Kazakhstan : Joint Government of Kazakhstan and the Asian Development Bank Knowledge and Experience Exchange Program, Phase 4

Public sector management / Economic affairs management - Public administration

1. The knowledge and support technical assistance (TA) will provide just-in-time, demand driven, and cutting-edge knowledge products and assist capacity development in Kazakhstan. The fourth phase of the Knowledge and Experience Exchange Program (KEEP), a joint effort of the Government of Kazakhstan and the Asian Development Bank (ADB), remains an important source of international best practices, innovative solutions, and capacity development of staff working for Kazakhstan's government agencies. As experienced in the previous three phases, the joint financing and management of TA activities will produce synergies and complementarities between ADB operations and Kazakhstan's development needs.

2. The TA is aligned with one of the operational priorities strengthening governance and institutional capacity of ADB's Strategy 2030.1 It helps reinforce ADB's role as a knowledge institution that facilitates the sharing of international experiences, best practices, and innovations in line with its approach to engaging with upper middle-income countries. 2 It is also consistent with ADB's country partnership strategy, 2017-2021 for Kazakhstan, which emphasizes the importance of enhancing the country's knowledge basis in support of its socioeconomic development. The TA is included in the country operations business plan, 2021-2023.

Kazakhstan has enjoyed rapid economic growth in the 21st century, fueled by windfall earnings from the extractive industry, which by 2019 had tripled oil production since independence in 1991. Real wages quadrupled from the mid-1990s levels, while the share of people with below subsistence incomes plummeted from 46.7% in 2001 to 4.3% in 2019. However, this rapid economic growth came at the cost of unequal income distribution across sectors, social groups, and regions of Kazakhstan. For instance, by 2005, the Gini index, a convenient summary measure of the degree of economic inequality in the distribution of income, had reached 39.8 (where 0 indicates perfect income equality, 100 implies perfect inequality), before subsiding to 28.8 in 2018.

The unequal distribution of economic benefits generated by the oil and gas industry became evident in the labor market and created development challenges. The Statistics Committee of Kazakhstan reports that the remuneration offered in mining was on average more than double the average monthly pay, while the salaries of civil servants were below the average. This made it difficult to attract and retain talents in the civil service, while promoting corruption and rent-seeking activities. Meanwhile, the economy was experiencing signs of the so-called "Dutch disease", as exogenous shocks generated by the 2007-2008 global financial crisis, lower commodity prices in 2014-2015, and the current coronavirus disease (COVID-19) pandemic revealed structural vulnerabilities in Kazakhstan's economic model as being too dependent on export revenues generated from hydrocarbons.

Recognizing the country's knowledge needs, ADB and the Government of Kazakhstan in 2013 established KEEP through a memorandum of understanding (MOU) that defined the program's overall framework and outlined its objective and scope, areas of focus, implementation arrangements, and monitoring and evaluation measures. 5 The MOU commits the parties to sharing the costs of program implementation activities equally.

The initial plan suggested the articulation of KEEP over three phases. However, taking into account Kazakhstan's growing demand for knowledge products, by 2015 the total amount of commitments and disbursements had already exceeded the indicative amounts of the 2013 MOU. To reflect the changed reality, the MOU was updated three times in 2015, 2017, and 2019 - by introducing supplementary agreements aimed at ensuring greater flexibility and responsiveness to the government needs for cutting-edge knowledge, best practices, and capacity enhancement. The revised MOU reflects the additional financial commitments made by the parties.

KEEP's flexible approach, envisaged in the original MOU and its supplementary agreements, allows to effectively fulfill Kazakhstan's demand-driven knowledge needs as articulated by government agencies in their applications; the tentative pipeline of KEEP projects is described in a linked document.6 The applications can be grouped into four broad categories:

(i) analytical support of the government's economic diversification agenda,

(ii) sustainable green growth,

(iii) reform of the civil service system, and

(iv) socioeconomic research into priority topics.

The economy of Kazakhstan is overly reliant on commodities extraction and export. In 2019, minerals accounted for 72.8% of exports, followed by metals with 13.5%. In the same period, 39.4% of the state budget revenues came from duty receipts for oil exports and sovereign oil fund transfers. In the previous phases, the KEEP team supported the government's economic diversification agenda with research into Kazakhstan's agriculture, including an assessment of the livestock potential in Aqmola Region, and with the development of light industry and craftsmanship in close collaboration with Atameken, the National Chamber of Entrepreneurs. For Phase 4, the government agencies propose various projects aimed at promoting tourism, building human capital, and improving the investment climate.

The government recognizes the promotion of sustainable green growth as crucial to improving the quality of life. In 2015, the government committed to reducing greenhouse gas emissions by 15% by 2030 under the Paris Agreement. In 2019, greenhouse gas emissions already exceeded the 1990 level (the benchmark year for the Paris Agreement target), while projected economic growth is expected to further stimulate such emissions. So the government is drafting a new Environmental Code and Low-carbon Development Strategy to better respond to the need for sustainable green growth until 2050. In Phase 4, ADB will work closely with the government on providing methodological, strategic, and capacity building support to enable environmentally friendly economic development.

Reforming civil service is a cornerstone of the government's development agenda and is prominently featured in development strategies and plans. Transparency International's 2019 Corruption Perception Index puts Kazakhstan in 113th place out of 180 countries, which is marginally better than its 140th position in 2013. In September 2020, in his second annual address to the people of Kazakhstan, President Tokayev announced major reforms to the state apparatus, including a 25% optimization of civil servants and raising salaries to the rest. The KEEP team has been strengthening the civil service system by optimizing the business processes, conducting time studies, and setting performance indicators; this collaboration will continue in Phase 4.

Increasingly, the government is prioritizing social policy measures, especially as the impacts of the COVID-19 pandemic on the economy are being felt. Many of KEEP's past and planned projects therefore serve to study and develop recommendations on socioeconomic policy measures. For instance, ADB, in close cooperation with the United Nations Development Programme, supports the government in becoming the regional champion to achieve the all encompassing sustainable development goals (SDGs). In particular, KEEP assisted the government in preparing the Voluntary National Report on SDGs, which was presented at the United Nation's High-level Political Forum in July 2019.

Overall, the government consistently assessed the KEEP results very positively, praising the progress made since 2014 and expressing its commitment to continue the cooperation with ADB on this program. Particularly, the government commended KEEP's contribution to strengthening institutional capacity and providing policy advice.

Accountability, efficiency, and functionality of the state apparatus increased

State development initiatives relying on enhanced capacity and evidence based practices effectively implemented.

Reports and policy recommendations delivered

Capacity building programs provided