At a Glance
- Over the past decade, Kazakhstan has made strong policy strides and responsibly absorbed large natural resource–based earnings by implementing a rules-driven fiscal framework. However, diversification remains a challenge for a country with the ninth-largest oil reserves in the world, as hydrocarbon output constituted 21 percent of GDP and about 70 percent of exports in 2020.
- Russia’s invasion of Ukraine is likely to reduce growth to 1.5 percent in 2022. This figure follows 4 percent growth in 2021, driven by a rebounding economy, growth in consumption, and supportive fiscal policy.
- Higher food and energy prices have accelerated inflation. The poverty rate is expected to fall in 2022 but remain above pre-pandemic levels. Inflation will also remain elevated due to supply disruptions arising from the war in Ukraine.
- Following protests in January 2022, the largest since independence, the government announced its intention to tackle the existing constraints through wide-reaching reforms.
Recent Economic Developments
Economic activity returned to pre-pandemic levels in 2021. Despite an increase in COVID-19 containment measures during the first half of 2021, robust activity in the second half supported real GDP growth of 4 percent for the year.
Growth was driven by continued fiscal expansion, strong consumer credit growth, and reduced COVID-19 restrictions. Due to a strong recovery in household consumption, retail trade rose by 6.5 percent and retail loans, including mortgages, by 40 percent in 2021. After contracting by 3.4 percent in 2020, total capital investment rose modestly by 2.6 percent, driven by solid growth in housing construction. Reopening the economy has increased activity in face-to-face services and manufacturing industries mainly aimed at the domestic market.
A sharp increase in global oil prices substantially improved Kazakhstan’s trade balance and reduced the current account deficit to 3 percent of GDP in 2021 (from 3.8 percent in 2020). FDI inflows and higher foreign borrowing by state enterprises financed this deficit.
With heightened uncertainty following the January events and the recent plunge of the ruble, the tenge has depreciated by about 17 percent against the U.S. dollar. To reduce the tenge’s volatility, the Central Bank scaled up foreign exchange interventions and increased its policy rate by 2.25 percentage points to 13.5 percent in March 2022. Foreign exchange reserves, however, remain comfortable at US$33.5 billion.
Fiscal policy in 2021 remained accommodative to the impact of COVID-19 on the economy. Budgetary support measures continued for the households and businesses facing hardship, while public investment priorities shifted from a pandemic response to recovery. Higher oil revenues helped reduce the budget deficit to 3 percent of GDP from 4 percent in 2020. The public debt-to-GDP ratio remained broadly unchanged at 24.5 percent of GDP. At 8.7 percent year-on-year in February 2022, inflation remained above the Central Bank target of 4–6 percent. Food and energy prices were the main drivers. The Government established price caps on certain food and fuel products and utility tariffs in response to January’s mass protests.
As loan guarantees and forbearance measures continued to support households and businesses affected by the pandemic, the share of nonperforming loans in the banking system decreased to 3.3 percent in 2021 from 6.9 percent in 2020. However, vulnerabilities could emerge from the large financial outflows, sustained supply chain disruptions, and risks of secondary sanctions effects, given Kazakhstan’s significant trade, investment, and people linkages with Russia.
The employment rate has reverted to pre-pandemic levels, and real wages increased by 5.7 percent annually in the third quarter of 2021. The poverty rate is estimated to have decreased to 12.4 percent in 2021 due to the broader economic recovery.
Spillovers from Russia’s economic collapse will disrupt Kazakhstan’s supply chains and dent its growth prospects. Real GDP growth is expected to slow to 1.5–2.0 percent in 2022. Kazakhstan also relies on Russia for 40 percent of its imports. Trade disruptions, lower business confidence, and increased currency volatility will also lower growth, as will the storm damage in March to Kazakhstan’s main oil pipeline (to Russia’s Black Sea), through which about 80 percent of Kazakhstan’s oil is exported. Based on current repair time frames (up to a month), oil export volumes could fall by about 5–6 percent in 2022.
Further exchange rate depreciation, rising food prices, and wage increases will keep inflation high in 2022. Monetary policy is expected to remain tight in response. Fiscal policy will continue to accommodate public spending to improve household welfare and sustain the business environment. Measures include increased social assistance, rental subsidies, and compensation for businesses affected by the January protests.
A small current account balance is projected in 2022, supported by higher oil prices and lower demand for imports. The national poverty rate is projected to fall to 12.0 percent by end-2022, though this may change if inflation is higher and growth slips further.
The projections bear significant downside risks: spillovers from sanctions that further weaken trade flows and investor
confidence; more prolonged suspensions of Black Sea oil exports; risks of wage-price spirals linked to economywide wage increases; and potential capital flight amid heightened uncertainty and tighter global financial markets.