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the recent two years. Its activity, which slowed sharply in 2015, is expected to
demonstrates very little progress. The start of operations of the offshore fields
continues to experience significant delays and may not occur before the end of
2016. The major investment projects, particularly work for the international
by the credit crunch as well as rising prices. Export is expected to suffer from the
slowdown in the Chinese economy and recession in Russia, but especially to low
oil prices. Inflation, fueled by the effect of the depreciation of the tenge against the
dollar, could exceed the ceiling of the target zone (6-8%) set by the central bank
(NBK). Price controls on some food products could be lifted, accentuating the
upward pressure. The central bank should, in this context, maintaining high interest
The fiscal and current account deficits which emerged in 2015 are not expected
to reverse in 2016. The country remains vulnerable to external shocks, the debt of
banks and companies are mostly denominated in foreign currencies. But the
amount of foreign reserves (5 months of imports, excluding gold) and assets NFRK
(USD 64 billion in October 2015 1/3 of GDP) provide him some leeway in terms
however taken support measures which should limit the risk of systemic crisis.
Kazakhstan's export markets: the EU, China and Russia. Imports are expected
to remain high due to the need of equipment, foodstuffs and energy. After the
causing a depreciation of more than 20% of the tenge, the currency continued to
weaken and lost nearly 20% against the dollar between August and November
2015. The downward pressure expected to continue in 2016, although they are
more moderate, depending on the evolution of the Russian ruble (largest export
government will restrain this situation with price control, in order to hold the costs.
In this situation banking sector will have high currency risk based on unstable
currency rate by owing loans in foreign currency (Country Report, 2015). Another
source which is Country report (2015) of Kazakhstan shows that previous growth
of GDP connected to rise in oil and gas revenues without eliminating of its
sanctions making high economic pressure on Russia and its trading partners. The
partners. This price in oil per barrel led to devaluation of currency in Kazakhstan
as GDP in Kazakhstan mainly based on exporting crude oil and gas. Based on this
the devaluation in Kazakhstan and the situation build differences in exchange rate.
should give a temporary wave to export as previously tenge lost its competitiveness
faced to Russian rouble decline. This will somewhat cover the damage from
In the present work using the literature and statistical data we will try to predict
the further impact of low oil prices on Kazakhstan economy and find possible
solutions.
Literature review
The relationship between oil price and macroeconomy has been examined by
using different approaches. The relevant source for my paper is Country report of
Kazakhstan where statistical information written also useful material. The will
focus on theory about effect of oil price change. The theoretical model differs that
case price change affected revenue which is determined from supply side using a
production function.
effect of oil price to economy is changing over time and theoretical researches does
not provide a clear picture of decrease in oil price should or should not have
case of short term; the reason is that the industries and firms with in it cannot
GDP might be insignificant. However if the demand is reduces for oil depend
industry’s products then it may affect labour demand negatively and that will have
large impact on economy even if country’s GDP does not depend on oil output.
The Eurasian Economic Union members should stabilize its inflation level, level
high development of some major oil fields located in Western Kazakhstan which
where local employee supply is less than its needed. The recession is narrowed this
gap as many large companies have to fire employees as this companies after
The oldest literature reviews such as Olson (1988) argues that the price of oil as
a part of GDP is not significant and should not have large macroeconomic effect.
However during the time, importance of oil has changed and those countries are
importing large amount of crude oil has different oil share in GDP. The empirical
point of view suggests that oil price change is predictable and limited effect in case
According to CIA Kazakhstan had 9th place by oil exporting in 2010 and
exported 1,406,000 barrel per day. Kazakhstan’s one of the main trading partners
Russia has 2nd place from this list (Cia.gov, 2015). Russia is one of the leaders of
the oil supplier; however industrial level of development is not highly developed.
based on another source oil price should be considered as driver of exchange rates
oil dependent countries (Chen and Chen, 2007;Benassy-Quereet al., 2007; Coudert
et al., 2007).
