Country briefing note <download pdf file>
Growth slows as the global economy weakens
- The economic growth slowed to 5% in 2012 from 7.5% in 2011, reflecting lower export revenues from the hydrocarbon and mining sectors and sluggish investment from the euro zone and the United States.
- Agricultural output suffered a sharp contraction due to severe drought conditions in the latter part of 2012.
- The increased public social spending, the ongoing State-led investments in the development of the hydrocarbons sector, as well as the Government's initiatives to diversify the economy through helping the manufacturing and construction sectors contributed to job creation and helped somewhat in boosting domestic demand and avoiding a rapid slowdown in economic growth.
- Increased oil production in Kazakhstan will push growth to 6% in 2013.
Inflation eases during the first half of 2012 but subsequently picks up
- Inflation softened during the first half of 2012 but subsequently picked up, driven by higher food and utility prices. Inflation for the whole year was 5.1%, compared with 8.3% in 2011. The rise in food prices in mid- to late-2012 was due to the poor grain harvest in Kazakhstan as well as other neighbouring countries.
- Deterioration of external conditions and a reduction in inflationary pressures since late 2011 enabled the central bank of Kazakhstan to ease the policy rate by a total of 200 basis points, from 7.5% at the beginning of 2012 to 5.5% in August 2012, which was its lowest-ever rate. The central bank also imposed a ceiling on deposits in order to maintain credit growth at a rate that would support domestic growth without raising inflation.
- Given further slowing of economic growth and already low policy rates, the prospect of a rise in food price inflation in late 2012 posed a policy dilemma between supporting growth and containing inflationary pressure.
Fiscal policy remains supportive of economic growth
- The budget deficit of Kazakhstan increased to 3.1% of GDP in 2012 from 2.1% in 2011, due to higher government spending to support growth.
- Weaker global economic conditions adversely impacted tax revenue, although the sale of shares in State-owned companies and transfers from the oil fund supported budget revenue.
Current account balance deteriorates but remains in surplus
- Under balance of payments, the current account surplus narrowed to 4.7% of GDP in 2012 from 7.6% in 2011. The persistent services deficit remained substantial, particularly that related to the hydrocarbon sector.
Development of transport infrastructure and improved trade logistics could further boost growth
- Kazakhstan faces high costs for transportation and the storage of goods due to its landlocked location. However, this geographic feature, which is located midway between East Asia and Europe, could afford an opportunity for it to serve as a transit zone and platform for trade between those two large consumer markets. Thus, further development of infrastructure is important to accelerate growth.
- The importance of being further connected to their neighbours has been recognized in the North and Central Asian subregion, and a number of initiatives have been embarked in this regard. For example, the Central Asia-China gas pipeline, the first pipeline to bring natural gas from the subregion to China, was jointly developed by Kazakhstan, Turkmenistan and Uzbekistan together with China.
- Cooperation among the economies of the subregion could lead to the creation of transnational transport infrastructure, and the elimination of barriers and obstacles to the movement of goods and services could further accelerate development of these countries.
High dependence on commodity exports: need to further diversify the economy
- Despite the recent efforts of the Governments in the North and Central Asian subregion to diversify their economies away from heavy commodity dependence, the subregion as a whole has become more exposed to commodity-related risks as compared with ten years ago. Consequently, a sharp fall in external demand or commodity prices would lead to a severe decline in economic activities and, in turn, have a strong adverse impact on economic growth. Furthermore, ample revenue from commodity exports would limit the incentive for undertaking far-reaching economic reforms. Therefore, further diversification of the economy is important for achieving higher and sustainable growth as well as greater socio-economic stability.
- Countries with heavy commodity dependence must design and, more importantly, implement effectively those policies aimed at reducing their dependency on a few commodity exports, especially during the boom years when fiscal and external positions are still healthy relative to resource-poor economies.
Migrant workers make major economic contributions in host countries
- Policymakers in the subregion should be aware that migrant workers not only support their home countries through remittances but also play a key role in providing the labour needed in host countries, especially those countries with labour shortages.
- The net benefit to the economy of Kazakhstan due to migrant workers is estimated to be at least 0.57% of GDP, or $1.1 billion per year, even if it is assumed that migrant workers remit their entire incomes back to their countries. In reality, migrant workers spend part of their incomes in the host countries and generate demand for products, such as food, housing, health care and entertainment, and a wide range of commercial services. As a result, aggregate demand further rises, resulting in higher GDP. Migrant workers, by making available an increased supply of goods and services, also help control inflation.
- In the medium to long term, it is essential to strengthen social safety nets for migrant workers, generate employment opportunities at home and formulate regionally coordinated migration policies and laws.