ASTANA – Kazakh President Nursultan Nazarbayev chaired an expanded government meeting Feb.11 to discuss the current state of the domestic economy and measures for its development as it faces numerous challenges from the outside.
Opening the meeting, the head of state said there is no economic recession in the country, however, there are a number of trends forcing the government to take measures in order to protect the national economy and prevent a recession.
“I want to emphasise that there is no internal crisis. The global crisis is an external factor. The country’s economy is facing the drastic drop of oil prices from $100 per barrel back in June 2014 to $50 per barrel. Global prices for major Kazakh commodities such as metals, fertilisers and others have been on the decline. Besides, our economy is being hit by Russia’s tumbling ruble and recession,” the President said.
“In the member states of the Organisation for Economic Cooperation and Development, the number of unemployed stands at 43 million; the unemployment rate in Europe stands at 11.5 percent. We are part of the globalised economy and we cannot evade the negative impact of external factors.
Nurly Zhol (Path to the Future) Economic Policy Programme as Main Anti-Crisis Measure
According to Nazarbayev, in order to avoid the negative impact of these factors on the economy, the Kazakh government should pursue a policy of prompt economic response, including through the Nurly Zhol anti-crisis programme.
“A lot has been done to mitigate the negative impact. The Nurly Zhol anti-crisis programme is one of the tools to ensure development amidst tough economic conditions. I’ve said earlier that this year is going to be tough,” he said.
The programme, announced by Nazarbayev in his Nov. 11 state-of-the-nation address, is aimed at developing the transport and logistics infrastructure in Kazakhstan. For its implementation the National Fund will allocate 500 billion tenge (US$2.7 billion), including 180 billion tenge (US$974.2 million) this year. The National Fund was established in 2000 on the model of the Norwegian Petroleum Fund. At the beginning of this year it had accumulated more than $78 billion.
At the government meeting, Nazarbayev also proposed adding a number of other anti-crisis measures to the Nurly Zhol progamme, including support for local machinery, small- and medium-sized businesses, agriculture and exporters. He instructed the ministers to prepare relevant amendments to the Nurly Zhol programme within one month. Consequently, the announcement was made about reducing the export duty on oil from $80 to $60 per tonne.
First Deputy Prime Minister Bakytzhan Sagintayev spoke after Nazarbayev, suggesting the following steps as measures to support the national economy.
Sagintayev proposed support for domestic entrepreneurs by introducing an extensive system of benefits from electricity tariffs and railway carriages to trade preferences.
The second recommendation was to ensure marketing products through enhanced local content requirements and long-term contracts with national companies and backbone enterprises.
“The Government and the National Bank are taking steps to increase the liquidity of the tenge for the banking system and other financial institutions,” he said.
Thirdly, the Kazakh government has already started negotiations with the Russian government to address issues of mutual trade.
“In accordance with agreements reached in the President’s telephone call with Vladimir Putin on Feb. 9, the appropriate instructions were given for addressing current issues in mutual trade with Russia. The government started negotiations to develop mutually-acceptable solutions with the Russian side,” said Sagintayev.
In this respect, Nazarbayev emphasised that the existing difficulties are temporary and will not affect economic integration with Russia. He proposed solving the existing problems by introducing a quota system.
A package of measures to maintain stability in the economy and prevent negative trends was proposed at the meeting.
According to Nazarbayev, one direction would be the continuation of the projects of the so-called Industrialisation Map. Under that programme, around 75 projects worth 600 billion tenge ($3.24 billion) will be launched this year creating 7,500 permanent jobs. The President also stressed the importance of continuing with the Employment Roadmap 2020 to preserve jobs. Under that programme, 260,000 people found work in 2011-2014, and 120,000 received professional re-training.
Another effort would involve the Made in Kazakhstan campaign to stimulate the local production and consumption in a market that was significantly impacted recently by the flood of cheaper Russian goods.
The pressure on the Kazakhstan market, where its exports have also seen decline because of a weaker demand in Russia, though, “has nothing to do with the establishment of the Eurasian Economic Union,” Nazarbayev said. “Such fluctuations are natural for the market economy in the world of which we are a part. This is a temporary situation, and a solution will be found. The shrinking demand in Russia is a stimulus for us to intensify our work on diversification of Kazakhstan’s exports. Besides, cheaper energy resources, spare parts are a boon for other sectors. We need to use this opportunity for developing the processing industry.”
Nazarbayev further suggested that one of the areas where the country could save money are preparations for the Winter Universiade in Almaty and EXPO in Astana in 2017, as well as reducing a number of other budget programmes.
Overall, the state budget expenditures will be slashed by 700 billion tenge ($3.78 billion), or about 10 percent, as the country adjusts to lower prices on its main export staples. At the same time, the President stressed that all social obligations should be met in full, while the Government is also to continue with the gradual transition to a 12-year secondary education system.
National Currency Support
In light of the dramatic decline of the Russian ruble exchange rate observed in recent months, the Kazakh government has expressed its intention to strengthen the position of its own currency by de-dollarisation of the economy. In the near future, legislative changes are expected to be made on payments and currency regulation. It is likely that the regulations of the work of non-bank foreign exchange offices will be strengthened.
The National Bank plans to prevent sharp fluctuations in the national currency exchange rate in 2015, National Bank Chairman Kairat Kelimbetov said at the meeting.
“If there are changes in the foreign capital markets, then we correspondingly will not allow single-step shock devaluation but will work within a smooth and flexible change in the exchange rate,” he added.
“I have no grounds not to trust the National Bank,” Nazarbayev said. “I tell the people of Kazakhstan again that we won’t conceal anything,” he noted in reference to previously-unannounced devaluations of the tenge.
Expectations of a tenge devaluation in February, as the previous two devaluations occurred in February 2009 and February 2014, have led to a high level of dollarisation of Kazakhstan’s economy. According to National Bank officials, local citizens are depositing their savings in foreign currency, where the share in total retail deposits increased two-thirds at the end of 2014.
The meeting at the Akorda presidential residence was held the day after the international rating agency Standard & Poor’s downgraded Kazakhstan’s credit rating to BBB due to the fall in oil prices. Oil represents up to 30 percent of Kazakhstan’s GDP, over 50 percent of its revenue and 60 percent of its exports, while Russia is one of the country’s largest trading partners.