Jimenez-Rodriguez and Sanchez (2005) have written that rise in oil price affect
positive ways. For instance, in the UK change of price had negative effect and
Norway positive.
free floating rate which is when market balances exchange rate based on demand
and offer. The official currency dropped by 26.2% which is 255.26 per dollar at
export between beginnings of the year to July 2015. According to Prime Minister
of Kazakhstan Karim Masimov the low price for the export materials of
Many expert opinions on the world economy situation for 2015 are similar.
World GDP will grow up to 3%. Additional incentive tendencies in the form of
Currently, the price of West Texas Intermediate (WTI) crude oil is 43.77 per
barrel. The price of oil started its dramatic decline in July 2014. From the peak of
the oil price in June 2014 to the end of March 2015 oil price per barrel declined
around 55 percent. (Melek, NÇ, 2015) At this stage the country should switch to
other type of the resources, however the former countries of Soviet Union still
depend on each other as one country was transferring raw materials and the second
2015) This structure is still keeping in Soviet Union and under pressure and
raw materials and transfers this material, Russia and China is producers of product
from raw materials and sales back this material to Kazakhstan. In this case
Kazakhstan cannot move to producing the products as it will lose economically and
The parts connected to each other as it has chain reaction as change economic
environment in one country directly affects its trading partner and change in oil
price has impact on all countries, but in different ways. The members of the
Eurasian union are likely to create official currency for the Eurasian Economic
Union. In this case theory will be about future predictions and expectations
economic situation in Kazakhstan and will consist from different cases where
results of each action will be demonstrated. The issues with new currency will be
that will be it beneficial for Kazakhstan, also other advantages and disadvantages
in union were same as before creating this union and what are benefits from this
union. In case of Greece the best decision will be devaluation of currency and as
euro union has same currency they could not devaluate their currency. (Kazakhstan
same fiscal policy for all countries. This means that to introduce fiscal policies
country should lost its political weight another case consist theory when there will
Union. The devaluation in 2015 has directly affected on import prices as well as
the wage and social welfare payment increases. There is possibility that tenge will
devaluate another in the near term, this case depend on that inflation is clouded by
resource will be main type of the pusher of the economic development. (The World
Factbook, 2016)
Table 1
importance of oil price to country which GDP grows mainly based on crude
products. I will examine the impact of economic policy on employment, GDP and
inflation rate and discuss future predictions. (Kazakhstan floats tenge, currency
tumbles, 2015)
The United States will be a leader and engine of economic growth. The anti-
crisis program of the Federal Reserve System was successful in the previous
year. However, the Federal Reserve lowered its forecast for US economic growth
in 2015 to 2.3-2.7% from the previously expected 2.6-3%. The main drivers of
recovery are among other such diverse industries as IT and hi-tech sectors, oil,
in 2016 will be able to make big profits at lower risks of investing in the US
2015)
The slow growth of the EU economy will have a negative impact on export
revenues of Kazakhstan and the flow of investment from these countries. Against
this trend of continuing stagnation the exports from Kazakhstan to the EU could
be reduced in real terms, as if to take into account the extremely low oil prices,
China in 2015 shows the lowest growth rate since 1990 i.e. a little more than 7%.
Contrary to the illusions of rapid growth in 2015, China will not achieve
economic recovery, and substantially lag behind the US in absolute terms the
production and consumption. In addition, China is the largest player in the metals
market. The slowdown of the economy and the decline in demand may adversely
affect the level of prices for metals, which constitute a large part of Kazakhstan's
the fall of the ruble exchange rate will significantly affect the macro-economic
development of Kazakhstan. First of all, the possible decline in demand for the
goods from Kazakhstan shall affect the export from the Russian industries. The
cheap ruble reduces the competitiveness of Kazakh domestic enterprises and the
shale oil production and increased supplies from Iran, against which economic
sanctions were partially lifted and Libya, where, after the stabilization of the
situation in the country the oil production increased, the situation in oil market
changed drastically. There was a decrease of world oil prices mark Brent from $
115 for barrel at the end of June 2014 to 50 - 60 dollars for barrel at the end of
2014.
