Kazakhstan and developing countries amid world recession


by Alibek Osser

According to the World Bank estimate the world financial crisis is the severest crisis since the Great Depression in the USA. The world faces the severest credit crunch and recession. In the second half of 2008, the world economy came to a halt. On an annualized basis, global GDP growth slowed to 2 percent after averaging 5 percent over 2003-07. World trade flows collapsed in the last quarter of 2008, with global exports projected to decline in 2009 for the first time since 1982. The GDP in rich countries is projected to contract by 3.8 percent in 2009, as against 0.9 percent growth in 2008. The crisis is hitting developing countries hard. Though it began in rich countries, the crisis is hitting developing countries hard through trade and financial market channels. Growth in Sub-Saharan Africa, for instance, will drop to 1.7 percent from 5.5 percent in 2008.

Kazakhstan is considered to be the country with the market transit economy and belongs to the group of post-soviet middle-income countries. Unlike developing countries of Asia, Africa and Latin America with low incomes, Kazakhstan possesses developed social and economical infrastructure, powerful raw material opportunities, and highly qualified human resources. Such position places Kazakhstan on a higher level than developing countries with the same GDP.

Overall, fiscal positions in emerging and developing economies are weakening because of slowing domestic revenues, increased spending on social programs in response to the crisis, and deteriorating terms of trade for commodity exporters. While some recovery of access to finance for sovereign borrowers has become visible since early 2009, funding conditions for the corporate sectors of developing countries remain extremely difficult. Net private capital flows to emerging market economies fell from 7.3 percent of GDP in 2007 to 4.9 percent in 2008, and are projected to turn negative in 2009.

The pace of poverty reduction has also slowed. As a result of the food and financial crises, the pace of poverty reduction has slowed. Poverty will decline in 2009, but the World Bank estimates that about 55 million more people will live on less than $1.25 a day (in 2005 purchasing power parity terms) in developing countries this year than expected pre-crisis. Millennium Development Goal 1 for poverty reduction remains achievable at the global level, but the crisis adds new risks. Low-income countries overall are likely to fall short of the target. Official aid must be increased to help developing countries cope with the crisis. The world must act decisively to support low-income countries that cannot respond to the effects of the crisis without burdening their poorest people. Economic policy responses should be adapted to country circumstances.

Policymakers should not lose sight of long-term priorities. Unsustainable subsidies should be phased out and social protection schemes fine-tuned. Well-targeted, flexible measures like direct income support (including conditional cash transfers such as Mexico’s “Progresa/Oportunidades” and Brazil’s “Bolsa Escola”) and workfare programs (such as those used to help respond to or prevent famines in Sub-Saharan Africa) help poor people while limiting government spending.

Comprehensive action should resolve problems in the banking system. The policies aimed at strengthening the financial system should be tailored along four dimensions to include those that: seek to strengthen individual institutions, solidify the contingency planning and crisis management framework, mitigate risks from cross-border exposures and spillover effects, adopt a broader macroeconomic orientation for financial surveillance.

As a result of crisis such sectors of economy of Kazakhstan as construction and real estate market suffered more than others. In this context the role of the banking system is essential, particularly for the construction industry. To overcome mistrust of primary real estate buyers and activate real estate market, Kazakhstan can use such tool as “deposit” construction. A buyer of a real estate under construction deposits money in a bank, the bank in its turn provides the money for the builder. Thus, a buyer minimizes risks (except for currency devaluation ) and gains deposit profit.

Therefore, to address the confidence crisis in financial markets and stop its fallout in the real economy the macroeconomic policy of Kazakhstan should be adapted to country’s circumstances. The countries with strong fundamentals including Kazakhstan may have room for monetary and fiscal stimulus. Several emerging markets have taken steps this year to stimulate economic activity through expansionary monetary and fiscal policy. Economy of Kazakhstan is more developed than economies of low-income countries of Asia, Africa and Latin America with the same GDP. Kazakhstan should force exports, transform social support programs, reduce the influence of external corporate loans, raise the confidence of financial market players, enlarge monetary and fiscal stimulation, direct efforts at social problems’ solution and reduce unemployment. The main anti-crisis measures according to the Action Plan of Economic Stabilization should be: to support the macroeconomic stability, stabilize the financial sector, activate the industry, resolve the problems of the real-estate market, protect small and medium business, implement the 30 Corporate Leaders program , carry through innovative projects, develop agriculture sector, and ensure employment of the vulnerable groups of population.