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Economy of Kazakhstan: no growth, fall down is expected

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Bold cross can be put on the economic forecasts of the Government and the National Bank of Kazakhstan concerning growth of Kazakhstani economy this year, as well as on the main financial document adopted in late November.

Prices fall on the global commodity markets and first of all low oil prices do not leave any chance to officials to abandon their macroeconomic forecasts and budget. Everything goes to the fact that at least this year many ordinary people of Kazakhstan will have to tighten their financial belts.

Estimates of economists - reality discord

As known, at the end of November last year the Government  revised and approved the budget for the next three years, based on  $ 80 barrel oil price, and then jointly with the National Bank the Government forecasted this year's economic growth at the level of 4-5%.

However, absence of any major achievements by the authorities in the implementation of structural reforms in recent years and the rapid development of the situation in the global markets for negative scenario in the last few months, have done their job.

As a result, the new three-year budget and the joint statement of the Cabinet and the financial regulator about the main directions of economic policy in 2015 released at the end of last year, turned to be, to put it mildly, far from reality.

Here comes the question, isn't it time for all the officials at least from the economic block and the management of the National Bank to resign and isn't it time for the Parliament which approved the main financial document to carry out self-dissolution?
The official forecasts differ from the economic situation in the world and in the country as the heaven and earth, it creates big doubt about the competence of those people who were developing and adopting it.

Moreover, overly optimistic estimates of the Governmental officials and monetary authorities set up the President, as they formed the basis of the legislation, which is signed by the Head of State!

However, neither in the economic block of the Government nor in the National Bank no staff decisions were made. At least not yet. In general, the same people remain in the game, not for the first year, only occasionally changing the positions held in the state hierarchy.

On the way to austerity

Against this background, the new initiatives have been made by the President. According to the press service of the head of state on January 15 Nursultan Nazarbayev held a meeting dedicated to the situation in the economy and the financial sector in view of the situation on the regional and global markets. Based on the scant information about the meeting, the central event of the meeting was the order to update the main financial document of the state.

"Due to the sharp reduction of the budget the Government will have to revise some of its parameters. Once we made changes to the budget, if necessary, we should do it again. We should clearly explain to the population that we have started nickeling and diming," the press service quotes the President.

It is very remarkable  that in contrast to the beginning of the crisis in 2007 in Kazakhstani financial sector, when many officials denied any crisis signs, this time the head of state openly admitted that he is calling to postpone some investment projects in the best of times.

"Now we must complete ongoing construction while new objects, including some investment construction projects  must be suspended. This work will continue after the crisis ",  said the President.

What does this mean? The fact that the authorities have relied on austerity in Government spending, even despite the fact that it will have a negative impact on business activity, aggregate demand and, ultimately, on the economic growth and well-being of ordinary people.

It is interesting that the Government's  saving commitment contradicts  the new economic program "Nurly Zhol" declared by the President, which is focused on state economy stimulation, for this it was planned to allocate $3 bln in 2015, 2016 and 2017.

It's not about thriving, it's about surviving

However it seems that the authorities have come to terms with the fact that the proclaimed economic growth  by the Cabinet and the financial regulator for the coming year  will remain elusive. This is indicated not only by the recent statements by the head of state, but also by the position of the ruling party.

As the Reuters agency reported on January 16 citing a senior source in the party "Nur Otan" the GDP growth is expected to slow down in 2015 to 1.5% from 4.3% in 2014, while the budget will be revised due to sharp fall of oil price.

"The baseline scenario (in the budget - KazTAG) implies oil price decrease from $80 to $50 per barrel in 2015-2017. GDP growth is estimated at 1.5% in 2015, 2.3% - in 2016, 3.4% - in 2017," said the source.
Meanwhile, the current budget indicates the rates of economic growth at  4.8% in 2015, 5.3% - in 2016 and 6.7% - in 2017. As they say, feel the difference. In this case, the irony here is that in the years of high oil prices, the Government made up the budget, on the basis of very conservative estimates of the cost of "black gold".

This led to the fact that many areas, including social infrastructure, which needed development  under state funding, did not get money. Although in this situation, officials managed to underdevelop the budget funds.

But in the current situation, when oil prices went into a deep dive, the forecasts of the Cabinet and the National Bank are so overly optimistic that with each jump down of the  hydrocarbons cost the officials have to revise frantically the main financial document of the country.

In this situation the cynicism  is that officials almost proudly justify the policy of austerity by sharp drop in oil prices. They say, it's not about thriving, it's about surviving, shyly holding back their inability to carry out structural reforms and diversify the economy in the pre-crisis years.

Therefore, the main question is, who, after all, would be the whipping boy? As you can see it is a rhetorical question. In the meantime the whipping boy is everyone and anything but not the Government and the National Bank.


March 2 2015, 15:30

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