Although income per capita reached US$1510 in 2002, substantial inequalities remain. Preliminary calculations based on the Government’s minimum level of subsistence reveal an overall poverty rate of 38 percent in 2001. Poverty rates exceed 57 percent in three oblasts (Jambyl, Kyzylorda, Mangistau). The country also has some of the lowest social indicators in the Europe and Central Asia region, including in access to safe drinking water, and the incidence of tuberculosis. In addition, environmental degradation, including the receding level of the Aral Sea, poses a major challenge for the country.

Events since independence

Since independence in 1991, Kazakhstan has been one of the earliest and most vigorous reformers among the countries of the former Soviet Union. In the early years of transition, prices were liberalized, trade distortions reduced, and small- and medium-scale enterprises privatized. The government established a basic framework to attract Foreign Direct Investment into its resource rich oil and mineral sector. Banking reforms and a state-of-the-art pension reform followed, together with the unbundling of the electricity sector. More recently, a framework for public resource management was introduced. The framework includes foundations for a civil service and the creation of the National Fund to save part of the inflows to the budget from oil and other extractive industries.

Recent economic performance

A buoyant recovery which started in 2000 was led mainly by the oil sector with growth continuing through 2002. Real GDP grew 13 1/2 percent in 2001 and 91/2 percent in 2002. Agriculture has also shown strong signs of recovery since 1998, especially in the grain-subsector. Grain production has increased on average by 46 percent per year during 1998-2002. Despite significant capital inflows, the currency has been stable and, in real terms has appreciated only slightly against the US dollar this year, a trend that is expected to continue. Inflation closed at about seven percent last year, mainly reflecting demand pressures over goods, such as fruits and vegetables, whose trade flows are among those tightly controlled by border and regional authorities.

To ensure that a larger share of the population reaps the benefits of recent growth, the government is looking for ways to improve spending policies, particularly in the social sectors, and to promote economic diversification and non-oil sector growth. Diversification into labor-intensive sectors is necessary for growth in employment and income, as well as to reduce the economy’s vulnerability to swings in the price of oil.

Focus of World Bank Assistance

Kazakhstan joined the World Bank in 1992. As the country's recent economic growth has substantially reduced the need for external financing, the Bank’s assistance is shifting from major adjustment operations towards more focused investment loans, policy dialogue and the transfer of knowledge. The World Bank assistance strategy aims to meet the Government’s need and demand for Bank services and knowledge through cooperation in the following areas:

Expanding analytical and advisory services. Under a cost-sharing arrangement, the Government has proposed a three-year Joint Economic Research (JER) Program at a total cost of about $3million. The current work focuses on the health sector, HIV/TB, pension reform and social protection, preparation of the budget code, environmental protection, growth in non-extractive industries, assistance with WTO accession, and poverty analysis.

Improving the water sector and forest and environmental management. Problems in these sectors are a combined legacy of the Soviet era and financial cuts during the early years of independence, and need to be addressed in order to reduce poverty. The Bank has assisted in the rehabilitation of Uzen oil field and the implementation of water supply projects, and has recently approved loans for the Nura River Cleanup and Forest Protection projects.

Reversing the severe environmental degradation of many areas of the country. The Bank played a major role in development and implementation of the projects under the National Environmental Action Plan and the Aral Sea Basin Program. Projects planned for the coming years will improve water supply and management in several regions of the country.

Assessing poverty levels. The Bank will prepare a Poverty Assessment in close cooperation with the Agency on Statistics of Kazakhstan, as well as the United Nations Development Program and the Asian Development Bank, in order to highlight the challenges facing the country in improving the living conditions of its people.

The Bank’s Country Assistance Strategy that will be updated during the current fiscal year will build on the findings of the Joint Research program and the renewed efforts being made to strengthen policy dialogue.

