ASTANA, April 25, 2023 – According to the World Bank’s latest Kazakhstan economic update – Economic Recovery During Challenging Times (spring, 2023), the economy is set to experience a moderate growth acceleration, with real GDP forecast to rise by 3.5 percent in 2023 and 4 percent in 2024 supported largely by the hydrocarbons sector as oil production increases.
Inflation is expected to remain high in 2023 within the range of 9-11 percent due in part to wage increases across sectors and the effect of crisis-related fiscal stimulus measures implemented over the past several years with food prices being a major contributor to the surge. The continued high inflation presents a significant challenge, particularly for the most vulnerable households. Experts project that inflation will remain beyond the target range of 4-6 percent in 2023 and return to it in 2024.
Continued foreign direct investments into mining and the government’s housing program will likely sustain the investment activity, but the overall outlook for growth faces several risks. High inflation, rising borrowing costs, and increased household indebtedness may dampen growth in consumer spending. Any further disruptions to the operation of the Caspian Pipeline Consortium could lead to losses in production volumes and fiscal revenues.
“Additional tightening of global financial conditions amid sustained inflation in developed countries could potentially increase capital outflow from emerging markets and put pressure on exchange rates,” says Andrei Mikhnev, World Bank Country Manager for Kazakhstan. “Kazakhstan needs to continue with structural reforms to address its medium-term development challenges. In the short-run, curbing inflationary pressure, continued monetary tightening and controlling the fiscal spendings, coupled with more effective targeting of social programs will be important.”
The World Bank economists suggest that in the near-term, with rising geopolitical tensions, diversifying trade-logistics routes and developing alternative supply-chain links will be crucial. Kazakhstan is actively pursuing the Middle Corridor in order to secure vital logistics routes in the face of an uncertain outlook for trans-Russian connectivity. The Middle Corridor runs from Central Asia, across the Caspian Sea to Azerbaijan, and continues either to the Port of Poti in Georgia or to Türkiye through the Baku-Tbilisi-Kars (BTK) line – thereby avoiding Russian territory. Several recent changes have bolstered the competitiveness of this route. Nonetheless, the corridor still faces numerous coordination challenges between different involved states and organizations. World Bank experts expect that developing the Middle Corridor will take time but should not be seen as a complete substitute for the Northern Corridor. Rather, in the short run, the Middle Corridor has a key role in bolstering trade amongst Southeastern Europe, Turkiye, the Caucasus, and Central Asia.
At the same time, World Bank experts emphasize that one of the structural deficiencies of the resource-oriented economy is declining human capital, which has been worsened by the pandemic. While education holds much promise in contributing to national wealth, social development, and cohesion, in the case of Kazakhstan, investments in education are not currently sufficient to realize that potential. As technological and global market trends evolve, and as Kazakhstan’s ‘baby boom’ generation enters the educational system with the projected peak by 2030, the education and skills development system needs to provide youth and adults entering the labor force with sufficient foundational skills for labor market success.
This edition of the country economic update is part of a semi-annual series designed to monitor socio-economic developments in Kazakhstan.