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12.02.2020

World Bank predicts slowdown in economic growth in Kazakhstan

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World Bank (WB) experts expect the economy of Kazakhstan to slow down to 3.7% in 2020, Kursiv.kz reports. The main argument is the revival of domestic demand is declining. The WB recommends: to maintain economic growth rates, we should focus on increasing productivity and expanding the geography of exports.

The forecast of social and economic development of Kazakhstan for 2020-2024, presented last summer, assumes GDP growth for the current year at 4.1%. But already in the beginning of 2020 the Prime Minister of Kazakhstan Askar Mamin made adjustments: he said that at the end of 2019 GDP growth was 4.5% against the forecast of 3.8%, and said that the key goal of the government in 2020 is to ensure economic growth at the level of 4.7-5%.

External viewpoint

Another view is shared by the World Bank in its Kazakhstani Economic Prospects report released on January 31, 2020.

One of the report's authors, Sjamsu Rahardja, Senior Economist, World Bank Country Office in Kazakhstan, predicts that in 2020 the growth of Kazakhstan's economy is likely to decrease to 3.7% as the effect of fiscal stimulation of domestic demand will be exhausted. According to Rahardja, this very instrument in 2019 enabled Kazakhstan to achieve quite high growth rates. We are talking about writing off credit debts for 443,000 citizens and increasing social spending to 5% of GDP against 4.4% a year earlier. The government also continued to subsidize consumer lending in the housing and auto industry, albeit in smaller amounts than in previous years. As a result, domestic demand, which, according to the World Bank, Kazakhstan mainly counted on last year, helped the country to boost its economic performance amid worsening on the export side.

Exports are weakening due to almost halved growth in Kazakhstan's main trading partners: the EU, China, and Russia. According to the report's authors, sluggish activity in global trade (and, given the coronavirus outbreak in China, this activity will be even lower) negatively affected Kazakhstan's exports and increased the current account deficit to 2.6% of GDP.

Prospects for productivity and exports

The recommendation from the WB to Kazakhstan is to engage in those structural reforms that increase growth prospects in the country. "Productivity is the first issue on the agenda, only by increasing productivity Kazakhstan can maintain its current position," he said.

Productivity should be increased by modernising production, which requires loans, while borrowing in the country is growing in the consumer sector, declining in the corporate sector. The World Bank experts consider the reason for the unfavorable conditions of bank loans, and the reluctance of companies to start modernization processes, as the business does not see any sense in it, as it doubts the opportunities to expand into foreign markets. In this situation, the main driver of economic development is foreign investment in new projects - this seems to be the hope of the government's economic block.

"Last year, the Investment Attraction Coordination Council was established under the chairmanship of the Prime Minister, and in the second half of 2019, we formed a pool of investment projects worth about KZT44 trillion. These projects should be implemented within the next five years. More than 70% of the projects from this pool will be concentrated in non-raw materials sectors," says Kazakh Deputy Minister of National Economy Zhaslan Madiyev.

The Ministry of National Economy does not rule out that the pool of investors mentioned above may become a driver of economic growth in 2020. But Madiev stresses that the official forecast of the ministry for this year remains unchanged - 4.1%, rather than 4.7-5%, announced by the Prime Minister. The main GDP growth in 2020, according to the Deputy Minister, will again be provided by non-raw materials sectors. Last year's construction, services, trade, and transport made a significant contribution to economic growth.

The authors of the WB report have a different view on the drivers of Kazakhstan's economy in 2020. According to Jean-François Marteau, the WB's Permanent Representative to Kazakhstan, they will again see domestic consumption, which has already noticeably exhausted and requires support. Therefore, the second engine of economic growth will be government spending, including on stimulating domestic growth.

Marteau is sure that to break out of the circle when economic growth is formed solely by stimulating domestic demand by refunding collected taxes in the form of subsidies, Kazakhstan needs to expand its export geography.

"Kazakhstan has a small domestic market, so exports are a very important factor, but our report shows that there has been no significant improvement in the non-resource sector," said a World Bank representative.

All East Asia is a potential export market for Kazakhstan and the country should try to gain a foothold there, he said.

Dmitriy Pokidayev

«...Domestic business, the so-called national bourgeoisie, should be supported in every possible way, and those who prevent its development by unreasonable inspections, extortions, raids should be strictly punished...»

Statement from the President of Kazakhstan Kassym-Jomart Tokayev at an enlarged meeting of the Government on 15 July 2019

Zhursunov R.M.

Ombudsman for the Protection of the rights of Entrepreneurs of RK

The blog of the Ombudsman for the Protection of the Rights of Entrepreneurs of Kazakhstan was created for you to have an opportunity to appeal directly to me and I hope that it will contribute to a constructive dialogue between us – send me feedback, share opinions, make suggestions. All your comments without exception will be read by me.

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