In the first few years after Kazakhstan independence, the World Bank focused on helping the country to implement financial and private sector reforms. After 1997, the focus shifted to public administration reform, with specific attention to improving the country's welfare and social protection policies. At present, the World Bank is assisting the country with prudent management of oil revenues, promoting competitiveness, investing in human capital and basic infrastructure, and ensuring environmentally friendly growth and mitigating ecological liabilities of the past.

Environment

Result Story Click on image to read the story World Bank Supports Tax Reforms in Kazakhstan to Improve Business Climate

Syr Darya Control and Northern Aral Sea Project secured the existence of the Northern Aral Sea (NAS), improved ecological conditions in its area, and sustained and increased agriculture and fish production in the Syr Darya basin in Kazakhstan:

• 13-km Kokaral dike was built to preserve the NAS
• 8 hydro structures on Syr Darya river were reconstructed
• Water flow capacity of the river doubled from 300-400 cubic meters per second to 700-800
• Water levels in the NAS increased (to 42 m above Baltic Sea level)
• 800 sq. km of once dried seabed are under water again
• Salinity levels in the NAS have halved to less than 10 gr/ltr due the inflow of freshwater
• Fishing industry is revived, unemployment reduced. The fish catch in the NAS increased from about 52 tons in 2004 to about 2,000 tons in 2007
• The climate is improving, benefiting air, soil and water qualities, biodiversity and flora/fauna Nura River Clean-Up Project has achieved the following:
• More than 1,000,000 ton of contaminated materials safely disposed from the Carbide factory, the sedimentation ponds, Zhaur swamp, river banks and floodplains
• Dismantling of the Carbide factory completed
• Three Sedimentation ponds of the wastewater treatment plant (WWTP) remediated - containment of 510 000 m² of polluted area was executed near the Ash dump, areas to North and West of the WWTP and other areas
• 340 000 tons of contaminated ash from River Banks and floodplains safely disposed in the landfill.

Agriculture

The World Bank supported Drylands Management Project helped to achieve the following results:

• Total area of drylands restored so far is 27000 ha
• Cattle number increased by 125 % in 2007 as compared to 2005
• Meat produced by participating farms increased by 84 % in 2007 as compared to 2005
• Hay production in the project perennial fields increased up to 9 ton/ha
• Farmers’ gross income of 20 selected farms increases by 174 % in 2007 as compared to 2005

 Agriculture Post-Privatization Assistance Project – II:

• US$ 4 million in credits issued to rural businesses
• About 200 bank staff trained in microfinance and rural crediting
• Financial Consultancy Network comprised of 600 consultants organized

Agriculture Competitiveness Project:

• To date, 356 grants have been approved under the Competitive Grant Scheme for the total amount of approximately US$ 15.6 million
• The project supported modernization of 9 state oblast laboratories and 60 rayon laboratories
• 7 technical regulations have been developed (meat and milk products, fruits and vegetables, grains, and others), of which 4 regulations have been already approved by the Government resolutions

Forestry Rehabilitation and Reforestation Project:

• 4 planting machines and 4 wheel tractors have been purchased; 38 more tractors and planting machines will be procured and 2000 ha of the Irtysh Pine forest will be cleared up and prepared for planting season in 2010
• 2 patrol cars, 71 sets of fire fighting equipment, 80 air blowers, and 42 radio sets were purchased and the Forest Fire Control Information System will be launched

Infrastructure

As a result of the World Bank-supported project, the capacity of the existing North-South electricity transmission line has more than doubled from 650 MW to 1,350 MW. It had a positive impact on system reliability, increased export and transit capacity, removal of growth-retarding power deficit in the south, and more effective use of low-cost power plants in the north, particularly in the Ekibastuz region.

The South-West Roads Project will help upgrade the trade route linking China to Russia and Western Europe through Kazakhstan, bringing a helpful economic stimulus to some of Kazakhstan’s poorest provinces. Other expected results include:

• The Project will boost Kazakhstan’s as well as its neighbors’ trade, competitiveness, logistics, and infrastructure connections with the world, while providing an artery for regional economic cooperation
• The Project is expected to boost construction-related sectors and services which were hit hard by the economic and financial crisis of 2008-2009
• Project area includes one of the poorest regions (Kyzylorda) and the most populated region (South Kazakhstan)
• Direct impact: projected employment of more than 35,000 people
• Indirect impact potentially larger: transportation impediments removed for the heavily rural region (South Kazakhstan)
• Benefits for rural agricultural producers and processors—farmers now lose more than half of perishable produce
• Opportunities for Small and Medium Enterprises (SMEs) in road-related services

Civil Society

The Civil Society Social Development Fund (CSF), which operated as the World Bank Small Grants Program till 2007, was created in 1983. While working in Kazakhstan from 1998 to 2009, the CSF has supported 92 projects for the total amount of US$ 378,000.

