COVID-19 containment measures during the first half of 2021, robust activity in the KAZAKHSTAN Key conditions and second half supported real GDP growth of 4 percent for the year. challenges Growth was driven by continued fiscal expansion, strong consumer credit Table 1 2021 Population, million 19.0 Since independence in 1991, Kazakhstan growth, and reduced COVID-19 restric- GDP, current US$ billion 202.9 has experienced rapid growth, fueled by tions. Due to a strong recovery in house- GDP per capita, current US$ 10693.5 investments in extractive industries. hold consumption, retail trade rose by 6.5 a 0.0 Growth, in turn, has reduced poverty and percent and retail loans, including mort- International poverty rate ($1.9) a 0.2 transformed the country into an upper- gages, by 40 percent in 2021. After con- Lower middle-income poverty rate ($3.2) a 4.6 middle-income economy. tracting by 3.4 percent in 2020, total cap- Upper middle-income poverty rate ($5.5) a 27.8 Gini index However, the achievement masks underly- ital investment rose modestly by 2.6 per- b 100.3 School enrollment, primary (% gross) ing vulnerabilities and the unevenness of cent, driven by solid growth in hous- b 73.2 Life expectancy at birth, years the country’s progress. Key challenges in- ing construction. Reopening the economy Total GHG Emissions (mtCO2e) 301.1 clude slow productivity growth, wealth in- has increased activity in face-to-face ser- Source: WDI, Macro Poverty Outlook, and official data. equality, rising living costs, limited job op- vices and manufacturing industries main- a/ Most recent value (2018), 2011 PPPs. portunities, and weak institutions. These ly aimed at the domestic market. b/ WDI for School enrollment (2020); Life expectancy (2019). challenges were amplified by the A sharp increase in global oil prices sub- COVID-19 pandemic and prompted the stantially improved Kazakhstan’s trade largest protests in the country’s history balance and reduced the current account Russia’s invasion of Ukraine is likely to earlier in the year. deficit to 3 percent of GDP in 2021 (from Reforms are needed to raise living stan- 3.8 percent in 2020). FDI inflows and high- reduce growth to 1.5 percent in 2022. dards and human capital, reduce corrup- er foreign borrowing by state enterprises This figure follows 4 percent growth in tion, reverse productivity stagnation, im- financed this deficit. 2021, driven by a rebounding economy, prove competition and private sector With heightened uncertainty during the consumption growth, and supportive fis- growth, and accelerate the low-carbon eco- January events and the recent plunge in nomic transition. Following the protests in the Ruble, the tenge has depreciated by cal policy. Higher food and energy prices January, which were marred by violence about 17 percent against the US Dollar. To have accelerated inflation. The poverty and attempts at destabilization, the gov- reduce tenge volatility, the central bank rate is expected to fall in 2022 but remain ernment has announced its intentions to scaled up FX interventions and increased above pre-pandemic levels. Inflation will tackle these constraints through wide- its policy rate by 2.25 p.p. to 13.5 percent in also remain elevated due to supply dis- reaching reforms. March 2022. FX reserves, however, remain comfortable at US$33.5 billion. ruptions arising from the war in Ukraine. Fiscal policy in 2021 remained accom- modative to the impact of COVID-19 on Recent developments the economy. Budgetary support measures continued for households and businesses Economic activity returned to pre-pan- facing hardship while public investment demic levels in 2021. Despite an increase in priorities shifted from pandemic response FIGURE 1 Kazakhstan / Movement in real GDP (Q4 FIGURE 2 Kazakhstan / Poverty rate $5.5/day PPP 2019=100) Index, 2019Q4=100 Percent 104 50 102 40 100 actual forecast 30 98 96 20 Real GDP, s.a. 94 Q4 2019 Real GDP 10 92 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 0 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2019 2020 2021 Sources: Statistical Office of Kazakhstan; World Bank staff estimates. Source: World Bank estimates, calculations based on ECAPOV harmonization, us- ing 2018-HBS. MPO 19 Apr 22 to recovery. Higher oil revenues helped re- a government package of social reforms. welfare and sustaining the business envi- duce the budget deficit to 3 percent of GDP The poverty rate is estimated to have de- ronment. Measures include increased so- from 4 percent in 2020. The public debt-to- creased to 12.4 percent in 2021 due to cial assistance, rental subsidies, and com- GDP ratio