Briefing Notes for the Launch in Almaty, April 2007
Growth performance and medium-term prospects
- As oil prices soared, so did the gross domestic product of Kazakhstan, transforming the country into one of the world's fastest growing economy.
- The statistical data showed a 10.6 per cent economic growth in Kazakhstan in 2006. The main sectors contributed to economic expansion were services and industrial sectors. Industrial output grew by 7.0 per cent in 2006. More than half of industrial production was provided by the oil and gas sectors. Kazakhstan's oil production recorded a 6.7 per cent gain to reach about 50 million tons in the first 11 months of 2006.
- Owing to improved grain harvest, agricultural production was expected to grow by 7.0 per cent in 2006. The grain harvest was estimated to amount to 14.7 million tons in 2006 compared with the harvest of 13.8 million tons recorded in 2005.
- Kazakhstan is expected to achieve 10 per cent GDP growth in 2007. The sharp rise in GDP and the steady increase in the inflation rate both suggest that the economy may be "overheating".
Fiscal policy developments
- Owing to rapid growth of the hydrocarbons production and massive oil revenue, budget performance was strong in Kazakhstan in 2006. The state budget of the economy was expected to record surplus of 0.5 per cent in 2006. The Government allocated oil revenue into the stabilization fund in order to control growth in expenditures and to target spending to most needed programmes.
- Consumer price inflation in Kazakhstan was 8.6 per cent in 2006 due mainly to the increase in nominal average monthly wages by 17 per cent in July 2006. The National Bank of Kazakhstan tightened monetary policy and raised its benchmark rate in an attempt to bring inflation down.
- The lagged effect of tighter monetary and credit policies, together with a strengthening exchange rate could bring annual consumer price inflation down to 8 per cent in 2007.
Current account and trade performance
- The current account deficit of Kazakhstan recorded in 2005 was expected to revert to a small surplus of 0.2 per cent of GDP in 2006. The merchandise trade surplus of the economy was expected to rise in 2006 owing to strong demand for the country's oil exports in the world markets. High oil prices increased trade surplus from US$7.9 billion recorded in the first nine months of 2005 to US$11.0 billion in the corresponding period of 2006. In the fist nine months of 2006, exports of Kazakhstan rose by 39 per cent to US$28.3 billion and imports grew by 32 per cent to US$16.5 billion. Import of capital goods for hydrocarbons sector determined import spending of the country. The Russian Federation remained the largest trade partner of Kazakhstan. Another most import supplier of the country was China, especially in providing consumer goods.
- A small current account deficit is expected in 2007 due mainly to softening oil prices.
- Oil and gas sectors of Kazakhstan attracted over one-half of gross FDI inflows in the country in 2006. The cumulative FDI in the economy accumulated since its independence reached about US$30 billion by 2006, comprising more than 80 per cent of all FDI into the Central Asia.
Key policy issues and responses
- The "Dutch disease" could pose some challenges to the robust growth in Kazakhstan. High inflation in the country from 2000 to 2004 forced the Government to shift its priority from focusing on exchange rate policy to maintaining price stability. The real effective exchange rate appreciated significantly during this period. High oil prices led to a doubling of merchandise export revenues between 2000 and 2004. Greater reliance on hydrocarbon resources has adversely affected the structure of the economy of Kazakhstan and has exacerbated the differences between the oil and non-oil sectors. Between 2000 and 2005, the contribution of agricultural and industrial sectors to GDP fell by 2 and 1 percentage points, respectively. The construction sector benefited from the effects of rapid oil sector growth. Its share in GDP increased from 5.3 per cent in 2000 to 6.2 per cent in 2004. In the exports sector, oil remained the country's principal export, its share in total export revenues increased from 52 per cent in 2000 to 64.7 per cent in 2004. And the share of manufactured exports in total merchandise exports fell from 31.8 per cent in 2000 to 24.2 per cent in 2004, reflecting the impact of oil-led currency appreciation on this sector.
- The Government of Kazakhstan undertook tight monetary and fiscal policies along with other macroeconomic measures to address symptoms of "Dutch disease". Relevant measures have been undertaken to keep macroeconomic fundamentals within permissible limits and create stabilization funds to sterilize a large part of oil revenue. The National Oil Fund of Kazakhstan had assets in excess of US$14 billion by the end of 2006 and used some of them to reduce its foreign debt.