RESTRICTEDWORLD TRADE
ORGANIZATIONWT/ACC/KAZ/19
9 December 1998
(98-4948)
Working Party on the
Accession of KazakstanOriginal:  English
ACCESSION OF THE REPUBLIC OF KAZAKSTAN
Report on the Economic Situation in Kazakstan
The following report on the economic situation in Kazakstan has been submitted by the WTO
Commission of the Republic of Kazakstan.
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The economic situation in Kazakstan was characterized, on the one hand, by the continuation
of the macroeconomic situation achieved in 1997 with a number of sustainable indicators, including a
low level of inflation and a stable exchange rate of the national currency.  However, on the otherhand, a growing influence of the world financial crisis and that of the depreciation of the Russian
rouble were also characteristic features of the development of the Kazakstani economy.
Positive results of ongoing large-scale economic reforms in Kazakstan provide notice of some
revival of production. Thus, as estimated preliminaril y, the growth of the Republic’s GDP for the first
8 months of 1998 was 1.1 per cent as compared with  the same period last year.  The share of services
that continue to prevail in the GDP structure was 64 per cent, production of goods accounts for 31 per
cent.  The growth of production of industrial goods was 0.9 per cent and equity investments was 56
per cent.
Kazakstan is in the third year of fulfillm ent of the terms of its Agreement with the
International Monetary Fund on the program of extended crediting, and no serious problems during its
implementation have been encountered.  Kazakstan also works with the World Bank on a number of
aspects related to structural reforms, including restructuring of the State resources managementsystem.
Changes in the world commodity (raw materials) market in early 1998 and drops in prices for
major groups of goods, which make up the foundation of Kazakstani exports, have complicated the
situation in the economy.
To ease off the impact of the world crisis on the internal situation, the Government of
Kazakstan has taken measures to secure and ensure economic and financial stability in the country. To
this end, the Government of the Republic of Kazakstan adopted a Memorandum "On Reinforcing
Economic Stability", laying down preventive measures to ensure State budget income, to lower
budgetary spending, and encourage business activity.  It is also planned to monitor the activity of
principal taxpayers and to introduce a moratorium on lowering of the rates of major taxes.Reorganization and bankruptcy for approximately one thousand insolvent enterprises are envisaged,
which, in turn, is expected to ensure the creation of competitive productions and to facilitate the
rehabilitation of the economy of the country.WT/ACC/KAZ/19
Page 2
Monetary Credit Policy has been targeted to  gradually slow down the rate of inflation, to
maintain moderately positive real interest rates and to improve the quality of financial mediation
(brokerage).
In general, inflation hit 2.4 per cent for the first 8 months of this year, prices for food-stuffs
grew by 0.6 per cent, prices for non-food products fell by 0.1 per cent and prices for publiccommercial services increased by 8.7 per cent.
On 20 August 1998, the Government and the National Bank of Kazakstan published a joint
statement on the current situation in financial markets in order to prevent a potential crisis from
looming.  It defined the main directions to work to level off the negatives of the world financial crises,
including the recent turmoil in Russia, as they influence the Kazakstani economy.  These include
instruments of currency control, exchange rate polic y, increases in official interest rates, oversight
over financial stability of banks, and banks external loan controls.
The National Bank of Kazakstan established measures to protect the Tenge (the local
currency) against different unforeseen shocks from abroad, which include specific regulatory
mechanisms for transactions with currency, profitability at the securities market, interest rates to
prevent outflow of deposits from the banking system, support for banks' liquidity, reinforcement of
oversight over capital monetary and currency flows in the banks (especially in cash).
Beginning in late October 1997, the official rate of refinancing of the National Bank remained
at the level of 18.5 per cent per annum.  However, it went up to 20.5 per cent beginning in August,
whereas the interest rate on "overnight" credits in September constituted 25 per cent.
Within the reporting period, the National Bank continued to adhere to the regime of a
regulated floating exchange rate of the Tenge, the depreciation of weighted average rate of the Tengeto the US dollar constituted 2.76 per cent as traded at the Stock Exchange.
Tax and Budget Policy:  In order to streamline the tax administration, the tax declaration form
was simplified, a simplified procedure to receive declarations was established, changes and
amendments were introduced by the Decree of the President of the Republic of Kazakstan with the
effect of law "On Taxes and other Compulsory Budg etary Payments."  All these are aimed to increase
the taxable base through reductions in taxes collected on products of domestic producers and
agriculture.  Additional measures to ensure collection of finance into non-budget funds of the
Republic of Kazakstan were adopted.
Measures to reduce the current tax burden were adopted to support domestic producers:  a
procedure not to collect VAT on goods imported from  the CIS countries with the purpose to avoid
"double" taxation in terms of VAT was introduced, the VAT rates on production and importation of
certain staple goods were reduced by 10 per cent, farmers and agricultural producers received 80 percent tax breaks.
As of August 1, 1998, 80.3 per cent of the State budget was executed, whereas the budget
deficit constituted 3.3 per cent of the GDP.
The structure of influx of the basic types of taxes and payments changed.  The VAT share
increased by 1.2 times.  Changes to the tax legislation related to returns and VAT off-sets led toincreased VAT collection.