remained broadly unchanged at broader economic recovery. pensation for businesses affected by the 24.5 percent of GDP. January protests. At 8.7 percent year-on-year in February A small current account balance is project- 2022, inflation remained above the central ed in 2022, supported by higher oil prices bank target of 4-6 percent. Food and ener- Outlook and lower demand for imports. gy prices were the main drivers. The gov- The national poverty rate is projected to ernment established price caps on certain Spillovers from Russia’s economic collapse fall to 12.0 percent by end-2022, though food and fuel products and utility tariffs in will disrupt Kazakhstan’s supply chains this may change if inflation is higher and response to January’s mass protests. and dent its growth prospects. Real GDP growth slips further. As loan guarantees and forbearance mea- growth is expected to slow to 1.5-2.0 per- These projections bear significant down- sures continued to support households cent in 2022. Kazakhstan also relies on side risks: spillovers from sanctions that and businesses affected by the pandemic, Russia for 40 percent of its imports. Trade further weaken trade flows and investor the share of NPLs in the banking system disruptions, lower business confidence, confidence; more prolonged suspensions decreased to 3.3 percent in 2021 from 6.9 and increased currency volatility will also of Black Sea oil exports; risks of wage-price percent in 2020. Sanctions on banks and lower growth. spirals linked to economywide wage in- transaction restrictions thus far have not Growth will also be lower due to the clo- creases, and potential capital flight amidst stressed the local branches of Russian sure (due to storm damage) in March of heightened uncertainty and tighter global banks (15 percent of banking sector assets). Kazakhstan’s main oil pipeline (to Russia’s financial markets. However, vulnerabilities could emerge Black Sea), through which about 80 per- Events since January clearly urge faster from large financial outflows, sustained cent of Kazakhstan’s oil is exported. Based progress on reforms to achieve sustain- supply chain disruptions, and risks of sec- on current repair timeframes (up to a able growth and shared national prosper- ondary sanctions effects given Kaza- month), oil export volumes could fall by ity. In that regard, the authorities plan khstan’s significant trade, investment, and about 5-6 percent in 2022. to take a stronger stand against corrup- people linkages to Russia. Further exchange rate depreciation, rising tion and improve the rule of law, having The employment rate has reverted to pre- food prices, and wage increases will keep announced steps to increase competition pandemic levels, and real wages in- inflation high in 2022. Monetary policy is and the quality of human capital, and ad- creased by 5.7 percent annually in Q3 expected to remain tight in response. dress government inefficiency. 2021. In January 2022, the minimum wage Fiscal policy will continue accommodating was increased by 41 percent as part of public spending to improve household TABLE 2 Kazakhstan / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 4.5 -2.5 4.0 1.8 4.0 3.5 Private Consumption 6.1 -3.8 7.0 2.7 4.2 3.7 Government Consumption 15.5 12.8 0.5 1.2 0.8 0.8 Gross Fixed Capital Investment 13.8 -0.3 1.2 0.8 4.0 3.0 Exports, Goods and Services 2.0 -12.1 -0.2 -0.4 6.2 4.5 Imports, Goods and Services 14.9 -10.7 5.9 1.2 4.9 3.4 Real GDP growth, at constant factor prices 4.5 -2.5 4.1 1.8 4.1 3.6 Agriculture -0.1 5.6 -2.4 2.5 2.8 2.9 Industry 4.1 -0.4 4.3 1.2 5.4 4.8 Services 5.2 -4.5 4.6 2.1 3.4 2.8 Inflation (Consumer Price Index) 5.3 6.8 8.0 10.5 7.2 5.5 Current Account Balance (% of GDP) -4.0 -3.7 -3.0 0.6 -0.1 -0.3 Net Foreign Direct Investment (% of GDP) 3.1 3.4 2.1 1.7 3.0 2.7 Fiscal Balance (% of GDP) -1.3 -3.3 -3.0 -2.7 -1.9 -0.8 Debt (% of GDP) 19.6 24.8 24.6 28.3 29.0 29.0 Primary Balance (% of GDP) -0.3 -2.2 -1.7 -1.6 -0.7 0.3 a,b International poverty rate ($1.9 in 2011 PPP) 0.0 0.0 0.0 0.0 0.0 0.0 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 0.2 0.2 0.2 0.2 0.1 0.1 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 4.0 14.2 12.4 12.0 10.3 9.2 GHG emissions growth (mtCO2e) 2.2 7.0 1.5 0.8 1.5 1.8 Energy related GHG emissions (% of total) 80.2 81.1 81.0 80.8 80.8 80.9 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on ECAPOV harmonization, using 2018-HBS.Actual data: 2018. Nowcast: 2019-2021. Forecasts are from 2022 to 2024. b/ Projection using neutral distribution (2018) with pass-through = 0.87 based on GDP per capita in constant LCU. MPO 20 Apr 22