Institutional Reforms

The Government of Kazakhstan is pushing for improvement of business climate with the Bank’s support. Kazakhstan moved up on the World Bank's ease of doing business rating for 2010, ranking 63rd out of 183 countries (2009 ranking was 70th out of 181 countries). Kazakhstan has eased the process for getting construction permits by eliminating the requirement to pay for new electrical connections, reducing time limits for building permits, and lowering the cost of topographic surveys. The tax burden on companies was eased by lowering the social tax in 2008 and the corporate income tax in 2009. Business start-up was made easier by simplifying documentation requirements and abolishing the requirement to register at the local tax office.

The World Bank’s Tax Strategy Paper contributed to the drafting of a new Tax Code in Kazakhstan. The new Tax Code represents a vital step towards making the country more competitive globally and supporting its goal of economic diversification.

Technical assistance

A multi-year Joint Economic Research Program (JERP), an innovative mechanism for planning and financing analytical work, is being implemented by the Bank and the Government of Kazakhstan under a cost-sharing arrangement. JERP implementation started in 2002, and analytical work carried out within JERP framework has proven to be very effective in supporting Government’s vision and process of decision-making in key strategic policy areas. Themes and volume of the economic research works are identified on an annual basis by the Government in consultations with the Bank. The effectiveness of this model is proven by the fact that several countries took it as a blueprint.

In 2010 fiscal year (July 2009 – June 2010), JERP covers the following themes: financial monitoring system introduction, National Fund management, public finance management review, Extractive Industry Transparency Initiative (EITI), social protection, pension system, statistics, higher and secondary education, macroeconomics, penitentiary system, Public Private Partnerships (PPP) and fiscal risk management, communal services tariff setting methodology, improving country’s Doing Business rating, anti-monopoly policy, brainstorming sessions on economic development strategy and territorial development.

Since independence in 1991, Kazakhstan has maintained a strategic vision for economic development based on integration into the global economy. Kazakhstan succeeded in nation building, achieved macroeconomic and fiscal stability, and recently embarked upon an ambitious public administration reform. With time, its development programs have become increasingly focused on competitiveness issues, such as the investment climate, institutions, human capital, basic infrastructure, and the environment.

Kazakhstan enjoyed strong economic performance from 2000 to 2007, with average real GDP growth of 10 percent. The Government maintained a healthy fiscal surplus during that period, accumulating about 21 percent of GDP in the National Fund of the Republic of Kazakhstan (NFRK). However, the economy was, and remains highly resource-dependent, with manufacturing accounting for 11 percent and agriculture 5 percent of GDP in 2008. In contrast, minerals, oil and gas, accounted for 73 percent of exports and 39 percent of GDP. Consequently, the Government has made diversification of the economy a development priority.

Despite the strong overall economic trends in Kazakhstan, a spiral of unsustainable growth in commercial lending and foreign borrowing in 2005 -2007 set the stage for difficulties in the financial and construction sectors. Since mid-2007, problems in the global financial markets blocked local banks’ access to cheap external financing. The deepening of the world economic crisis since September 2008 has had further negative repercussions on the country. Kazakhstan faced a short but very sharp terms-of-trade shock and large capital outflows, which forced a 20 percent devaluation of the Tenge in February 2009. GDP growth had decelerated to 3.2 percent in 2008.

Responding to the crisis, Government has tapped the NFRK to deploy a large fiscal stimulus program (US$ 8 billion in 2008-2009), focusing on supporting SMEs, agriculture, construction, and banks. The latest data suggest that the stimulus may have had an impact on preventing a more severe recession. Going forward, the stimulus will need to be reduced, since NFRK cannot be tapped at the same pace as in 2008, and Kazakhstan intends to contain the buildup of sovereign foreign debt.

At present, it appears that an economic recovery has begun in Kazakhstan, with the strengthening of commodities prices being the most important factor supporting it. Positive trends in the real sector of the economy have boosted the confidence of investors, increased profitability in key sectors like mining, and strengthened domestic demand.

 Kazakhstan remains highly vulnerable to commodity price fluctuations. When oil fell to 40 dollars a barrel in early 2009, the economy dived into recession and the currency depreciated. The country’s economic prospects have improved enormously with strong commodity prices. But reducing resource dependence is key development challenge for the country, for which close to 90 percent of exports are resource-related.

The banking sector continues to face serious problems and will recover only gradually even in the best case scenario. The share of non-performing loans in the portfolios of Kazakhstan banks continues to grow, reflecting the cumulative effects of the recession, real estate price declines, and depreciation of the Tenge in February 2009. Overall, the foreign debt position of the Kazakhstan banking sector has been reduced from US$ 46 billion in mid-2007 to US$ 25 billion, and is expected to fall below US$ 20 billion by the end of 2010.

