Essay on the Economy of Kazakhstan
Number of words: 1193
Fiscal policy is a governmental technique for the adjustment of the levels of expenditure and tax rates for monitoring and influencing of national economy. It is mostly integrated with monetary policy, enabling the central bank to influence a nation’s money supply. The fiscal policy entails the usage of government spending and policies imposed on taxes to influence the nation’s economic conditions which includes demand for goods and services and economic growth. The monetary policy entails policies which are embraced by the national monetary authority that is in control of interest rates for short term borrowing. It offers targets inflation and interest rates for ensuring stability of prices and trust in the currency. Supply-side policies are the government’s attempts for increasing productivity and increasing efficiency in the economy.
Kazakhstan’s manufacturing sector is rapidly growing, and the government is taking various measures for keeping the momentum going in accordance to a recent report. The manufacturing industry contributes to overall GDP structure from 10.1 to 11.6%, where its share of self-employment has grown from 6.6% to 6.9%. As per 2018, the industry has grown with 4.1 per cent. The manufacturing sector of Kazakhstan is progressing towards sustainable economic growth since as per October 2019, industrial production has increased by 5.4 years on years. With such a drastic increase in the manufacturing sector, it will be in position progress towards sustainable economic growth.
Following the growing population and the demand for goods and commodities as well as sustainable standards of living, the government of Kazakhstan had to employ fiscal measures to achieve the economic transformation. Therefore, Kazakhstan through the national bank had to eliminate the fiscal stimulus and cut inefficient tax benefits in a move to eradicate the non-oil deficits (World Bank, 2017). The fiscal framework encompasses the reduction of non-oil deficit which needed more elimination of inefficient public spending. Additionally, they needed to increase the collection of revenue from non-oil sectors and reduce the overreliance on oil. They needed to use accumulated fiscal funds from oil sector over the years to help in diversifying the economy rather than over-reliance on oil and gas.
However, the fiscal measure could help in balancing the field of investments but not all without negatively impacting other sectors. The world is continually changing, and many countries are discovering new resources to remedy the overuse of oil products. Therefore, the overdependence on the oil sector and the renewal of oil prices continued to give rise to new fiscal deficits which could lead to overuse of savings and lead to a decline in fiscal flexibility (World Bank, 2017). Furthermore, the automation of services led to a rise in unemployment which translated into less spending and hence less revenue from different sectors. The fiscal savings from the oil sector could influence the economy, but it would be for the short term. In this regard, the fiscal measure could not work for long unless diversification was embraced in Kazakhstan. The tax cuts could adversely affect the oil sector, and since they had less manufacturing industries, the fiscal measures wouldn’t last long.
In monetary policies, the government of Kazakhstan was looking for a way of eliminating the impending inflation. Most of the investments in Kazakhstan are foreign in the oil industry. Since the break of the Soviet Union, Kazakhstan enjoyed a growing economy and employment rate increased with good wages. However, recently there was a surge in the oil prices, and hence less revenue was collected. Therefore, the government could pump money into the economy to achieve free-floating. The national bank could charge low-interest rates and help the country invest in manufacturing industries for food and other necessities (BNP PARIBAS, 2015). This would limit the number of imports and hence achieve a higher percentage of economic independence. Asa result the Kazakhstani tenge could gain value in relation to the US dollar.
Nevertheless, the monetary policy could only be effective if there was more money in government savings to pump into the economy. The rise of the unemployment rate as a result of the automation of services has reduced public expenditure. The expenditure could not be achieved following the over-reliance on oil and gas neglecting the essential manufacturing industries. Even though oil and gas are precious high-value commodities globally, not many people could benefit from exports. The fall in oil prices could lead to a staggering economy with no money to pump to the economy and would compete unfavorably with the US Dollar (BNP PARIBAS, 2015). Many could be borrowing and hence rise in interest as opposed to the directive to lower interest rates by the National Bank, thereby contracting the monetary directive for the government.
The overreliance on metal, oil and gas has been putting pressure on the government of Kazakhstan considering the rise and fall of global market prices. Therefore, the government needs to invest more in other industries which could be achieved through the training of young entrepreneurs and low-interest rates to encourage borrowing and investment. Supply-side measures could include mass entrepreneurship programs and subsidized workplaces. Such a measure would ensure skilled labour and thereby resulting in an innovative, productive and effective economy. Besides, if the government could lower the tax rates on incomes and more on transport and communication to curb market failure, then a productive and sustainable economy could be achieved (World Bank, 2018).
Supply-side measures are mostly achievable if a country is well invested in the provision of social amenities such as education and transport and communication. However, in Kazakhstan, no rigorous directives have been taken over the years. Institutions available in Kazakhstan are mainly in certain territories. The Mass Entrepreneurship program is available to a small percentage of the migrants (World Bank, 2018). Additionally, rural-urban restrictions have prevented many from accessing modern education and exposure to the labour market. The unregistered migrants also are denied access to crucial public services such as employment services as well as education. In this regard, Kazakhstan could improve its economy if they could remove such restrictions and educate many to entrepreneurship.
The monetary, fiscal and supply chain policies could effectively work as long as the government invests within its diverse sectors. Many manufacturing countries would generate revenue to fund government projects. Such projects would increase the employment rate, and there would be enough money float in the economy to prevent inflation. Furthermore, many citizens of Kazakhstan need to be exposed to entrepreneurship to acquire skills and make innovations. The restrictions on migrants need to be loosened to allow foreign contributions in building the economy. Most importantly, the government should cease the overreliance on natural oil and gas and metals to invest in manufacturing industries for continued and sustainable economic growth.
BNP PARIBAS, 2015. Victim Of The Domino Effect. [online] economic-research.bnpparibas.com. Available at: <https://economic-research.bnpparibas.com/html/en-US/Victim-domino-effect-10/22/2015,27128> [Accessed 11 April 2020].
World Bank, 2017. Kazakhstan: Toward Fiscal Sustainability And Economic Transformation. [online] World Bank. Available at: <https://www.worldbank.org/en/country/kazakhstan/publication/public-finance-review-2017> [Accessed 11 April 2020].
World Bank, 2018. A New Growth Model For Building A Secure Middle Class Kazakhstan Systematic Country Diagnostic. [ebook] Available at: <http://documents.worldbank.org/curated/en/664531525455037169/pdf/KAZ-SCD-April-2018-FINAL-eng-with-IDU-05012018.pdf> [Accessed 11 April 2020].