economic growth in kazakhstan essay

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A Growth Diagnostic of Kazakhstan

This Growth Diagnostic Report was generated as part of a research engagement between the Growth Lab at Harvard University and the Astana International Financial Centre (AIFC) between June 2021 and December 2022. The purpose of the engagement was to formulate evidence-based policy options to address critical issues facing the economy of Kazakhstan through innovative frameworks such as growth diagnostics and economic complexity. This report is accompanied by the Economic Complexity Report that applies findings from this report on economy-wide challenges to growth and diversification in order to formulate attractive and feasible opportunities for diversification.

Kazakhstan faces multifaceted challenges to sustainable and inclusive growth: macroeconomic uncertainty, an uneven economic playing field, and difficulties in acquiring productive capabilities, agglomerating them locally, and accessing export markets. Underlying Kazakhstan’s transformational growth in the last two decades—during which real GDP per capita multiplied by 2.5x—are two periods that underscore how Kazakhstan’s growth trajectory has been correlated with oil and gas dynamics. The early and mid-2000s characterized by the global commodity supercycle led to an expansion of the economy upwards of 8% annually, with a mild slowdown during the global financial crisis. In 2014, Kazakhstan’s growth slowed with the collapse of commodity prices, and alternative engines of growth have not been strong enough to fend against volatility since. These trends, along with growing uncertainty in the long-run demand of oil and gas, continue to highlight the limitations of relying on natural resources to drive development.

As in the experience of other major oil producers, diversification of Kazakhstan’s non-oil economy is a critical pathway to drive a new era of sustainable and inclusive growth and mitigate the impacts of commodity price shocks on the country’s economy. Kazakhstan’s growth trajectory demonstrates that the country has enough oil to suffer symptoms of Dutch disease, but not enough to position it as a reliable engine of growth in the future. Development of non-oil activities has been a policy objective of the government of Kazakhstan for some time, but previous efforts for target sectors have failed to generate sufficient exports and investments to produce alternative engines of growth. This report characterizes the relationship between growth, industrial policy, and the constraints to diversification in Kazakhstan. It utilizes the growth diagnostics framework to understand why efforts to diversify into non-oil tradables has been challenging. The report proposes a growth syndrome to explain the constraints preventing Kazakhstan from achieving productive diversification and sustainable growth.

This report is organized in six sections, including a brief introduction.

• Section 2 provides an overview of the methodological approach to the Growth Diagnostics analysis.
• Section 3 describes Kazakhstan’s growth trajectory and macroeconomic performance, as well as the motivations behind pursuing a diversification strategy to strengthen the non-oil economy.
• Section 4 summarizes three features of the country that manifest in a set of economy-wide constraints to growth and diversification.
• Section 5 analyzes each of the identified constraints in detail, describing their dynamics and breaking down the aspects that appear to be binding.
• Section 6 concludes by suggesting potential policy guidelines towards alleviation of the identified constraints.

Related project: Sustainable and Inclusive Growth in Kazakhstan

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A Growth Diagnostic of Kazakhstan

In this section, hks affiliated authors.

2023, Paper: "Growth Diagnostics exercises aim to identify the most binding constraints to economic growth in a place, taking account of historical patterns of growth and testing all potential roadblocks at present. Since not all constraints are equally binding and both policy resources and state capacity are limited, reforms will be successful only if they address the areas with the largest potential impact. To conduct a growth diagnostic exercise, it is useful to first characterize the recent growth dynamics of the place of study. From the end of the 1990s, Kazakhstan’s growth has been correlated with oil and gas dynamics. Over the last two decades, Kazakhstan’s economy underwent a transformational growth process, as real GDP per capita multiplied by 2.5x (2000-2020). The early and mid-2000s saw higher than 8% GDP growth and a large reduction in poverty in the context of a global commodity boom. After a comparatively mild slowdown caused by the 2008-09 global financial crisis, growth rebounded, never returning to the peak reached in the early 2000s, but still outperforming most peers. After a second slowdown, mainly caused by the crash in global oil prices starting in 2014, Kazakhstan’s economy rebounded, again outpacing most peers by 2017. While its economy reeled from the COVID-19 crisis, Kazakhstan seemed better positioned than some other emerging economies at the end of 2021, although it came at a high fiscal cost. At the beginning of 2022, domestic political change and geopolitical instability made immediate growth prospects less predictable."