Despite these trends in the world market, OPEC refused to reduce quotas on raw
the situation in the oil market depends on many factors. The experts of the
International Energy Agency stated that in 2016 the excess oil may rise to more
The World Bank experts in their report assess the situation in the oil market.
They come to the conclusion that the increase in oil prices is not likely in the
near future. 2015 was the year of low oil prices, and in 2016 they will grow only
deposits, including shale areas, as well as the output of "black gold" on the sea
shelf. It is expected that the volume of oil production in the US will be reduced
by at least 30% this year compared to 2014. Significant reduction of oil output
about 50% of all oil, announced the plan to produce per day by approximately
But in the case of deterioration of the geopolitical situation in the Middle East,
oil prices are likely to rise temporarily. Increasing of the export of Libyan oil is
very possible. The oil fields in Iraq are being bombed, if they come under control
of radical groups this will also increase prices. Lifting of sanctions against Iran
will change the balance of supply and demand in the oil market in 2016. In this
case, the oil market proposal will add about 1 million barrels per day. Having
into consideration all these developments, the average oil price will probably be
The slowdown of the economy is the most prominent trend in the state’s
recent years. This happened due to the rise of oil prices, fiscal and tax incentives
and the growth of consumer credits, which supported the demand of the
population. But the oil prices fell down, respectively, income growth slowed, the
National Bank has limited consumer loans, and as a result of the liquidity
result, Kazakhstan's GDP growth has slowed down, and this slowdown was
observed in all sectors of national economy, but the industry turned out to suffer
the economy which depend on the income and business: services, construction,
and transport.
Cumulative effect of external shocks began to make negative influence not only
on the private sector, but also on the willingness of Kazakhstan fiscal authorities
financed by the oil accumulation. While oil quotations remained at a high level
above 100 dollars per barrel, the oil budget surplus narrowed, and the non-oil
market and has attracted $ 2.5 billion in the Eurobond market. The effectiveness
in the long term can lead to the consolidation of the smallest banks. The National
Bank ordered banks to reduce the percentage of the second level of non-
The struggle for writing off loans have increased incentives to clear balance
sheets, but the resolution of bad loans is constrained not only due to complex tax
administration, but also the lack of capital for restructuring, lack of expertise and
before the banks. The devaluation of the tenge in February 2015 has increased
of the Kazakhstan enterprises, but this advantage disappeared after the rise of
wages.
monetary policy and the national regulator has not solved the key problems of
policy has become even more tightly tied to the exchange rate. Official corridor
narrowed to less than 3%, the actual volatility of virtually not observed. In July
2015 the National Bank began issuing banks currency swaps, giving banks tenge
eliminated the deficit of interbank liquidity, but the problem of distrust in the
national currency remained, the exchange rate regime has become more fragile,
Bank deteriorated.
Inflation remained within the 6-8%, reflecting weak domestic demand and
administrative control over prices, which held back the oozing devaluation. The
incomes are very high. Lack of skilled labor force continues to be an urgent
surplus increased from $ 15.6 billion in the second half of 2013 to $ 22.6 billion
national currency led to a drop in imports, which has a positive effect on the
current account, and will increase the volume of net foreign assets. However, in
the medium term, this factor is the most negative one. As a result, the
percentage points in the first nine months of 2014, while in 2011-2013 it was
payments, eliminating its negative impact on GDP growth and increase foreign
the economy. Prices of imported resources have become the main cause of rising
oil and metals on world markets, the main risk to the economy of Kazakhstan is
a further slowdown of the real sector of economy of Kazakhstan, and later, and
industry sphere services. This will lead to a decrease in revenue to the National
The macroeconomic forecast for 2016 on the factors of final demand, taking into
account the existing risks for the economy of Kazakhstan is pessimistic. Gross
growth in fixed assets and domestic ones due to lower profits of domestic
The second tranche is planned in 2016 consisting of 500 billion of tenge for
sector, the completion of the construction of a dry port SEZ Hargos and industrial
which will be the main driver of the economy in the current year in Kazakhstan
level of oil 40 - 30 $ for barrel. In this scenario the export of goods and services
population, narrow the rate of consumer goods and services imports in 2016.
