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Sustaining accelerated growth and stability in Kazakhstan

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Sustaining accelerated growth and stability in Kazakhstan Powered By Docstoc
					 Achieving diversified
 growth and sustaining
  economic stability in
Kazakhstan: Challenges
   and opportunities
    The Kazakh economy continues its strong
                 performance
   Eight years of strong growth (10.2 % over 2000-2007)
   $100 billion economy, $6,600 per capita by end 2007
   High investment rates (fixed capital investment reached
    28% of GDP in 2006)
   Strong financial position of the government
   Foreign trade and balance of payments in surplus
   Rapid accumulation of foreign exchange reserves and
    National Oil Fund
   Inflation has edged up but remains moderate at 8%
   Prospects for a major expansion of oil output over the
    medium term
    Yet Kazakhstan face a number of development
                     challenges
    Low competitiveness outside of oil and resource-oriented
     industries
       Resource dependence generally associated with slower growth, more
        instability, and inequality
    Some recent sources of growth (finance, real estate) not
     sustainable at current levels, and also pose short and medium-
     term risks
    Growing supply bottlenecks in infrastructure and skilled labor
    Barriers to the mobility of labor, goods, and services
    Low level of competition on many markets
    Low effectiveness of many public services
 Some good news for diversification prospects: the
tenge has been under less pressure for appreciation
 than the currencies of many of other oil exporters

   Responsible fiscal policy and the accumulation of
    surplus resources in the National Fund have slowed the
    real appreciation of the tenge
   Rapid import growth and outflows of foreign income
    have also worked in this direction
   Current large capital inflows of foreign debt should
    become more moderate, and pressures on the tenge
    may ease
         The tenge remains weaker than in the latter 1990s

              Real Effective Exchange Rate of the Tenge (up=appreciation)

140

120

100

80

60

40

20

 0
      1995   1996   1997   1998   1999   2000   2001   2002   2003   2004   2005   2006
 Yet, low productivity relative to wage growth in tradable sectors
may have limited the ability of the Kazakh economy to exploit this
                relative advantage in recent years

      Value added per worker relative to average wages in resource
                         extraction and manufacturing
10

 9

 8           Resource extraction
             manufacturing
 7

 6

 5

 4

 3
     2001         2002             2003     2004        2005     2006
 Competitiveness also appears to suffer from some
other problems in the Kazakh business environment

   Kazakhstan has some of the highest administrative costs of
    doing business across borders (ranked 172nd out of 175 countries
    in the 2007 World Bank Doing Business Survey)
   Relative to other CIS and Eastern European countries, Kazakh
    firms are subject to a relatively large number of various
    inspections, often of long duration (World Bank BEEPS 2005)
   Kazakh firms tend to complain less about these and many other
    administrative obstacles to business than is the case on average
    in the CIS or Eastern Europe, yet this is not necessarily a
    positive sign (more efficient firms competing on world markets
    tend to complain more about such administrative costs)
   There is much room for improving the quality of governance in
    Kazakhstan (Governance Matters 2007)
Dutch disease effects could become more serious in
the future with the rapid expansion of oil: now is the
             time to exploit a window of opportunity for
                            diversification
                          Potential oil production

           4.5
           4.0     off-shore
           3.5     on-shore

           3.0
mln bbpd




           2.5
           2.0
           1.5
           1.0
           0.5
           0.0
                 1995
                 1997
                 1999
                 2001
                 2003
                 2005
                 2007
                 2009
                 2011
                 2013
                 2015
                 2017
                 2019
                 2021
                 2023
                 2025
                 2027
                 2029
                 2031
                 2033
                 2035
      Overheating in real estate market and
     growing risks in the banking sector are
               causes for concern
   Fifty percent of current GDP growth is accounted for
    by construction and finance: not sustainable
   The pace of commercial credit expansion in
    Kazakhstan is enormous by international standards, is
    financed largely through foreign borrowing, and poses
    serious risks
   The majority of the current credit expansion consists of
    consumer loans, many of which are unsecured
   Real estate markets exhibit high volatility, and are
    subject to speculative bubbles
    Four topics of primary relevance for achieving
           diversification and stabilization

   Administrative reform: improving the effectiveness of
    governance and the quality of public services
   Addressing overheating: Mitigating the risks from,
    the rapid expansion in foreign borrowing, credit
    expansion, and real estate
   Programs to ignite growth and competitiveness
    outside of resource industries
   Housing and communal services: addressing
    bottlenecks in infrastructure and barriers to labor
    mobility
      Reforming Government
     Administration: Toward a
Performance-Oriented, Transparent,
     Empowered, Efficient, and
 Accountable Public Management
     Administrative Reform: Lessons
        from World Experience
   It isn’t easy anywhere, and a particular challenge in the face of
    corruption, low capacity, weak information, and low civil service
    pay
   Administrative reform has taken many years, even in the most
    developed countries, and remains an on-going process
   Start from a deep understanding of where you are today and
    what you can realistically achieve; not some abstract view of
    global best practice
   Basic principles of good public administration travel well
    between countries, but require a careful adaptation to local
    conditions
   Importance of a strong long-run commitment of the government
    in policy and resources
    Implementing results oriented public
    management will involve changes to:
   Governance including roles of ministers, professional
    advisers, managers and service delivery personnel
   Systems of accountability and transparency
   Allocation of functions amongst ministries and between
    levels of government and forms of public and private
    organisation
   Budgeting and financial management systems
   Civil service laws, structures, processes and remuneration
   Strategic planning, policy analysis and evaluation
   Methods of management: away from compliance towards
    quality, responsiveness to citizens and continuous learning
   Resources
   Culture
          Some issues to consider

