The World Bank has called for Kazakhstan to bolster its public finances to pursue a more inclusive and resilient path to economic growth, according to The World Bank Public Finance Review.
While the country benefits from fiscal reserves derived from oil revenues, the report underscores the necessity for fiscal improvement to navigate an increasingly challenging external environment.
The report, titled "Kazakhstan: Strengthening Public Finance for Inclusive and Resilient Growth," acknowledges the Kazakh Government's efforts to enhance fiscal and budgeting policies while maintaining relatively low government debt levels. However, it raises concerns about the lack of clarity in the country's fiscal stance and potential risks arising from quasi-fiscal activities that could impact the budget and productivity growth.
The Central Asian country faces considerable external volatility, driven by global interest rate fluctuations, oil price volatility, disruptions in supply chains, and rising food commodity costs. Over the past two decades, the country's non-oil revenues have stagnated as a percentage of GDP, leaving the budget heavily reliant on oil income and necessitating increased quasi-fiscal spending. This complex macro-fiscal policy management poses challenges for the government.
Kazakhstan also faces a dual challenge during the green transition. The country aims to decarbonize its economy but relies on oil revenues, making it vulnerable to oil price fluctuations and growing global efforts to reduce fossil fuel dependence.
Andrei Mikhnev, World Bank Country Manager, said, "Streamlining and strengthening fiscal rules and controlling quasi-fiscal spending can ensure better macroeconomic stability and enhance productivity."
The report recommends broader institutional coverage of the fiscal framework to include quasi-fiscal activities and monitoring their contingent exposure. It also suggests that the fiscal framework should support long-term growth through investments in education and green initiatives. Meeting emerging expenditure pressures will require enhanced public service efficiency.
To finance increasing social spending needs, the Government of Kazakhstan plans to raise non-oil budget revenues. Achieving this goal will necessitate revenue policy reforms and tax system restructuring. The report suggests reducing tax exemptions, simplifying tax regimes, and gradually implementing a progressive income tax scheme to enhance revenue collection and promote a pro-poor and climate-friendly fiscal policy.
The report also highlights Kazakhstan's underinvestment in education, which has led to uneven learning outcomes. To address this, the report suggests optimizing the local school network and reforming teachers' remuneration systems to improve education financing and equity.
During discussions on the report's recommendations, the panel session emphasized the need for enhanced social spending targeting, program outcome monitoring, and simplification of budget transfers from national to subnational governments.
As Kazakhstan seeks to build a more inclusive and resilient economy, these proposed reforms are expected to play a pivotal role in guiding the nation toward its economic goals.
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