Having in mind the above mentioned we may conclude that the presented GDP
forecast demand for 2016 has three scenarios for development: optimistic, basic,
and pessimistic ones. Each of them is based at oil price of 50, 40 and 30 dollars
per barrel. What can be seen from the forecast is the expectedly low rates of
package of measures to counter the impact of crisis. The head of state decided to
use money from the National Fund up to $ 3 billion (tenge 540 bn.) Actually for
the period from 2015 to 2017 the second tranche will be directed to complete the
ongoing projects and address the most pressing issues in the economy of funds
from the National Fund in the amount of 500 billion tenge, including 360 billion
the economy, spread chains of cross-sectorial linkages, and cause direct and
service sector, even if oil prices fall to $ 20 for barrel. The state program "Nurly
the framework of the second tranche of the National Fund, will be the main
for the allocation of transfer from the National Fund in the amount of $ 1 trillion
tenge in 2016 for the implementation of anti-crisis measures of exposure can lead
Thus, the fall of the world average oil prices of up to 50, 40 and 30 dollars for a
barrel, taking into account the effect of the impact of additional government
Situation in the State Budget revenues excluding transfers from the National
It should be noted that the effect of reducing the cost of oil revenues in the budget
Thus, in view of the above transfers from the National Fund of the state budget
Forecast revenues to the National Fund by reducing the price of oil will decrease
the growth rate of assets. For example, if in 2011 - 2014 years, the average
increase in money of the National Fund amounted to 25-30% per year, this year
when oil price scenarios for 50-30 dollars in revenue growth will decrease to 1.5
- 6%. By reducing the cost of oil to 30 dollars, the revenues of the National Fund
at the end of the period decreased by 0.6% compared with the previous year, due
to significant reductions in tax revenues from the oil and gas sector. (Kalieva,
2012)
the transformation of the oil windfall in domestic demand. This model has
provided the rapid growth of production, increase in the level of income and
income has been steadily increasing share of the business revenues and declining
share of wages. The share of net profit / net mixed income business has grown
since 2000 from 41.5% to 48.4%. The share of wages in GDP has declined from
The share of working poor persons (less than 2/3 of the median income - ILO)
amounted to: more than 45% in agriculture, more than 33% in education, more
In socio-political terms, this trend creates for workers and their families feeling
that they are not getting the proper portion of the wealth they create. Attempts to
compensate for the missing part of the income realized through the increase in
conditions, the system of the foundation of a sustainable society i.e. the secured
and well-educated middle class eroded very quickly. In the developed countries
constant efforts were necessary o maintain the middle class development. For
package of financial, tax and systematic measures for the support and
2007 to 21.2% of GDP in 2013. This trend undermines the pace and
improving the efficiency and modernization were not a priority. (Juza, 2016)
conditions that have shaped the model of the "oil growth" of the 2000s. The long-
term dynamics of world oil prices is a trend that grows slowly and it periodically
last decade about 30 years. (Kalieva, 2012) Who passed the next peak in oil
prices began their phase of decline, it can last for about 10-15 years. But even
the growth of oil prices in the medium term up to 60-80 USD. It will not provide
the former high rates of economic growth and the usual level of business income,
After only 15 years, from 2030 is expected to reduce the volume of oil production
will lead to the extinction of Kazakhstan's economic growth, if not to find new
growth drivers. According to our calculations, by 2020 the share of exports of oil
and gas condensate to GDP will remain at the level of 2012. In the future, this share
will be significantly reduced, and by 2040 the share of exports of oil and gas
economy. According to the calculations of the Institute, the increase in oil prices
calculations, from 2002 to 2013 in Kazakhstan windfall from oil exports (i.e.,
only due to the increase in oil prices) amounted to a total of 253 billion of US
dollars. The correlation between the windfall from oil exports and the real
growth of the economy before the crisis of 2008-2009 is clear and direct. It
amounted to almost 0.93, and the post-crisis period rose to 0.97. This
demonstrates the growing contribution of the price factor the country's oil
revenues to the real growth of the economy and a decrease in the effectiveness
of the non-oil sector after 2009. (Lewis, Churchill and Tate, 2014)
The current crisis in the oil market could be a dress rehearsal for Kazakhstan: what
should be the economic model of the country without increasing the inflow of
the internal environment (reduction of oil production), which will reduce the flows
of income and slow growth: the need to consume less and work more. This is a
reaction to the decline in state revenue from natural resource rents. (Haerens, 2010)