   Management of the reform process
   Prioritising and sequencing reform initiatives and
    projects
   Achieving balance in practical terms between
    responsibility and accountability
   Making the joint stock companies and social business
    corporations achieve results
   Making performance management work across other
    state institutions in this constitutional and cultural
    environment
                 Some issues cont.
   Clarifying the roles of ministers and administrative executives
   Linking strategic planning to budgets and reporting systems
   Accountability system: what is appropriate to the constitutional
    environment?
   Accountability must be based on understanding of the linkages
    between action and outcome within the complete management
    environment
   Avoid badly chosen performance indicators that can be very
    damaging
   Building capability needed for better public sector performance –
    remember Bismark
Addressing overheating and
maintaining financial stability
Improving the allocation of risks
   Alleviating moral hazard: international
    creditors and Kazakh banks should not
    perceive that the government is implicitly
    insuring their risky activities on the real estate
    market
         Commitment needed to bank problem
          resolution procedures that allocate a good share
          of the risk of failure to the private (commercial)
          sector
    Improving the management of risks by
         AFN and the government

   Macroeconomic policy measures to absorb liquidity
    (restrictive fiscal and monetary policy)
   Regulations to ensure soundness and to slow risk
    accumulation in the financial sector
   Strengthened supervision to enable monitoring and
    enforce regulations
        Strengthening the capacity of AFN
        Enhancing consolidated supervision
        Moving to risk based supervision  strengthen governance
        Readiness to manage financial sector problems: contingency
         planning and problem bank supervision and regulation
 Financial Instability has been quite
common in emerging markets: many
   countries have endured bouts of
  instability and rebounded quickly

Effective regulation and contingency planning can
  reduce the economic costs of financial
  instability, as well as prevent the contagion of
  the entire banking or financial system from the
  insolvency of individual organizations
 Government programs to promote
competitiveness and diversification
      There exist a number of important policy
    directions for promoting competitiveness and
                     diversification
   Investment in human capital: human capital is a primary
    determinant of productivity and competitiveness. Public
    education and support for professional training in Kazakhstan is
    under-funded and (in many cases) outmoded.
   Lowering tax and other administrative burdens on
    business.
        The presence of resource revenues can support the compensation of non-
         resource sectors for higher costs associated with a stronger Tenge
         through a lower overall tax burden (although the dependency of state
         finance on oil should not become too great).
        The foreign trade regime is in need of simplification and the alleviation of
         exceedingly high non-tariff barriers
   Facilitating opportunities for fair competition, including the
    entry to, and exit from, markets
   Industrial policy
              Industrial policy
   Kazakhstan can profit from careful attention
    to world experience, which is very mixed
   The process should be understood as an
    interactive search of all levels of government
    and business to identify and exploit growth
    opportunities
     •   Incentives of government officials and businesses for
         decentralized initiatives are key to success
     •   The government can play a potentially important role in
         supplying specific public goods and coordination
Important characteristics of effective
   industrial policies to support
          diversification
   Very high level political support and monitoring
   Clear channels of communication with the private
    sector
   Mechanisms for transparency and accountability
   Clear benchmarks and criteria for success when
    providing support to the private sector
   Sunset clauses to force the system into letting losers go:
    “success will be determined not by how well the system
    picks winners, but on how effectively it lets losers go”
Reforming Housing and Communal
      Services in Kazakhstan
    Key Constraints Currently Faced by Communal
          Service Providers in Kazakhstan

   Tariff structure
        Cost-based, no allowance for rehabilitation/investment or incentives to reduce costs
        Progressive tariffs not permitted.
   Financial/regulatory environment
        No mechanism for lending to utilities
        Sector is not attractive for private investment due to tariff, regulatory constraints
   Old and inefficient infrastructure
        Over-designed from soviet-era norms-based demand criteria
        Population shifts following independence
        Little investment in maintenance, rehabilitation
        Internal apartment networks especially poorly maintained
   Institutional arrangements following decentralization
        No apex body providing coordinated policy, strategic guidance
        Need for strengthened institutions, management capacity at local level and in utilities.
Reforming housing and communal
services: lessons from international
            experience (1)
   The reform process requires the full commitment of its
    policy makers to correctly balance financial and political
    objectives.
   Success is often unattainable without reforming the
    external environment, especially the role of the owner.
   Fundamental reforms are not a quick fix and cannot be
    substituted by private sector participation.
   There must be an adherence to financial sustainability
    objectives.
   Other external stakeholders may be important to balance
    potentially conflicting objectives.
    Reforming housing and communal
    services: lessons from international
                experience (2)
   Housing management and maintenance are not natural
    monopolies, thus are inherently different from CSs.
   Apartment owners need to own and be responsible for
    apartment buildings.
   Separating CS functions (ownership, oversight, service provision)
    and arm’s length transactions are important to the institutional
    setup
   Customers can be an important voice for improving CS
    providers performance
   Guidance/regulations should not be overly restrictive. Utilities
    do not necessarily have to adhere to all that is prescribed in order
    to succeed. Each case is unique, with each utility possessing a
    mix of attributes that has worked for it in its own institutional
    setting.

				
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posted:9/13/2011
language:English
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