Kazakhstan’s Economy is Rising, Yet Again Driven by Oil
Kazakhstan’s economic growth estimate for 2017 has been revised upwards from 2.4% to 3.7%, reflecting a better-than-expected oil sector performance, driven by the launch of production at the Kashagan oil field and higher oil prices, says the Modern Diplomacy with reference to the World Bank’s fall edition of the Kazakhstan Economic Update.
The report has a special focus on the private sector in Kazakhstan and highlights challenges that pose a significant barrier to unlocking the sector’s potential.
This year, Kazakhstan’s economy started to recover from the crisis caused by the fall in global oil prices, with real GDP growing by 4.3% in the first nine months of 2017, compared to 0.4% in the same period of 2016.
“Despite the ongoing economic recovery, growth will remain lower than in the pre-crisis period. Low resilience of Kazakhstan’s economy to external shocks remains the major challenge for achieving stable and sustainable development,” says Ato Brown, World Bank Country Manager for Kazakhstan. “To accelerate and deliver inclusive growth, Kazakhstan needs new drivers of growth. The country needs to reduce the role of the state in the economy and foster the emergence of dynamic non-oil tradable sectors.”
The World Bank expects Kazakhstan’s economic growth to hover around 3% a year during 2018-20, as the oil sector’s contribution to economic growth declines relative to 2017. Going forward, the Government will need to implement structural reforms to diversify the economy and increase its growth potential.
Harnessing a Vibrant Private Sector in Kazakhstan
There are significant opportunities for private sector development in Kazakhstan. The expansion of the private sector will lead to job creation, income growth, and poverty reduction.
Private-sector-led growth, however, is hampered by various factors, such as the dominance of state-owned enterprises in the economy, the lack of skilled labor, some sector-specific challenges, macroeconomic vulnerabilities, as well as weak regional economic cooperation.
The recently published Kazakhstan Country Private Sector Diagnostics, by the World Bank Group’s International Finance Corporation (IFC), identified several sectors such as the agribusiness, livestock, transport and logistics sectors that have high levels of feasibility and desirability and can potentially unlock constraints to private sector development in the coming years. This should be coupled with strong and decisive structural reforms in this area.
This may include restructuring and privatizing state-owned enterprises that will lead to a more efficient public administration and reduced fiscal risks. Prudent fiscal and monetary policies will support economic and price stability and encourage investments in the non-oil economy. Higher incomes will also have positive spillovers on poverty reduction.