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Kazakhstan Economic Update – Summer 2021

• TURNING THE TIDE ON THE COVID-19 CRISIS

The Kazakhstan Economic Update is a semi-annual report that analyzes recent economic developments, prospects, and policy issues in Kazakhstan.

Download the full report — Kazakhstan Economic Update, Summer 2021: Turning the Tide on the COVID-19 Crisis

After suffering the worst contraction in the past two decades, Kazakhstan’s economy is showing signs that it is entering a recovery phase this year.

The external environment has generally improved and lifted the value of Kazakhstan’s exports by about 5.8 percent in the first quarter (Q1) of 2021 compared with the fourth quarter (Q4) of 2020. In Q1 2021, China experienced a faster-than-expected economic rebound, while the euro area suffered another dip due to COVID-19 resurgence.

A relaxed OPEC Plus production quota and the incremental recovery of global demand lifted Kazakhstan’s oil production by 6 percent in Q1 2021 compared with the lowest output in Q3 last year.

The short-term economic indicators also suggest some improvement in domestic economic activities, including in the services sector. The contraction in retail trade and transport cargo has gradually eased. Construction activities have shown steady growth, supported by a policy allowing pensioners to partially withdraw their savings and by a government program that promotes residential investments.

Business activities are expected to improve gradually. A modest expansion of the economy is projected, by about 3.2 percent in 2021, below the pre-pandemic level growth rates of 2017–19. 

Real GDP in the first quarter of 2021 grew moderately at 1.9 percent in seasonally adjusted terms relative to the fourth quarter last year, though it still registered a 1.6 contraction on year-on year basis. Growth is expected to pick up in the rest of the quarters this year, supported by private consumption and moderated inflation, which help ease consumers’ budget constraints.

The course of the COVID-19 pandemic is likely to affect the balance and pace of the economic recovery and cause scarring effects on the economy. The recovery has been uneven, with manufacturing activities recovering faster than the services sector, which had employed a larger share of workers and was hit hardest by the pandemic.

In April 2021, confirmed COVID-19 cases in Kazakhstan jumped again, reaching about 2,900 cases a day, and prompted the authorities to implement occasional restriction measures.

The pandemic resurgence can further create uncertainty for business expansion, which has already been depressed by the shrinking level of corporate credit and risks of higher nonperforming loans.

Restrictions on face-to-face education prompted by COVID-19 are likely to cause learning losses, which can lower expected future earnings, particularly for students from lower socioeconomic backgrounds.

The economic recovery’s resilience and sustainability also depend on structural reforms and adapting policies to meet new development challenges . This year’s budget was adjusted to accommodate an additional 1.7 percent of GDP for spending on health, education, infrastructure, small and medium enterprises support measures, and social assistance. To sustain aggregate demand and momentum for economic recovery, the government should consider avoiding a drastic reduction in next year’s budget deficit.

To support the reopening of businesses and education, more efforts are needed to help people overcome their hesitation toward getting the COVID-19 vaccine. But progress in structural reforms will be essential to sustain growth in the medium term. The new National Development Plan 2020–2025 and the 2021 new Environmental Code are significant initiatives that enable Kazakhstan to promote more inclusive and greener development.

Kazakhstan also made an important pledge as part of the global effort to address climate change: to reach carbon neutrality by 2060.

Operationalizing these initiatives requires stronger policy coordination, better public administration, improved effectiveness and results in public budgeting, reduced market distortion, and a level playing field for the private sector—all of which are longstanding reform issues for Kazakhstan.

The Kazakhstan Economic Update includes findings on factors affecting slow productivity growth among Kazakhstan firms , one of the country's critical development challenges. Productivity matters for sustaining long-term growth and improving standards of living.

Findings from firm-level data analysis suggest a muted contribution of firms’ upgrading capability (innovation, managerial), poor allocative efficiency, and limited contribution from entry/exit dynamics. The authorities could consider coordinating policies to improve productivity growth through ensuring competition in the product market, reducing barriers to entry by state-owned enterprises, improving the effectiveness of investment policy and promotion, and boosting firms’ capability to innovate.

Learn More –  Download the full report .

Previous Economic Updates for Kazakhstan

World Bank in Kazakhstan

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