ASTANA – Kazakhstan lost 11 positions in the 2016-2017 Global Competiveness Report issued by the World Economic Forum (WEF). The country was ranked 53rd among 138 nations between Rwanda (52) and Costa Rica (54).
“The Global Competitiveness Index (GCI) shows, to date, progress in building an enabling environment for innovation and remains the advantage of only a few economies. Last but not least, future growth will also depend on the ability of economies to safeguard the benefits of openness to trade and investment that has led to record reductions in poverty rates in recent decades. Against this background, this report serves as a critical reminder of the importance of competitiveness in solving both our international macroeconomic challenges and laying the ground for future prosperity,” the report stated.
This year’s result is the worst for Kazakhstan in the last five years.
“Kazakhstan’s position was caused by the falling prices for raw materials and non-ferrous metals. That can be witnessed by the fall in the macroeconomic environment pillar, which largely affected the position in the ranking (minus 44 points),” Economic Research Institute Deputy Chairman of the Board Perizat Sadykova told The Astana Times.
According to the authors of the report, all countries in the Eurasian region faced decline in commodity prices, instability in exchange rates and the slowdown in the Chinese economy. Those factors led to a decrease in export volume and contraction of the market, all causing a decrease in revenues to the state budget which increased the size of the deficit and public debt.
The report notes Kazakhstan lost ground in the rankings largely because of the deterioration of the state budget indicators associated with lost income from oil exports.
Among the countries of the Commonwealth of Independent States (CIS), Kazakhstan was third after Azerbaijan (37th) and Russia (43rd). Georgia was 59th, followed by Tajikistan (77th), Armenia (79th), Ukraine (85th), Moldova (100th) and Kyrgyzstan (111th). Belarus, Turkmenistan and Uzbekistan were not ranked.
Switzerland led the rating for the eighth consecutive year. Singapore and the United States are ranked two and three this year, respectively, followed by the Netherlands, Germany, Sweden, Great Britain, Japan, Hong Kong and Finland.
The GCI uses 12 pillars composed of 114 indicators. Kazakhstan demonstrated increases in five pillars – Institutions (+1), Higher Education and Training (+3), Technological Readiness (+5), Market Size (+1) and Innovation (+13), according to the research.
Seven pillars were assessed at a lower level than last year – Health and Primary Education (-1), Labour Market Efficiency (-2), Infrastructure (-5), Goods Market Efficiency (-13), Financial Market Development (-13), Business Sophistication (-18) and Macroeconomic Environment (-44).
Kazakhstan showed positive results in 40 indicators and negative in 65, while nine indicators remained the same. Ten indicators improved by more than 10 positions, including Procedures to Start a Business (+35), Time to Start a Business (+27), Secondary Education Enrolment Rate Gross (+21) and Rate of Internet Users (+21).
“An effective state policy in science and innovation was reflected in this rating. For example, the indicator University-Industry Cooperation in Research and Development improved by 22 positions,” said Sadykova.
Of 65 negative indicators, nine dropped by more than 20 positions, such as Government Budget Balance in Percent of GDP (-98), Ease of Access to Loans (-45), Venture Capital Availability (-33) and Effect of Taxation on Incentives to Invest (-29).
The WEF report also listed the most problematic factors for doing business in Kazakhstan. The top five were inflation, tax rates, corruption, access to financing and tax regulations.
Even though this year’s rating showed negative results compared to the previous 12 months, the Economic Research Institute has positive expectations about next year’s outcome.
“Government measures aimed at overcoming the slowdown in economic development will be reflected in subsequent ratings. Those are measures taken within the practical implementation of the five institutional reforms, as well as large-scale infrastructure projects within state programmes,” said Sadykova.
The new government recently showed its openness to discussion and outside expertise, including in economic matters. Prime Minister Bakytzhan Sagintayev met with a group of economists Sept. 28 to discuss issues such as institutional reforms, financial issues, monetary policy and exchange rate.
“The meeting was held at the initiative of the prime minister. He listened carefully to all the guests and expressed his willingness to continue an open and constructive dialogue with the non-governmental sector,” expert and former Vice-Minister of Industry and Development Rakhim Oshakbayev noted on his Facebook page, adding the non-governmental sector plays a huge role in the economy and its development.
Since the most radical fall in the WEF ranking was Government Budget Balance in Percent of GDP indicator, it was one of the most important agenda items during the meeting.
Oshakbayev talked about fiscal imbalance and the increase in the tax burden. Due to low prices for oil, the budget keeps borrowing funds from the country’s National Fund to support current expenses, as tax revenues are not able to cover all state expenses and budget expenses keep growing, he said.
“For example, for the period from 2013-2017 expenses grew by 43 percent, while non-oil earnings will rise by only 21 percent. Non-oil deficit in 2017 will increase to 8.1 percent of the GDP (5.9 percent in 2013),” he wrote.
“The increase in costs is not based on the economic growth and is funded by transfers from the National Fund and increased borrowings both at the expense of external debt and the Single Accumulative Pension Fund, as well as by increasing the tax and quasi-tax burden on entrepreneurship,” he added.
In order to solve the issue, a proposal was made to gradually reduce budget costs due to inefficient spending and legislatively fix the maximum size of the national budget expenditure as a percentage of the GDP. The primary assumption is at a 16.5-percent level, said Oshakbayev.
The main point is not to increase taxes for small and medium enterprises while optimising budget spending. Expert calculations for 2017 show 600 billion tenge (US$1.8 billion) can be optimised, while planned expenses for the budget are 8.6 trillion tenge (US$25.8 billion).
“It is also clear that budget expenditures are now critical to maintain even such low rates of economic growth which we witness now. And of course, for the healthy development they need to be replaced with private investment and credit growth. But neither credits nor private investment will grow again until the problem of the unpredictability and volatility of the tenge and the quality of the loan portfolio is solved,” he added.