°²¹³ú²¹°ì³ó²õ³Ù²¹²Ô¡¯²õ 2050 Strategy envisages a radical restructuring of the government and the economy by 2050 and recognizes that ¡°the era of the hydrocarbon economy is coming to its end.¡± The world¡¯s current oversupply of oil adds urgency to the need to accelerate broader reforms of economic structure and fiscal policy.
ľ¹ÏÓ°Ôº Group¡¯s recent Public Finance Review, Kazakhstan: Enhancing the Fiscal Framework to Support Economic Transformation, provides a set of recommendations to support the government's move in this direction.
Kazakhstan benefited greatly from the oil boom of 2000¨C14, which led to income growth and poverty reduction, and helped build a fiscal cushion to stabilize the economy during downturns. As oil output more than doubled during the oil price super-cycle, the Government of Kazakhstan accumulated substantial fiscal savings in its National Oil Fund (NFRK). These funds were used for anti-crisis programs in 2007¨C10, during which time the fiscal stimulus program totalled US$18 billion (about 15 percent of GDP).
The Government injected more than US$30 billion in foreign-currency interventions in 2014¨C15, while the current fiscal stimulus package already exceeded US$20 billion (12 percent of GDP) in 2014¨C17.
As a result, the NFRK balance has fallen from US$73 billion in 2014 to a projected US$57 billion by the end of 2017. The Kazakh authorities moved to a floating exchange rate regime in the second half of 2015 to stop the leakage of foreign exchange reserves. However, an accompanying fiscal adjustment has not materialized. Some policy makers may still believe that the shock is cyclical and maintain hope that oil prices will recover.
Yet that might not be the case.
The low-oil prices environment is not a temporary crisis, but is rather a structural shift to a ¡°new normal¡±. In this case, Kazakhstan needs to urgently adopt a fiscal consolidation strategy to promote diversified growth and high-quality job creation.
The NFRK¡¯s new management rules, with advice from the World Bank Group and IMF, include:
- The nonoil deficit, the main anchor of fiscal policy, is to be progressively decreased to 7 percent of GDP by 2020 and 6 percent by 2025;
- Guaranteed transfers from the NFRK are to be reduced from the present US$8 billion to the equivalent of US$6 billion by 2020;
- The NFRK is to be maintained at least at 30 percent of GDP;
- Privatization revenues are to flow to the NFRK; and
- General government debt and external debt of state-owned enterprises are not to exceed the size of NFRK assets.
Government projections have been made under these assumptions, but it is critical that oversight and reporting of the NFRK rules are applied rigorously.
Failure to consolidate as projected could result in a full depletion of net fiscal savings in around 5-10 years!
At the heart of successful fiscal consolidation should be two things: reducing inefficient expenditure that distorts private incentives while redirecting savings toward productivity-enhancing spending; and eliminating inefficient tax benefits that result in an uneven playing field for investment.
While pursuing a fiscal consolidation effort over the medium-term, there are potential benefits to reviewing °²¹³ú²¹°ì³ó²õ³Ù²¹²Ô¡¯²õ fiscal policy framework and institutions with the goal of strengthening their coherence, credibility, and flexibility.
All these major institutional developments will require considerable time, as well as extensive technical support. ľ¹ÏÓ°Ôº Group suggests to develop a three-phase, time-bound Action Plan consistent with an immediate focus on fiscal consolidation as well as continuing the support programs that are already underway, notably by the World Bank Group, the IMF, and the OECD. Longer-term issues could be discussed at a high level with the authorities in 2018, with inputs from all the involved international bodies.
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Ato Brown is the World Bank Country Manager for Kazakhstan.
