BAKU, Azerbaijan, Oct. 29
Trend:
Kazakhstan's competent measures to limit spending and conservative assumptions regarding oil prices laid down in the state budget for 2021 will reduce the budget deficit to 1.2 percent of GDP, Trend reports referring to IHS Markit analytical company.
According to the company, the budget deficit of the country is expected to decrease in 2021 while maintaining the financing of expenditures from the National Fund as needed in the remaining recovery period.
From the point of view of IHS Markit, competent measures of Kazakhstan to restrict spending, as well as conservative assumptions about oil prices, included in the state budget for 2021, will allow to reduce the deficit to 1.2 percent of GDP this year and put the budget balanced on the path to return to surplus in 2023 - depending on oil prices.
At the same time, Kazakhstan’s government possibly will extend using the finances of the National Fund to cover the budget deficit, since the fund was created as an instrument of financial stabilization - both to protect the state budget from sharp fluctuations in world oil prices and to absorb excess proceeds from oil exports.
“On the other hand, the government is likely to try to minimize additional external borrowing given the growth of the country's total external debt in 2020 (however, IHS Markit predicts some increase in Kazakhstan's total external debt over the next five years),” the company said.
One of the main indicators of progress and sustainability of the ongoing economic recovery in the country will be the implementation progress of the National Development Plan until 2025, approved by the country's government in March 2021. This plan, in fact, reflects the approach of current President Tokayev to the implementation of the next stage of the “Kazakhstan-2050” Strategy proclaimed by the First President Nursultan Nazarbayev, which is aimed at joining Kazakhstan by 2050 among the 30 “most developed” countries of the world.
The 2025 Plan is particularly notable for its strong diversification stake in the economy and provides several specific metrics to measure success in achieving this and other goals.
The main objectives set by the plan for 2025 include the increase of the annual GDP growth rate up to 5 percent and the real incomes of the population - by 27.1 percent; reduction of unemployment to the level below 4.7 percent (from 5 percent in 2020); raising of the labor productivity by 20.6 percent, the share of investments in fixed capital to 30 percent of GDP (compared to 17.4 percent in 2020) and the gross FDI inflows to $30 billion (compared to $14.5 billion in 2020); expansion of the volume of non-resource exports by 41 percent in dollar terms; and reducing the non-oil deficit of the state budget to less than six percent of GDP (against seven percent in 2020)
Although it’s still difficult to determine to what extent Kazakhstan will be able to achieve the above ambitious goals, in 2021-2025 the country's economy should be favored by a number of following positive factors.
The economy will continue to be positively impacted by the successes mainly in the oil and gas industry. If the recovery in hydrocarbon and metals prices proceeds as expected, the next few years should see solid growth in the industrial sector - especially as the restrictions imposed by the OPEC + alliance are gradually lifted.
National projects initiated by the First President Nursultan Nazarbayev will remain an important tool to stimulate investment. Active investment continues to be promoted by the construction of roads and the development of special economic zones, as well as the general development of the agro-industrial complex within the framework of the implementation of the "Kazakhstan-2050" Strategy.
“The big volume of accumulated assets in foreign currency positively affects on the external creditworthiness of the country which is expected to have no problem with financing any potential deficit in current account [operations] without generating significant amounts of debt. On the other hand, there are also serious growth constraints and downside risks,” the company said.
“Business investment prospects outside the oil sector remain weak. There is an acute problem of increasing investments in the manufacturing industry since the level of development of this industry remains relatively low,” the company further said. “At the same time, economic diversification and reduced dependence on imports is fundamental to Kazakhstan's long-term success. While the government is outlining ever more detailed plans to diversify the country's economy to reduce its dependence on oil, their practical results are still expected to be seen in the future.”
“Realizing the full potential of the oil industry (and the energy sector in general) depends on the government's ability to take decisive measures to increase investment attractiveness - especially in the exploration and production sector,” the company noted.
“If oil prices fall sharply again or persist will remain at a lower level than expected, economic growth may stall or even reverse,” added the company.
Summarizing IHS Markit's outlook for Kazakhstan's longer-term growth prospects, the baseline scenario assumes moderate real GDP average growth of 2.8 percent per annum in 2021-2050 with significant deceleration (which is partly a natural consequence of the progressive economic growth ), whereas in 2021-2030 the average annual growth rate will be 3.9 percent, and further the annual GDP growth will slow down to an average of 2.4 percent in 2031-2040 and two percent in 2041-2050.