Short-term measures have been taken into consideration, the scale can only
partially solve the systemic problems of the economy. Almost all measures are
aimed at expanding domestic demand, which will only temporarily extend the old
growth model, but cannot promote the formation of a new growth model. The
problems of the economy are chronic and fundamental and cannot be solved by
The basis for a new model of economic growth should be to create a strong
incentive to improve the efficiency of both the business and for the public
and equal responsibility of all market companies for the results of its activities
in the coming years, the share of gross fixed capital formation to GDP should
2015-2020 will be decisive for long-term economic outlook. If during this period
will be found the resources to maintain a high level of investment in fixed assets,
despite the growth of specific capital intensity, it will have a chance to go beyond
the 2020 sustainable development trajectory until 2050 with an average annual
rate of 4% per year. Otherwise, the average annual growth rate will decrease
range. It is necessary to carry out a series of reforms, but not be limited to a set
priorities and measures of monetary and budgetary tax policy. Money and credit
2008)
prices of exported raw materials. The goal of innovation is to intensify the credit
channel of the transmission mechanism of monetary policy and reduce the value
of its currency channel. The new mechanism will create a healthy reaction to the
decrease in prices of the main export product, help to reduce the dollarization of
the economy, volatility of interest rates, the speculative component in the money
2006) This will require a change in the interest rate corridor of the National Bank
mechanism (the lower bound - deposits of the National Bank of the Republic of
Kazakhstan, the upper limit - loans continued access). The introduction of new
operations and tools within the transmission mechanism of monetary policy will
time, the exchange rate policy will adequately respond to changes in world
Budget - tax policy. The current trend is the increased dependence of the budget on
oil revenues will require institutional reforms in the public sector, increase the
standards and the reduction of budgetary spending in the context of improving the
transparency of the public sector. (Kalieva, 2012) In this regard, the primary task
is to increase the non-resource revenues and the expansion of the tax base, together
stable level. In the medium term need to improve the tax policy in relation to the
2010)
obligations arising from lending and its conditions must be market-oriented and
In order to improve the situation immediately the government should provide tax
employees or plans to increase the wage bill, in this case, the company is exempt
from paying taxes on the amount of the increased wage bill; Establishment of a
financial capital shall be required. The reduction of personal income tax for all
kinds of small and medium-sized businesses by 50%, to reduce the share of the
shadow economy and increase tax revenues and the possibilities of refinancing
Long-term measures:
In the long run it is necessary to fulfill the next basic requirements: to provide
tax credits for businesses that increase the levels of investment in R & D
wireless network, as well as the ubiquity of free wireless Internet access in all
and Russian languages on the type of «Coursera» and «EdX», enjoying wide
popularity in the United States and Western Europe; to provide targeted social
assistance to cover the costs of services of preschool institutions for women who
contributions from the state budget will be possible due to the redistribution of
income inflow of income tax and indirect taxes, as a result of revenue growth in
the labor and consumption of this category of the population. (Dreger, 2008)
was used by the average target price of Brent crude oil and the state of the
Chinese and Russian economies. For the basic scenario used the price of oil at $
35 per barrel. Two other scenarios pessimistic ($20 per barrel) and optimistic
($50 per barrel) - represent the lower and upper boundaries of the likely range of
Republic of Kazakhstan for 2015-2019 years, taking into account the changes of
November 17, 2015 (Minutes №47) for the development of the scenario options
on the price of oil was adopted the next level: the basic scenario in 2016-2017 is
in 2018-2019 to $ 2015 level of 50 per barrel; the pessimistic scenario, the oil
price in 2015 will develop at the level of 50 dollars per barrel, followed by a
Given the current trends of development of the country's economy since the
beginning of the year and the situation which is taken as a background for basic
scenario in the global economy, the parameters of which are the most likely to
The basic scenario: in the 1st quarter of 2016 is expected to decline in GDP in
real terms by 0.8% compared to the same period of 2015, due to the deterioration
in comparison with the similar period of 2015 the situation in the trade (5.8%
reduction) and industry (down 19%). According to forecasts this scenario, the
resumption of growth in trade is not expected until the end of 2016. The recession
same period of 2015; inflation index in the same period will increase by 20.8%.
