Kazakhstan Economics - New Measures to Boost Economy and Support Stability

During a speech to the Mazhilis, the lower house of the Kazakh parliament, Kazakh President Kassym-Jomart Tokayev said that the situation across all the regions of Kazakhstan has stabilized and that, with the mission of the CSTO peacekeeping force having been completed successfully, peacekeepers would start to withdraw in two days (it should take no more than ten days to wrap up). Today, the Mezhilis has also confirmed Alikhan Smailov as the new prime minister, along with his cabinet. During his speech, Tokayev announced several measures to support the social and economic situation and improve security in the country.> New social/economic measures to support population. Tokayev announced the creation of a public fund to deal with social problems. He expects businesses (particularly those who have become rich during the tenure of the previous president) to make significant and regular contributions to the fund. He also ordered the government to prepare within two months a new program to tackle social problems and to boost household income. Special attention should be paid to unemployment and youth employment, according to Tokayev. He also criticized officials for their inability to communicate with people. He said particular attention should be paid to developing the agriculture sector in order to improve the country's food security, adding that it is necessary to simplify the procedure for obtaining subsidies and make them more available.> Higher tax receipts. Tokayev instructed the government look for the opportunity to raise additional revenues from enterprises in the mining and oil and gas sectors, as they are said to be seeing extra profits from higher commodity prices. Tokayev also said there is some room to reduce corruption at the Chinese border, which has a "significant potential to increase budget revenues." On a separate note, he said that there should be a five-year moratorium on increasing the salaries for members of the government, heads of regions and deputies. > Stabilization of exchange rate and inflation. Tokayev instructed the National Bank to ensure the stability of the exchange rate until a full recovery of confidence in the tenge. The government is to fulfill all of its obligations and guarantees. Another critical issue is stabilizing prices and the inflation expectations of the population, according to Tokayev. He said steady work should be done to reduce inflation to a target corridor of 3-4% by 2025. This should include different measures, including reducing the country's dependence on imports, removing "excessive intermediation" and using monetary policy instruments.> Reform of Development Bank of Kazakhstan and Samruk-Kazyna. Tokayev said that the DBK had become a tool for redistributing money between oligarchs in the country and instructed the government to reform the bank's activities. He also said that it is necessary to review the effectiveness of expenditures at the investment holding Samruk-Kazyna and other national companies.> Security institutions to be reorganized. Tokayev said that it is necessary to restructure the work of the armed forces, law enforcement agencies, national security agencies and foreign intelligence. In particular, new units of the National Guard and special forces will be formed, and the border service will be strengthened. He also announced an increase in the salaries of all law enforcement agencies and special forces. The legal protection of police officers should be expanded and the punishment for attacking a government official or building should be toughened.> Our view. The announced measures are in line with our expectations that the government would increase fiscal expenditures to support the economy and vulnerable groups of the population. We think the budget deficit could reach up to 3.5% of GDP this year, versus the initial plan of 2.5%. This could also mean a postponement of fiscal tightening (including the introduction of a fiscal rule, which had been discussed at the end of last year). Despite the possible higher deficit, we do not see any risks for fiscal stability or a material impact on the credit rating.