Kazakh president pledges annual $3bn boost for ailing economy

By bne IntelliNews November 11, 2014

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Kazakh President Nursultan Nazarbayev has pledged to draw an extra $3bn annually from the country's oil fund to support the ailing economy over the next three years. Nazarbayev made the announcement in a surprise state-of-the-nation address on November 11, indicating that the state of the national economy is dire and needs urgent attention. 

The president explained that the cash would be taken from the National Oil Fund to "ensure stable socioeconomic development and protect the economy from external troubles" because the situation in the global economy had prevented the country from "achieving set goals without additional financial resources".

"It's high time we used [money from] our fund as Kazakhstan shouldn't repeat other countries' mistakes and should use the fund for economic growth most efficiently," Nazarbayev said. "I've taken a decision on additional allocation of up to $3bn from the National Fund annually in 2015-2017."

The delivery of the annual state-of-the-nation address is usually well-advertised and broadcast live but the president explained that he had decided this year to give the address earlier so that the government could prepare in the remaining 50 days of 2014 to start work immediately in 2015.

The slowdown in the Russian economy and falling oil prices have forced the government to reduce a target of GDP growth from 6% to 4.3% for 2014 and to redraft the budget.

Kazakhstan and Russia are members of the Customs Union which will be transformed into the Eurasian Economic Union in 2015. Russia is Kazakhstan's major trading partner, accounting for a third of Kazakhstan's imports. According to the Kazakh Statistics Committee, Kazakh exports to Russia fell by nearly 30% year on year to $3.3bn in January-August 2014, while imports contracted by 21.7% year on year to $8.7bn.

Despite the visible signs of the negative effect of the slowdown in Russia on the Kazakh economy, Astana tries not to draw attention to close economic links between the two countries, preferring to blame global economic trends for problems faced by the domestic economy. 

The president did not clarify on what the additional $3bn would be spent but he said the investment from the fund should be "mandatorily" accompanied with structural reforms in the economy. He noted that international financial institutions such as the World Bank, the Asian Development Bank, the European Bank for Reconstruction and Development and the Islamic Development Bank were ready to allocate "about $9bn for 90 priority projects".

The National Oil Fund accumulates money raised from the extractive sectors, privatisation of state-owned assets and sale of farmland. Kazakhstan withdrew $10bn from the fund to fight the consequences of the global economic crisis in 2007-2009, money mostly spent on bailing out the collapsed banking system. Last February, the president announced the withdrawal of a further KZT1,000bn ($5.5bn) from the National Fund to be spent in two tranches of KZT500bn in 2014 and 2015.

The president noted that the second instalment would be spent in 2015 on:

1) issuing soft loans to small and medium-sized businesses in the food, chemical, machine-building and services sectors (KZT100bn);

2) on a buyout of non-performing loans by injecting additional capital into the Distressed Loans Fund (KZT250bn);

3) on building the country's first 'dry port' on the border with China, and petrochemical technology parks in Atyrau and Taraz (KZT81bn);

4) on building the Expo 2017 facilities in Astana (KZT50bn);  

5) on expanding Astana airport's capacity from the current 3.5mn passengers to 7.1mn passengers a year by 2017 (KZT29bn).

Nazarbayev dubbed the government's policy over the next five years Nurly Zhol (Bright Path) and said it would focus on developing the country's transport infrastructure and power grids, and overhauling the utilities sector, which requires investment from all sources worth KZT2,000bn ($11bn) by 2020, including an additional KZT100bn annually  from the government coffers. The president noted that the policy's road-building programme alone would create 200,000 new jobs.

The new policy also envisages constructing public rented housing which tenants will ultimately be able to buy, by paying off the difference between the value of the flat and the rent they have so far paid while living in it. An additional KZT100bn ($553mn) will be allocated from the budget, the president said.

The National Oil Fund was set up in 2000. According to the finance ministry's report on the fund's performance, the fund accumulated KZT16,634bn ($91.9bn) as of November 1, including $76.8bn in hard currency. According to the law, all receipts from the extractive sector is accumulated in the fund which guarantees transfers worth KZT1,702bn ($9.4bn) annually to the budget in 2015-2017. In emergency situations such as the 2007-2009 crisis, the government can withdraw additional money from the fund as long as the fund's assets do not fall below 30% of GDP. Kazakhstan's GDP is expected to total KZT41tn ($226.5bn) in 2014.

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