The nominal exchange rate is projected at 389.41 tenge per 1 US dollar. (Dreger,
2008)
In 2016, the decline in GDP in real terms will be 0.2% compared to the previous
The pessimistic scenario: in the 1st quarter of 2016 the decline in GDP in real
terms, due to the reduction of the volume of trade by 5.9% and industry by 3.4%,
by 1.3% compared to the same period of the previous year. In this scenario until
Factor in reducing the population's real cash income by 13.1% to maintain high
rates of inflation. CPI in this period will grow by 23.4%, the nominal exchange
rate will fall to 475.66 tenge per 1 US dollar. (Invest In Kazakhstan, 2016)
This scenario assumes that in 2016 over a fall in real GDP growth of 1.0%. The
annual CPI basis was 113.7%, the nominal exchange rate - 470.29 tenge per 1
US dollar. The decline in real money incomes by 4.4% would lead to a reduction
in demand from the population for goods and services, which will affect the
reduction of the volume of trade by 11.7% compared with the previous year.
(Juza, 2016)
The optimistic scenario: in Q1 2016 real GDP growth of 0.2% compared to the
same period of 2015. Later, by the end of 2016 will mark a positive GDP growth
of 0.5% due to higher production volumes sectors except trade (down 9.0%) and
Conclusions
Budget revenues, coming to more than half of the oil sector, should be affected
by the slow growth of hydrocarbon production and lower oil prices. The currency
denominated in tenge in the budget. Non-oil tax revenues are expected to increase
slightly. Wage increases in the public service, initially planned for 2015 have been
announced for 2016. The infrastructure projects should also be maintained. These
expenditures should nonetheless be mainly financed by the oil fund (NFRK) and
KazMunaiGaz). Oil exports (75% of total) should not increase, given the
difficulties of production and low oil prices. The application should also remain
very uncertain which adds vulnerability to the future of nation’s economy. (Invest
In Kazakhstan, 2016) The country is run since 1991 by N. Nazarbayev and his party
(Nur Otan) which holds a large majority in the Assembly. (Juza, 2016) N.
Nazarbayev was re-elected for a fifth term in early elections of April 2015 (initially
scheduled for 2016), with 98% of votes. The political stability of the country
remains a source of uncertainty because of the risk of conflicts that might erupt
between factions of power, whether the estate of President (74 years) was
The public discontent is growing over the low level of wages, rising prices and
(Juza, 2016)
the interference of the state in the economy, ineffective institutions and corruption.
Works cited:
Commodities: Latest Crude Oil Price & Chart. (2016). [online] NASDAQ.com.
Dreger, C., Fidrmuc, J., Kholodilin, K. and Ulbricht, D. (n.d.). The Ruble between
the Hammer and the Anvil: Oil Prices and Economic Sanctions. SSRN Electronic
Journal.
Cengage Learning.
https://www.cia.gov/library/publications/the-world-
factbook/rankorder/2242rank.html
http://www.invest.gov.kz/?option=content§ion=1&itemid=67 [Accessed 8
Mar. 2016].
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http://www.cnbc.com/2015/08/20/kazakhstan-floats-tenge-currency-tumbles.html
Kliesen, K. L.: 2008, Oil and the U.S. macroeconomy: An update and a simple
Melek, NÇ 2015, 'What Could Lower Prices Mean for U.S. Oil Production?',
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