Impact on the Ground

Business skills of rural community nurtured. A private rural consulting network, set up under a Bank project, has introduced a range of rural services for the first time. Rural entrepreneurs have been taught to commercialize their businesses and diversify into nontraditional areas. Seminars and campaigns have informed some 10,000 farmers across the country on legal, technical, and financial issues. In addition, financing for 71 investment projects has been provided through commercial banks.

Government finances now better controlled. A fully functioning Treasury, with offices at the center and in each of the 14 oblasts of the country, has been put in place by the Government, with assistance from the Bank. The system ensures that resources are spent on items for which they were originally approved. Problems in implementation of the system are being addressed by the Ministry of Finance.

Pension reform completed. Pension reform, undertaken by the Government with Bank assistance, has replaced the pay-as-you-go scheme with an accumulative pension system, making people more responsible for their income in retirement. As a result, contributions to accumulation funds reached $1.7bn (7 percent of GDP) in 2002.




Water supply improved. Some 70 thousand people in the southern region of the country, which has historically suffered from a lack of good quality water, now have better water supply as a result of rehabilitation works financed under a Bank project. Efforts have focused on districts where medical institutions are located. Improvements in the distribution network have led to better health and sanitation in the region.

Challenges Ahead

Managing oil revenues effectively. Good economic management and sound public spending policies are essential to improve the competitiveness and productivity of the economy. Oil flows need to be managed to avoid inflation and to develop the non-oil sector. The need for sterilization needs to be balanced with spending to improve living standards and infrastructure. In order to do so, oil revenues will need to be managed in a more transparent manner.

Improving the business environment. The country needs to attract private investment, both foreign and domestic, into non-extractive industries in order to increase employment opportunities and income for the population.To reduce investment risks and the cost of doing business, red tape (licensing, inspections) needs to be reduced, and the reform of key institutions such as the tax and customs administrations needs to continue. International and internal trade needs to be facilitated and a policy environment consistent with the most advanced OECD and European economies introduced. This includes joining the WTO.

Building human capital. The country faces an acute shortage of skills needed for the development of the economy. Investing in education, addressing the growing corruption in universities, and replacing the current quotas on the import of skilled foreign professionals by a system that attracts highly qualified labor, are therefore essential.

Adopting a sound agricultural policy. An agricultural support policy that defines the degree and modalities of state intervention in agriculture needs to be adopted. Land restructuring and management will require significant attention (particularly since the Land Code has been approved). Policies to encourage the development of water user associations and related water management policies will also need attention.

Developing institutions that can implement a sound spending policy. The Government needs to improve the infrastructure for spending oil and other fiscal revenues. Capacity to conduct effective project analysis, evaluation and design, and to implement targeted social assistance and sectoral development strategies needs to be bolstered by drawing on the expertise of the International Financial Institutions.

Improving infrastructure for a better business environment. Businesses can be helped to become more profitable if key infrastructure in telecommunications, roads and irrigation facilities is improved.

World Bank Partners

Sector	National Implementing Agency	Partners
Agriculture ..	Ministry of Agriculture ..	USAID, Tacis ..
Natural Resources ..	Ministry of Natural Resources and Environment Protection ..	UNDP, bilateral donors ..
Public Administration ..	Ministry of Finance, National Agency on Public Service Affairs ..	USAID, UNDP, Tacis ..
Road Sector ..	Ministry of Transport and Communications ..	ADB, EBRD, Tacis, IDB, KfW, UNDP ..
Social Sector ..	National Agency on Statistics ..
Water Sector ..	Committee for Water Resources under MNREP ..	ADB, DFID ..

World Bank Lending

Total IBRD / IDA Commitments from FY94 to FY03: US$ 1,925 million

(by fiscal year *, in nearest US$ millions)

	up to 1996	1997	1998	1999	2000	2001	2002	2003	Total
Commitments	817	142	545	176	140	65	0	40	1,925
Disbursements	396	134	302	101	194	45	55	229	1,456

Total Commitments by Sector since 1994
(in nearest US$ millions)


* Fiscal year from July 1-June 30.