2024 holds optimistic economic scenario for Kazakhstan

Let’s recap 2023

But before moving to 2024, it is important to recap the country’s economic development in 2023. Wrapping up key developments in an interview with a local TV channel, Kazakh Prime Minister Alikhan Smailov said the country has been able to adapt to challenging external conditions.

The global economic environment significantly influences Kazakhstan's economic outlook. External factors, including commodity prices, trade dynamics, and geopolitical tensions, shape the nation's economic trajectory.

"Despite unfavorable factors in the global market, the country's economy is steadily growing this year. While we concluded the previous year with a growth rate of 3.2 percent, in the first 11 months of the current year, it reached 4.9 percent. By the end of the year, it is expected that the growth will be close to 5 percent," said Smailov.

He added that all key sectors of the economy were showing positive dynamics. To break down into sectors, construction saw a growth of 12.6 percent, trade - 11.3 percent, and the communication sector - 7.6 percent. Transport and storage observed a 7.1 percent growth.

The volume of investments in fixed capital increased by 14.6 percent and amounted to 15 trillion tenge.

According to preliminary results for January-October in 2023, the foreign trade turnover increased by 2.6 percent, reaching $114 billion. Exports made up $65 billion, and imports - $49 billion.

Government projections

According to the forecast of socio-economic development for 2024-2028 prepared by the Ministry of National Economy, the real economic growth in 2024 will be 5.3 percent, with a further increase to 6 percent in 2028.

In its November report about monetary policy in the country, the National Bank of Kazakhstan indicates that GDP growth may reach just 3.2-4.2% in 2024 and 5.5-6.5% in 2025.

The central bank revised its economic development forecasts for 2024-2025 due to the postponement of the implementation of an expansion project at Tengiz in 2025. Domestic demand will drive economic growth in 2024 supported by high budget expenditures.

National Bank estimates that the continuation of investment projects in the oil sector and other sectors of the real economy is expected due to the sustained positive demand dynamics.

Agenda for 2024 and the need for local investors

Kazakh financial expert Rasul Rysmambetov said economic forecasts are positive but hinge upon the government’s ability to carry out plans and use funds efficiently.

“I believe that 2024 could be favorable if the government manages its budget wisely, avoiding the approach of solving every problem by pouring money into it. It's crucial to address issues with intelligence rather than relying solely on financial resources,” he said in a comment for this article for Kazinform News Agency.

He expects tenge to strengthen its value.

“I think that next year, if the dollar weakens due to the decrease in the Federal Reserve's interest rates, and the euro weakens due to the stimulative policies of the European Central Bank, the tenge will slightly strengthen against both the dollar and the euro. Since we import a significant amount of equipment, whether from China in dollars or from Europe in euros, a slight strengthening of the tenge would be beneficial,” he explained.

Speaking about focus areas, he said it is essential to concentrate on regional development, emphasizing that excessive central planning often hampers regional development.

“Let the regions decide what suits them best. Excessive central planning should be avoided; the government can provide direction but should demand maximum initiative from the regions. Mayors and governors should take the lead, and the crutches of central planning should be removed from them,” he said.

For many regions, however, the most urgent issue on the agenda is the upgrade of communal infrastructure, including heating, electricity, water, and land.

“On the ground, initiatives from the private sector should not be impeded. I would say that 2024 should be the year of the domestic investor, the Kazakhstan investor, as opposed to foreign investors receiving extraordinary preferences. All these incentives should be given to domestic investors with companies located in Kazakhstan. This is crucial for job creation and the development of our industry. While economic growth forecasts may be positive, everything will depend on the successful implementation of these plans,” said Rysmambetov.

The key challenge - high inflation

However, the key challenge for Kazakhstan is high inflation, which exceeded a staggering 20 percent in February 2023. At an expanded government meeting in December 2022, President Kassym-Jomart Tokayev criticized the government and tasked it to reduce inflation by half. Inflation now stands at 9.8 percent, according to the National Bank of Kazakhstan.

This may signal that the operational and medium-term measures implemented jointly with the National Bank paid off.

“We will continue our efforts to reduce inflation even further, aiming for a range of 6-8%. That's the corridor we set for ourselves," said Smailov.

But Kazakhstan still has much to do to lower its inflation, which is well above the set corridor.

Experts from the International Monetary Fund note that elevated inflation expectations, coupled with the uncertain near-term economic outlook and anticipated increases in domestic energy and utility prices in the upcoming months, emphasize the need for caution in easing monetary policy prematurely. The recommendation is to refrain from the relaxation of monetary policy until inflation is closer to the target and inflation expectations are firmly anchored.

However, Kazakhstan is not the only country in the region and the world that is struggling with high inflation. Inflation has persistently remained high, surpassing the targets set by central banks across most Caucasus and Central Asia countries.

The volatility in inflation rates can be attributed to the substantial presence of food and imported goods in the consumption basket.

What else do international financial institutions say?

In its latest report as of December 13, 2023, the Asian Development Bank raised Kazakhstan’s economic forecast to 4.5 percent for 2023 from September’s 4.1 percent projection. Higher oil production and booming housing construction drove growth in 2023.

It also projects an economic growth of 4.3 percent for 2024.

“The central bank’s consolidated business activity index and the business climate index both improved in October, suggesting an optimistic outlook by the country’s business community. The government submitted an expansionary 2024 state budget to Parliament, with overall expenditure growth rising by 6.7 percent from 2023, and further revised its oil projection for 2024. Yet, many energy experts expect that delays in completing the Tengiz oil field expansion could affect oil extraction,” reads the report.

The IMF projects growth in Kazakhstan to slow to 3.1 percent in 2024, mostly due to a delay in the Tengiz oil field expansion.

“In the medium-term, non-oil GDP growth would stabilize at around 3.5 percent, and inflation would ease gradually to reach 5 percent by 2025-26,” reads IMF’s Staff Concluding Statement of 2023 released in November.

Potential negative factors include the possibility of a decrease in oil prices, disruptions in oil exports, and sluggish growth in trade partners. The repercussions from the conflict in Ukraine and geopolitical divisions, possibly exacerbated by secondary sanctions, can potentially undermine economic activity and investor trust.

Additionally, experts note that climate-related risks stemming from swift global decarbonization may adversely affect the economy and financial system.

“Upside risks include accelerated reform implementation, immigration of skilled labor and relocation of foreign firms to Kazakhstan, as well as higher oil prices,” reads the IMF statement.

World Bank also has a positive outlook. In the economic update published in April, the World Bank forecasts Kazakhstan’s real GDP to rise by 3.5 percent in 2023 and 4 percent in 2024, driven by increased oil production sector.

In its another October report, it also indicates in Central Asia, economic growth is anticipated to strengthen, reaching 4.8 percent in 2023 and maintaining an average of 4.7 percent for both 2024 and 2025, assuming inflation remains under control.

However, potential risks to the region's economic outlook include the possibility of reduced remittances from Russia and a more significant global economic slowdown, potentially resulting in a decline in global commodity prices.

There was also an upward revision in the economic growth forecast for emerging markets and developing economies across Central Asia and Europe reaching 2.4 percent in 2023.

This positive adjustment is attributed to improved projections for conflict-affected Ukraine and Central Asia, resilient consumer behavior in Türkiye, and better-than-expected growth in Russia, fuelled by increased government spending on military and social transfers.