Going forward, GDP growth is expected to recover gradually over the next three years

1.                  Going forward, GDP growth is expected to recover gradually over the next three years. The prolonged slump in oil prices and other adverse developments have exposed the vulnerability of the country’s economy, which is expected to grow more slowly than in the CPS’ initial baseline scenario, which anticipated Kazakhstan to achievehigh-income status by 2018. After falling to 1.2 percent in 2015 and an estimated 0.1 percent in 2016, GDP growth is projected to increase to 1.9 percent in 2017 and 3.7 percent in 2018. This scenario assumes that international oil prices start to recover and that oil output remains flat until the end of 2016 when the Kashagan offshore oil field is expected to come on stream.[1] The current account balance is expected to become positive but remain close to zero in 2017 and 2018. The authorities’ medium-term fiscal consolidation agenda―comprising a combination of revenue increases and expenditure cuts―aims to lower the non-oil deficit to about 7 percent of GDP by 2020. Revenue increases will result partly from higher oil prices and partly from tax policy and administration reforms.

2.                  Meanwhile, President Nazarbayev, following his re-election on April 26, 2015, announced a new wave of structural reforms. A100 Concrete Steps, Modern State for All program aims to implement five major pillars of the institutional reform agenda comprising professionalizing public administration; enforcing the rule of law; improving public accountability and transparency; promoting economic diversification and growth; and uniting the multiethnic nation. Strengthening institutions (through the 100 Steps program), improving physical infrastructure (through the Nurly Zholstimulus program), and enhancing the quality of human capital are three key components of the Kazakhstan 2050 long-term development strategy, whose central goal is to transform the country into a modern society with a knowledge-based, diversified, and private sector-driven economy.

A.                Trends in Poverty, Shared Prosperity, Gender[2]

3.                  Since the early 2000s, burgeoning oil revenues have enabled significant progress toward ending extreme poverty and boosting shared prosperity.Using the Europe and Central Asiaregional rate of US$5/day (2005 purchasing power parity terms), poverty declined from 54 percent in 2006 to 13.5 percent in 2014 and the middle class increased from 8 percent to 28 percent—albeit mainly in Almaty and Astana, the country’s two largest cities. During the same 2006–14 period, the incomes of the bottom 40 percent grew faster than average GDP, reflected partly in the Gini coefficient which decreased from 0.31 to 0.28. Despite these advances, regional disparities persist, with the poorest, mainly rural areas, experiencing smaller declines.

4.                  While growth in most sectors of the economy contributed to poverty reduction and shared prosperity, services are the main drivers of job creation and increasedincomes. In 2014, 77 percent of men and 65 percent of women were economically active. According to official data, overall unemployment fell from 10.5 percent in 2001 to 5 percent in 2014 and that of youth from 19 percent to 4 percent. Real wages doubled during 2003–13, and wage income was the largest contributor to poverty reduction.While a growing middleclass should boost opportunities in the services- and consumer-oriented sectors over the medium term, an increasing proportion of agingpopulationwill place a burden on public finances.[3]

5.                  More recently, with poverty reduction largely stalled since mid-2014 due to slower growth and a weak labor market, the authorities softened the impact by protecting social spending and increasing pensions.However, pro-poor transfer programs remain relatively undeveloped, leaving low-income families vulnerable to rising food prices, falling wages, and reduced employment. Going forward, poverty is expected to increase slightly in 2016, before declining moderately in 2017–18 as the economy recovers. But, with renewed growth likely to be narrowly based, mainly in the oil sector, wages will likely remain under downward pressure through 2017, with job creation improving only slightly. Targeted social assistance programs may need to be strengthened to help protect the poor.

[1]According to the forecasts of the Government of Kazakhstan, commercial oil production at the Kashagan oil field will be launched in October 2016 and allow producing 500,000 tons of crude oil by the end of 2016, increasing the oil production in Kazakhstan to 75.5 million tons. Additional oil production, implementation of the Nurly Zhol, and other anti-crisis measures are expected to increase GDP growth to 0.5 percent. Further production atKashagan will result in a 4 million ton increase in the volume of crude oil production (up to 79.5 million tons) in 2017. The increase in oil production will have a positive effect on GDP growth, adding 0.49 percentage points to the GDP growth rate (up to 1.9 percent in 2017) at an average oil price of US$35 per barrel.

[2]The primary sources of data cited in paragraphs 14–16 are Kazakhstan Household Budget Surveys (HBSs) for the years 2006–13.

[3]Especially in relation to the pension system and healthcare.

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