Kazakhstan - Economy

Economy

Buoyed by high world crude oil prices, GDP growth figures were comprised between 8.9% and 13.5% from 2000 to 2007 before decreasing to 1-3% in 2008 and 2009, and then rising again from 2010. Other major exports of Kazakhstan include wheat, textiles, and livestock. Kazakhstan predicted that it would become a leading exporter of uranium by 2010, which has indeed come true.

The inflation figures are high: 2005 – 7.6%, 2006 – 8.6%, 2007 – 18.8%, 2008 – 9.5%, 2009 – 6.2%.

Since 2002, Kazakhstan has sought to manage strong inflows of foreign currency without sparking inflation. Inflation has not been under strict control, however, registering 6.6% in 2002, 6.8% in 2003, and 6.4% in 2004.

In 2000, Kazakhstan became the first former Soviet republic to repay all of its debt to the International Monetary Fund (IMF), 7 years ahead of schedule. In March 2002, the U.S. Department of Commerce granted Kazakhstan market economy status under U.S. trade law. This change in status recognized substantive market economy reforms in the areas of currency convertibility, wage rate determination, openness to foreign investment, and government control over the means of production and allocation of resources.

In September 2002, Kazakhstan became the first country in the CIS to receive an investment grade credit rating from a major international credit rating agency. As of late December 2003, Kazakhstan's gross foreign debt was about $22.9 billion. Total governmental debt was $4.2 billion, 14% of GDP. There has been a noticeable reduction in the ratio of debt to GDP. The ratio of total governmental debt to GDP in 2000 was 21.7%; in 2001, it was 17.5%, and in 2002, it was 15.4%.

Economic growth, combined with earlier tax and financial sector reforms, has dramatically improved government finance from the 1999 budget deficit level of 3.5% of GDP to a deficit of 1.2% of GDP in 2003. Government revenues grew from 19.8% of GDP in 1999 to 22.6% of GDP in 2001, but decreased to 16.2% of GDP in 2003. In 2000, Kazakhstan adopted a new tax code in an effort to consolidate these gains.

On November 29, 2003, the Law on Changes to Tax Code which reduced tax rates was adopted. The value added tax fell from 16% to 15%, the social tax, from 21% to 20%, and the personal income tax, from 30% to 20%. On July 7, 2006, the personal income tax was reduced even further to a flat rate of 5% for personal income in the form of dividends and 10% for other personal income. Kazakhstan furthered its reforms by adopting a new land code on June 20, 2003, and a new customs code on April 5, 2003.

Energy is the leading economic sector. Production of crude oil and natural gas condensate from the oil and gas basins of Kazakhstan amounted to 51.2 million tons in 2003, up 8.6% from the production in 2002. Kazakhstan raised oil and gas condensate exports to 44.3 million tons in 2003, 13% higher than in 2002. Gas production in Kazakhstan in 2003 amounted to 13.9 billion cubic meters (491 billion cu. ft), up 22.7% compared to 2002, including natural gas production of 7.3 billion cubic meters (258 billion cu. ft).

Kazakhstan holds about 4 billion tons of proven recoverable oil reserves and 2,000 cubic kilometers (480 cu mi) of gas. According to industry analysts, expansion of oil production and the development of new fields will enable the country to produce as much as 3 million barrels (480,000 m3) per day by 2015, and Kazakhstan would be among the top 10 oil-producing nations in the world. Kazakhstan's oil exports in 2003 were valued at more than $7 billion, representing 65% of overall exports and 24% of the GDP. Major oil and gas fields and recoverable oil reserves are Tengiz with 7 billion barrels (1.1×109 m3); Karachaganak with 8 billion barrels (1.3×109 m3) and 1,350 km³ of natural gas); and Kashagan with 7 to 9 billion barrels (1.4×109 m3).

Kazakhstan instituted an ambitious pension reform program in 1998. As of January 1, 2005, the pension assets were about $4.1 billion. There are 16 saving pension funds in the country. The State Accumulating Pension Fund, the only state-owned fund, was privatized in 2006. The country's unified financial regulatory agency oversees and regulates the pension funds. The growing demand of the pension funds for quality investment outlets triggered rapid development of the debt securities market. Pension fund capital is being invested almost exclusively in corporate and government bonds, including government of Kazakhstan Eurobonds.

The banking system of Kazakhstan is developing rapidly and the system's capitalization now exceeds $1 billion. The National Bank has introduced deposit insurance in its campaign to strengthen the banking sector. Due to troubling and non-performing bad assets the bank sector yet is at risk to lose stability. Several major foreign banks have branches in Kazakhstan, including RBS, Citibank, and HSBC. Kookmin and UniCredit have both recently entered the Kazakhstan's financial services market through acquisitions and stake-building.

Despite the strength of Kazakhstan's economy for most of the first decade of the 21st century, the global financial crisis of 2008–2009 has exposed some central weaknesses in the country's economy. The year on year growth of Kazakhstan's GDP dropped 19.81% in 2008. Four of the major banks were rescued by the government at the end of 2008 and real estate prices have sharply dropped.

According to the 2010–2011 World Economic Forum in Global Competitiveness Report Kazakhstan is ranked 72nd in the world in economic competitiveness.