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Kazakhstan's Medium-Term Economic Outlook Remains Robust

ALMATY, KAZAKHSTAN (6 April 2005) - Kazakhstan's economy is expected to remain robust in the next three years, according to a major report released by the Asian Development Bank (ADB) today.

Following record gross domestic product (GDP) growth of 9.4% last year, Kazakhstan's economic growth is expected to remain strong, at around 8.0-8.5% per year in 2005-2007, says the Asian Development Outlook (ADO), the annual ADB flagship publication that forecasts economic trends in the region.

The report says that the dynamic growth is expected in non-oil sectors owing to ongoing efforts on economic diversification and sustained high demand for Kazakhstan's commodities, mainly oil and metals.

The ADO projections are sensitive to such factors as "world oil prices, global demand, as well as the actual response to government policies and incentives in the non-oil sector," the report says.

In the medium term, the oil and gas sector will continue to be the principal engine of economic growth, with construction and manufacturing sectors adding a booster factor. The construction sector grew 11.2% in 2004 due to a rise in residential and infrastructure development projects in the new capital city.

Kazakhstan's fiscal position is expected to remain healthy, as rising oil revenues and improvement in tax administration offset tax cuts. While infrastructure development, Government's job creation schemes, and social welfare programs will expand the budget deficit from 0.3% of GDP in 2004, it will likely remain within a manageable level of around 1% of GDP in 2005-2007.

Despite the increases in public sector wages and expansion in the money supply, inflation is projected to be in the range of 5-6% per year in 2005-2007 (down from 6.9% in 2004). The national currency, tenge, will likely continue to appreciate due to expected buoyant export receipts and FDI inflows.

The external trade balance is forecast to remain in surplus in the medium-term, helping to keep the current account balance positive, ADO says.

The continued economic growth will help improve living standards. The Government's efforts to reduce the urban-rural gap and strengthen social safety nets for vulnerable population groups are expected to reduce the number of people living below the subsistence minimum to below 10% towards the end of 2007, down from 15% at the end of 2004. Employment creation in the private sector and the success in ongoing efforts to diversify the economy will play a key role.

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