In order to implement measures to facilitate the economic reforms in the agricultural sector,
the Tax Committee, as agreed with the financial bodies, granted tax deferments and other breaks on
budgetary payments to agricultural organizations that are subject to stabilization and "rehabilitation."WT/ACC/KAZ/19
Page 3
This measure further promotes the economic reforms in agriculture and gives the possibility to
somehow financially rehabilitate agricultural enterprises.
Investment Activity:  It was observed that investment activity tended continually to grow as
opposed to the production of goods and services.  This is attributed to the efforts put into the creation
of a favorable investment environment and, in part, to the ongoing construction and growth of the newcapital Astana.  Investments, coming from all fi nancial sources, in equity grew by 1.6 times as
compared with the first half of the year 1997.
The investment rating of the Republic of Kazakstan increased, which was demonstrated by
the second International forum of Investors "Kaz akstan Investment Summit", which took place in
early June this year in Almaty.  A number of measures on improvement of the investment climate in
Kazakstan were undertaken, which included improvements in legal and normative bases related to
investments, simplification of regulatory procedures and work with investors.
Funds of enterprises and organizations (56.7 per cent) prevailed among financial investment
sources, the budgetary share of investments consti tuted 17.9 per cent, in other words almost a 14 per
cent growth was noticed.
The process of attracting foreign investors is continuing.  The total volume of funds used in
January through June of this year constituted 21 per cent compared to 20.3 per cent during the sameperiod of 1997.  Mining and processing industries still retain their top priority.  41 percent and 12 per
cent of the total volume of equity investments,  respectively, were used on the development and
reproduction of capital goods.  Agriculture, education, the social sphere and the fishing industry
remained among the least attractive sectors.  Therefor e, they were mainly invested in with the State
budgetary funds.
Foreign Trade was characterized by a 5 per cent drop in foreign trade turnover resulting from
an 8.2 per cent decrease in exports and a 2 per cent decrease in imports.
The main reasons for such a decrease in exports are: continual drops in prices in world
markets for the main types of industrial products exported by Kazakstan, drops in demand for oil,
non-ferrous and ferrous metals, grain and a number of other products in external (foreign) markets.
A slight diversification in the structure of exports increased the share of the major types of
product groups (mineral fuel, ferrous and non-ferrous metals) from 72.4 per cent to 75.7 per cent.
The dynamics of the volume of imports of the main types of goods did not change
significantly within the last period with oil and oil products, technological and electric equipment,
transport and so called "charter trade" remaining the most important articles of Kazakstani imports.
Within the framework of the effort of the Republic of Kazakstan on bringing the legal basis
into compliance with international standards and rules, the following work was done:
1. The Laws "On Subsidies and Countervailing  Measures" and "On Anti-Dumping Measures
when Importing Goods" have been approved by the ministries and agencies and are being
reviewed by the Government of the Republic of Kazakstan.
2. The Laws "On safeguard Measures," "On Trademarks," and "On Plant Quarantine" are
currently being considered by the Parliament.WT/ACC/KAZ/19
Page 4
3. New laws have been adopted: "On Limited and Additional Partnerships," "On Unfair
Competition," "On Payments and Transfers," "On Natural Monopolies," "On Joint Stock
Companies," and "On Farming."
Privatization and State Property Management:  The privatization program in Kazakstan is
being implemented in three stages.  This program started with "small privatization", which was
completed by privatization of retail enterprises and service providers.  The second stage covering
medium-size enterprises (with a number of employees from 200 to 5000) is also coming to an end.
The third stage includes individual privatization of separate largest enterprises (about 150 enterprises
including those of the energy complex, oil- and gas-pipe line networks), banks, airports and other
objects by means of their transformation into joint stock companies.  The mass privatization was
carried out by means of distribution of coupons and by the transference of fixed assets to the
ownership of workers and employees.
Ten enterprises were put up for tenders, 8 of which were sold, including "Bank Turan-Alem,"
the largest Kazakstani bank (100 per cent of State portfolio, the sale price was US$72 million).
Beginning 1997, the Ministry of Transport and Communi cations also conducts tenders to sell licenses
to use the radio frequency spectrum of the Republic of Kazakstan.
On the whole, the Republican budget received 15 billion Tenge or US$200 million from
privatization effectuated under individual projects.
Antimonopoly and Pricing Policy:  To improve regulatory methods and the price and tariff
controls of enterprises (natural monopolies), additional measures regulating the activity of enterprises
(natural monopolies) were adopted.
The Law "On Unfair Competition", which provides a legal basis for the regulation of a
competitive market was adopted.
Agriculture:  Structural changes in organizational and legal forms of business entities are
taking place as a result of implemented measures designed to strongly encourage economic reforms in
Kazakstan.
A number of bankruptcy procedures were started.  They are going very slowly, because this
process is very sensitive and painful and influences the interests of a large portion of the population of
this Republic.
The activity of the State fund on support of agriculture was revised.  Its core function now is
to provide financial support and crediting to farms based on the principles of expediency and
profitability of provided loans.  As of 1 January 1998, the total amount of the debts transferred, in
accordance with the decrees and resolutions of the Government of the Republic of Kazakstan, on the
balance of the State Fund is equal to 34.4 billion Tenge or US$452.6 million, which include directcentralized credits, deferred bank loans, written off electric power, leasing and other funds, granted on
a returnable basis.
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