A Stable Free Market Economy

Kazakhstan is considered a model transition economy in overcoming the legacy of the Soviet centralised command economy through sustained commitment to economic liberalisation and maintaining an attractive investment environment through pragmatic policy choices and cooperation with the West. The International Monetary Fund, called Kazakhstan's strict macroeconomic stabilization measures "appropriate and far-sighted." Of all post-communist economies, Kazakhstan is ranked first in foreign direct investment as a percentage of GDP and second only to Hungary in per capita FDI. Because of its successful reforms, liberal trade policies, and ability to attract international financing, Kazakhstan is poised to Join the World Trade Organization.

Kazakhstan effectively responded to the damaging effects of the Russian and Asian economic crises, which interrupted a period of strong macroeconomic recovery. The National Bank floated the tenge to create a stable financial environment for expanded trade and long term growth. Financial community observers attributed the success of the devaluation to Kazakhstan's long standing record of consistent, forceful economic policy and strict budgetary discipline which produced low inflation, a low level of outstanding Treasury bills, and tight foreign currency regulation. While currency devaluation has generally created uncertainty in emerging markets, Kazakhstan did not experience significant destabilization. Despite an inevitable decline in trade during this difficult period, Kazakhstan's export market has shifted from Russia to the European Union, which receives 32% of Kazakhstan's goods. Also, the National Bank plans to maintain the free floating exchange rate regime and keep monetary policy unchanged.
Kazakhstan has pursued a sound program of economic reform and has maintained solid economic fundamentals in large part through strict budgetary discipline.

Budget - In the spring of 1999 Kazakhstan enacted a new Budget System Law, which introduced important changes to the fiscal system, including the elimination of the major extra-budgetary items, which increased budget transparency. For more information visit web-site of Ministry of State Revenue: www.mgd.kz   

Inflation is down - Inflation has fallen dramatically from a peak of 3000% in 1994 to 8% in 1998. 1999 inflation was is 17% largely due to the devaluation and, 9% in 2000 and should be 4% in 2002.

GDP Up, Low Debt - After a difficult, but expected phase of GDP decline, bottoming out in 1995, Kazakhstan's real GDP has recovered, growing 1% in 1999. IMF estimates project steady GDP growth  to 3.5% in 2001 and 4% in 2002. External debt is 34% of GDP, a level comparable to peer groupcountries, and is largely issued to bilateral and multilateral creditors with lower interest rates. Domestic debt is at a very low level for transition economies, at a mere 4.8% of GDP, compared to a peer group median of 29.3%. Long-term forecasts for GDP growth estimate 4% growth for 2001. For more information visit web-site of National Bank of Kazakhstan: www.nationalbank.kz   

Strong foreign direct investment - Kazakhstan's per capita FDI, is the highest among Commonwealth of Independent States (CIS) members. Net FDI has been consistently above 5% of GDP in the last 5 years, in excess of any major emerging market economies. FDI levels will remain fairly constant in the years to come, as commitments towards major oil projects have been made for the next several decades. Kazakhstan's top three investors are the United States, Japan, and the United Kingdom. For more information visit web-site of Agency of Republic of Kazakhstan on Investments: www.kazinvest.kz   

Financing - At the end of December 1999, the International Monetary fund approved a $453 million loan (USD) to support a program of economic reform until 2002 and praised the government's "commitment to achieve macroeconomic stabilization and accelerate structural reforms." Other loan agreements totaled $550 million with World Bank and $160 million with the European Bank for Reconstruction and Development (EBRD) to develop a number of critical industries, including the telecom, rail and power sectors. Kazakhstan also successfully placed a $225 million Eurobond issue in September 1999. For more information visit web-site of Ministry of Finance: www.minfin.kz  

Structural Reform
Kazakhstan's aggressive reform program has resulted in a growing private sector and a healthy investment climate.

Entrepreneurship - To support the private sector, which already contributes 50% to GNP, the government has established two assistance programs: a micro-credit lending program and a program of larger loans f small and medium businesses. In 1996 Kazakhstan became the first state of the former Soviet Union to adopt International Accounting Standards. Most of  Kazakhstani enterprises had converted to the new standards. For more information visit web-site of Chamber of Commerce and Industry of Republic of Kazakhstan: www.ccikaz.kz  

Privatization - Small-scale privatization sales in 1998 contributed approximately $542 million in revenues to the state budget, some $217 million more than originally forecast. "Blue Chip" companies are projected to have shares placed. Privatization of the agricultural sector has created over 90,000 private farms out of 2,500 kolkhozs and sovkhovs, Soviet-era farm conglomerates. For more information on Privatization visit web-site: www.kazecon.kz  

Taxation Policy - Kazakhstan's tax code has been cited by the IMF for eliminating favorable treatment of specific types of taxpayers and conforming to international standards and practices. In 1999 Kazakhstan introduced regularized and intensified tax collection policies, which resulted in a significant increase in VAT revenue.

Corruption - Kazakhstan adopted a new law in 1998 to combat corruption and vigorous anti-corruption efforts directed by the President are being implemented.
Pension reform program  Kazakhstan has been working closely with the World Bank since 1998 to implement an ambitious pension reform program designed on the Chilean and Polish models. The public pension fund (pay-as-you-go) will be replaced with a series of private pension funds.

Stock market - Trading volume on the Kazakhstan Stock Exchange (KASE) in the first half of 1999 exceeded the total for 1998 by 900%. This was largely due to investment from pension funds.  strengthen the role of the KASE and improve the functioning of the market, Kazakhstan's National Securities Commission now requires that all trading in listed companies be undertaken on the KASE. Visit Kazakhstan stock exchange www.kase.kz
* * *