In the absence of another world economic slowdown, and associated sharp decline in commodities prices, the Kazakhstan economy should continue to grow, although at a modest pace. Financial sector and construction should remain depressed in the near future. The surge in oil output growth in 2009 reflected increased capacity that will most likely not appear again until Kashagan oil comes on line, expected in 2014. The absence of abundant cheap commercial credit will also be a general constraint on the pace of growth.

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The World Bank's mission in Kazakhstan is to support the country's efforts to achieve long-term economic growth that translates into more jobs and better social services for all citizens. We do so through project financing, analysis and advice that support the country's development agenda.
Since joining the World Bank in July 1992, Kazakhstan has been supported by the institution in various spheres. The Bank assisted in upgrading and modernizing the country's power transmission systems, helped increase agricultural productivity by rehabilitating deteriorating irrigation systems, and encouraged the rural community to diversify into non-traditional areas by nurturing their business skills. In addition, people in the country's western region, who have suffered from a shortage of good quality water, now enjoy better health as a result of improved water supply and sanitation.
Since 1992, total World Bank commitments to Kazakhstan have amounted to more than $4.2 billion for 35 projects. Currently World Bank supports projects in the following sectors (for more detailed information go to Active projects):

• Agriculture and Rural Development: Syr Darya Control and Northern Aral Sea Project, Agriculture Post-Privatization Assistance Project, Agriculture Competitiveness Project, Forestry Rehabilitation and Reforestation Project;
• Environment: Nura River Cleanup Project, Ust-Kamenogorsk Environmental Rehabilitation Project;
• Public Sector Governance: Customs Modernization Project, Tax Reform Project;
• Energy and Mining: Kazakhstan North-South Electricity Transmission Project, Moinak Electricity Transmission Project;
• Transportation: South West Roads Project: Western Europe - Western China International Transit Corridor;
• Health: Health Sector Technology Transfer and Institutional Reform Project;
• Financial and Private Sector Development: Technology Commercialization Project.

Beyond effectively managing the crisis, Kazakhstan’s challenges are to improve human development outcomes, investment climate, and the quality of governance:

• Human development indicators lag rising income levels. Kazakhstan’s human development index stays around 80th place (82nd in 2009) and remains inferior to many countries with comparable income levels. Rural areas have concentrated poverty and there is little progress on non-income dimensions of poverty. The crisis is causing notable worsening of poverty and inequality outcomes. Unemployment crept up above 7 percent in spring 2009; disguised unemployment is reportedly much higher. Safety nets need strengthening, and social expenditures should be protected, particularly if the downturn is protracted.
• The business climate is difficult, but the Government is pushing for improvements. Doing Business 2010 ranks Kazakhstan at 63rd out of 183 economies (from 64th in 2009), but does not capture severe constraints on competition. The practice of business regulation is hindered by unofficial payments and other obstacles. Transparency International’s Corruption Perception Ranking is low at 120th. The Government has sought the Bank’s help to move up the Doing Business ladder and showed a good commitment for reforms. Still, the private sector suffers from limited competitiveness and non-transparent corporate governance. Kazakhstan’s ranking in the Global Competitiveness Index worsened from 50 in 2006 to 67 in 2009.
• Public administration reforms are underway, targeting improved quality of public services, but administration and budgeting suffer from over centralization and bureaucracy. The thrust is to move from a heavily centralized control system to one emphasizing performance and accountability. While some progress has been made in altering the legal framework, most ministries retain heavy controls. The crisis has placed more focus on accountability, using performance to target spending cuts. The Tax Code enacted on January 1, 2009 shifts the burden of taxation from manufacturing and services to the extractive sector.
• Kazakhstan’s aspirations to become a regional leader promoting cooperation for development and security are complicated by persistent tensions between its neighbors over water and energy.

Going Forward

Given the country's reduced need for external financing, the World Bank program has shifted toward more focused investment loans, policy dialogue, and knowledge transfer. The third round of the three-year Joint Economic Research Program, an innovative mechanism for planning and financing analytical work, is currently being implemented by the Bank and the Government of Kazakhstan under a cost-sharing arrangement.

The once-shrinking Northern Aral Sea has filled up again and fishermen have been able to catch ten times more fish. Read more

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For general inquiries on the World Bank in Kazakhstan, please contact:

In Astana:
Irina Galimova:
Tel: (7 7172) 580-555
Fax: (7 7172) 580-342

In Almaty:
Margarita Grigoryeva:                                                              Kubat Sydykov:
Tel: (7 727) 2980-580
Fax: (7 727) 2980-581

Website: www.worldbank.org.kz

For questions and comments about this website, please contact:

Vamsee Kanchi
ECA Web Editor
Email:

Website: www.worldbank.org/am