STRONG GROWTH HELPS KAZAKH FINANCES.

Thanks to Kazakhstan’s strong economic growth, the consolidated (state and local) budget surplus had risen to 46 billion tenge (US$317 million, or 2.1 percent of GDP) in the first ten months of 2000. The expanding economy boosted revenues to 485 billion tenge, 6 percent greater than planned. While expenditures were 439 billion, or 13 percent below the budget plan (Russian agencies, December 24), spending is likely to have accelerated at the end of 2000. It is unclear whether the final state budget deficit expanded to the 2.7 percent of GDP that was targeted. It is more likely, however, that actual budget performance will be closer to the stricter deficit of 56 billion tenge (2.2 percent of GDP) in the 2001 state budget, which was passed in early December (Reuters, December 7).

Kazakhstan’s fiscal performance in 2000 bodes well for the government’s credibility and for the country’s fiscal prospects in 2001. The conservative budget set for this year is based a much slower GDP growth (of 4 percent), and inflation of 6-7 percent. Oil prices are forecast to average US$21 per barrel, well below current levels. Thus, lower oil prices or a slowdown in the Russian economy need not threaten Kazakhstan’s fiscal balance.

With the fiscal situation strong at the start of 2001, the government rejected, once again, proposed World Bank financing of fourteen projects. Higher oil prices toward the end of December and the belief that these prices will continue to remain firm helped lead the government to reject financing worth US$500-800 million over 2001-3 (Kazakh Commercial Television, January 4). The government, however, has prudently asked to postpone a final decision on the issue until February, after the upcoming OPEC summit in Vienna, which is expected to have an impact on oil prices.

Kazakhstan continues to receive significant funding from other sources. The head of the State Investment Agency estimated that Kazakhstan received US$2 billion in foreign direct investment (FDI) during the first ten months of 2000 (Reuters, November 29), up from US$1.5 billion in 1999. Much investment went into the giant Tengizchevroil and Karachaganak energy ventures. Overall investment has been boosted by FDI: Fixed capital investment rose 29 percent in the first 11 months of 2000 to 453 billion tenge (US$3.1 billion) (Russian agencies, December 24). The large investment targets planned by many foreign ventures for 2001 suggest that strong growth in the economy and fiscal revenues will continue, thereby reducing Astana’s need for financing from the IMF and World Bank.

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