprehensive education reform concept paper. ADB TA for the Education Sector Development Strategy facilitated the work. The Government’s major priorities under the planned education reform include (i) providing 1 year of compulsory preschool education to better prepare students, especially disadvantaged ones, for formal schooling; (ii) improving education standards, (iii) providing equal access to education at all levels; (iv) developing information and communication technologies to support the education system; (v) extending school education from 11 years to 12 years; (vi) modernizing education management; and (vii) rationalizing the vocational and technical education system through partnership with the private sector to cater to the needs of small and medium businesses. In 2003, the Government systemized development partner coordination, with the World Bank taking the lead. The Government has expressed interest in ADB technical assistance in (i) rural education through distance learning, (ii) special vocational and technical training, and (iii) learning international best practices. The Government will finance education projects from its own resources. The CSP Update tentatively includes a staff study on rural education through distance learning for 2005; this is subject to review and revision as appropriate at a later stage.

c. Governance

17. ADB continues to focus on sectoral institutional support, helping national and subnational governments to better plan public spending. An ongoing TA is helping the Government implement the poverty reduction strategy by introducing effective monitoring and evaluation of poverty interventions. ADB is also supporting local government reforms and strengthening government and sector program performance. The governance assessment has gone through a comprehensive vetting process and will be available for information. Future ADB assistance will focus on improving financial sector governance, including capacity building for integrated financial sector supervision and regulation and management of official reserves.

3. Environmentally Sustainable Development

18. Mainstreaming environmental considerations has been a major strategic focus of the Government’s efforts toward environmentally sustainable development. The Concept of Ecological Security 2004–2015 recognizes the need for an intersectoral approach to implementing policies and programs aimed at, among others, curbing environmental degradation. Proposed TA for developing an environmental monitoring and information management system for sustainable land use will help the Ministry of Environment enhance its institutional capacity for policy development, program preparation, and environmental safeguards for sustainable use of agricultural land. The ongoing Water Resources Management and Land Improvement Project is expected to be completed in 2006. The midterm review in May 2004 confirmed initial benefits, and projected significant benefits upon completion, in increasing farm income, enhancing the environment, and developing water service institutions. The midterm review also confirmed the need for a follow-on project to address problems of water logging, soil salinity, and low yields for cropland. The follow-on project will also expand water reform initiatives under the ongoing project to ensure long-term sustainability of benefits. The Government supports the follow-on project for 2007. Availability of the Global Environment Facility operational program on integrated ecosystem management (OP12) will be explored.

19. Utilization of rainwater for better, more environmentally sound water resources management is a development priority for the Government. Astana will serve as a model to be replicated on the national scale. The CSP Update includes the Storm-Water Management Project, for which project preparatory TA is planned for 2005 and a loan project in 2006.

4. Regional Cooperation

20. Kazakhstan continues to be a strong proponent of regional cooperation, and is intensifying its efforts to promote regional cooperation through various groups.⁵ In August 2003, Kazakhstan, representing the members of the Central Asia Cooperation Organization, asked ADB, European Bank for Reconstruction and Development (EBRD), Islamic Development Bank (IsDB), and World Bank to help establish international consortia for water and energy, transport, and food security. ADB is coordinating the development partner group to prepare the transport consortium. Kazakhstan is an active participant in ADB’s Central Asia Regional Economic Cooperation Program and will host the third ministerial conference in late 2004. A number of ongoing and scheduled regional TAs will promote regional cooperation in energy, financial reform, and education management. Activities with regional impact could include transport, trade and finance, and energy.

C. Highlights in Coordination of External Funding and Partnership Arrangements

21. ADB has significantly strengthened coordination and partnership with other development partners of Kazakhstan. ADB helped Kazakhstan develop the Sector Poverty Reduction Program in close collaboration with UNDP. ADB is working closely with UNDP and World Bank and other development partners to provide coordinated assistance on poverty reduction in the country. The CSP is based on a shared diagnostic analysis with the World Bank. Monthly development partner consultations help establish a common understanding of the country’s development needs, and ensure coordinated and complementary assistance. Harmonization of procurement documents and audit requirements has been implemented.⁶ Ongoing and proposed loan projects are either cofinanced with other multilateral development banks,⁷ or implemented in conjunction with complementary projects financed by these banks.⁸ Dialogue is under way with GTZ (Deutsche Gesellschaft fur Technische Zusammenarbeit) for possible cofinancing of recultivation of dry areas of the Aral Sea. Among nonlending activities, the ADB TA to develop an education sector development strategy was implemented in 2003 jointly with the British Council. The World Bank now coordinates external assistance for education. The activities of the major funding agencies are updated in Table A1.5. ADB will continue to actively pursue cofinancing to address the important thematic priorities for Kazakhstan. ADB will maintain its dialogue with the Government.

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