Kazakhstan Exhibits Steady Growth but Faces Lingering Risks, According to Analysis
Get ready for a financial ride, folks! Kazakhstan's economic future is looking rosy, according to the World Bank's latest report, Preparing for Tomorrow: Reform for Long-Term Prosperity. Despite the turbulence caused by Russia's unexpected attack on Ukraine, this Central Asian nation is expected to continue its growth trajectory.
The World Bank predicts a moderate growth of 3.4% in 2024, thanks to continued carbon use and increased consumer spending. In 2025, real GDP is projected to jump, reaching 4.5-5%. However, oil production and revenue might be lower than anticipated, causing growth to slow.
Inflation, on the other hand, is expected to linger, but at a more manageable level. The report reveals that inflation began to dwindle in late 2023 following tight monetary policy, registering a 9.8% rate in December. The World Bank believes the National Bank of Kazakhstan's (NBK) target of 5% inflation can be achieved in 2025, provided there's no hasty easing of monetary policy and full implementation of fiscal consolidation plans.
One of the key focuses of the state budget plan for 2024-2026 is fiscal consolidation. Economic stimulus measures, primarily concentrated on social security programs, led to a consolidated budget deficit of 1.8% of GDP in 2023. The government intends to reduce this deficit over the long term while maintaining adequate financial reserves.
Imports demand and declining oil prices resulted in a current account deficit of about 3.3% of GDP in 2023. This deficit is projected to remain in the same range, at 3.0% of GDP in 2024 and 2.3% of GDP in 2025.
The banking system has proven its resilience, particularly in the face of the aftermath of Russia's invasion of Ukraine. The non-performing loan ratio stood at 3.2% in November 2023, and banks have maintained steady funding and high levels of liquid assets surpassing regulatory requirements.
But there's a catch. Based on its assessment, the World Bank suggests it's high time Kazakhstan rethinks its reform priorities to achieve sustainable growth and improve living standards in an increasingly decarbonized world economy. The bank recommends focusing on fiscal reforms, education improvements, climate resilience, and institutional development to combat poverty, reduce inequality, and strengthen economic resilience.
Looking ahead, Kazakhstan's growth prospects come with their share of challenges. Risks include disruptions in the Black Sea region due to Russia's ongoing invasion, potential reduction in oil production, inflationary pressures, foreign exchange rate volatility, and the threat of secondary sanctions given Kazakhstan's economic ties with Russia.
So, buckle up, Kazakhstan! The road ahead may be filled with bumps, but with the right reforms in place, you're on track to prosperity!
Enrichment Insights:1. Fiscal Reforms - The World Bank suggests implementing a more progressive tax system to reduce inequality and boost government revenues. Additionally, expanding well-targeted transfers to support low-income families and vulnerable populations is recommended[4][5].2. Education Improvements - To enhance education quality, particularly for disadvantaged groups, and improve human capital, the World Bank encourages focusing on education[5].3. Climate Resilience - Investing in climate-resilient infrastructure and providing targeted support to low-income households to mitigate the impacts of climate change are key recommendations[5].4. Institutional Development - Strengthening institutions to streamline trade and reduce trading costs is crucial for Kazakhstan's integration into the global economy[4].
In the quest for sustained growth and improved living standards, Kazakhstan should consider prioritizing fiscal reforms, including instituting a more progressive tax system and expanding targeted transfers to support vulnerable populations.
To foster a robust educational system and boost human capital, the nation must focus on improving education quality, particularly for disadvantaged groups. This can be achieved by investing in programs that enhance educational standards for all.
