Kazakhstan’s Economy on a Moderate Growth Trajectory, IIF Reports
Kazakhstan, Central Asia’s largest economy, is anticipated to experience a deceleration in economic growth to 3.5% this year, descending from a spirited 5.1% in the previous year. This forecast by the Institute of International Finance (IIF) attributes the slowdown to the delayed expansion of the Tengiz oil field and a moderation in private consumption.
The Tengiz oil field, situated in the wetlands along the northeastern shores of the Caspian Sea, has had its expansion timeline pushed back to 2025, a delay from the initial second half of 2022 completion target. This postponement is expected to result in a modest increase of 0.6% in hydrocarbon output this year, maintaining oil production levels at around 90 million tonnes, consistent with last year’s figures.
Contributing to last year’s GDP growth were the sectors of construction and manufacturing, alongside robust private consumption. However, the IIF analysts, Ivan Burgara and Garbis Iradian, note a setback from agriculture due to a poor summer harvest and a limited benefit from the migration of Russian skilled labor or the relocation of Russian firms amidst the Ukraine conflict. Instead, domestic consumption fueled by public and private spending has been the growth driver.
The government’s moves to hike minimum wages and adjust pensions are expected to sustain consumer spending, albeit at a moderated pace, resulting in a non-hydrocarbon growth projection of 3.8% for 2024.
Kazakhstan’s reliance on aging oil fields and limited export avenues, particularly the dependency on the Caspian Pipeline Consortium (CPC) to export 80% of its oil through Russia’s Black Sea port of Novorossijsk, underscores the importance of diversifying export routes and expanding oil field operations.
The IIF analysis also delves into Kazakhstan’s monetary policies, indicating a continued tight stance due to persistently high inflation rates. Despite a significant reduction from a peak of 20.7% in January 2023 to 9.1% in March, inflation remains above the central bank’s target. Factors such as energy and utility price hikes, wage increases, and the lifting of food price caps are expected to maintain inflation pressure.
On the fiscal front, Kazakhstan’s budget is predicted to shift to a slight deficit of 0.2% of GDP in 2024, from a surplus of 0.6% in 2023, largely due to expected increases in state expenditure and higher social spending, aligning with President Kassym-Jomart Tokayev’s welfare agenda.
The country’s external trade dynamics also highlight a strategic push for diversification away from Russia, with the EU now being the largest trading block and China’s share rapidly growing. The development of the Trans-Caspian International Transport Route, aiming to bypass Russia, is viewed as a significant step towards enhancing trade ties with Europe and Asia.
However, the shadow of Western sanctions over Russia, particularly in response to the Ukraine invasion, poses an indirect risk to Kazakhstan, given its increased trade activity with Russia post-conflict. The nation’s strategic navigation to avoid sanctions, including banning Russia’s Mir payment system, illustrates the delicate balancing act Kazakhstan faces in its geopolitical and economic engagements.
In conclusion, while Kazakhstan’s economy encounters several challenges, including delays in major oil field expansions and the risks from regional geopolitical tensions, the IIF report suggests that, as things stand, there are no insurmountable obstacles on its growth horizon. With strategic policy adjustments and a focus on diversification, Kazakhstan looks set to weather the current economic headwinds.
