The President of Kazakhstan demands digital and design liberal reforms from the government
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An extended meeting of the new government was held in Astana yesterday with the participation of the President of Kazakhstan Kassym-Jomart Tokayev – in addition to summing up the activities of the previous cabinet, Mr. Tokayev also outlined “tasks for the near future.” The head of Kazakhstan will seek from the economic bloc the modernization of infrastructure and legislation to accelerate the development of Kazakhstan, which has so far rested on the stability of raw material income, but this period is coming to an end. The task of doubling the country’s GDP by 2029—to $450 billion—will require significant adaptation of its economy to new conditions through tax, budget and investment reforms and project government management, much like those in Russia.
Although formally the government of Kazakhstan is considered new, in addition to the prime minister – Olzhas Bektenov replaced Alikhan Smailov – only four people were replaced in the cabinet. However, two of them are heads of the economic bloc: Nurlan Baybazaro and Madi Takiev were appointed ministers of national economy and finance. At the same time, the situation in the country’s economy in 2023 was stable: GDP growth was 5.1%, which is below the target of 6–7%, but above 3.1% in 2022; for 2024, according to the official forecast, growth will accelerate to 5.3%. Inflation fell by more than half in 2023, to 9.8%, and in 2024 it is planned to be kept in the range of 6–8%. Capital investments grew by 13.7%, and foreign direct investment (FDI) broke records for the second year, amounting to $26–28 billion. International reserves amounted to $96 billion, including the assets of the National Fund (analogue of the Russian National Welfare Fund) increased by $4 billion, to $60 billion
The focus of President Kassym-Jomart Tokayev’s complaints against the previous government of the country was the low efficiency of tax and budget policy – the task of improving it was set for the new cabinet. In particular, the president’s complaints were caused by the formal implementation of the 2023 revenue plan, which the Ministry of Finance largely ensured by suspending VAT refunds to companies for 600 billion tenge ($1.3 billion). “Budget issues have been resolved through the withdrawal of working capital from businesses,” he bluntly told members of the government.
The budget, according to Mr. Tokayev, is not aimed at stimulating economic activity. The draft of the new Tax Code, which the Ministry of National Economy was supposed to develop by the end of 2023, did not live up to his expectations. “The business community has an opinion that the document is aimed primarily at increasing tax rates,” said the head of Kazakhstan (we are talking primarily about increasing VAT from 12% to 16%), in his opinion, “the VAT, which in Kazakhstan has acquired a different essence.”
In general, in his opinion, Kazakhstan faces “an absolutely urgent task of high-quality, dynamic development of the national economy,” which “is impossible without introducing a new system of taxation of profits and property, stimulating the reinvestment of income in business development, changing special tax regimes,” and the new The tax code should be developed not only by officials, but also by economists with the participation of the business community.
“You can’t just increase taxes, you need to work on improving the system for collecting them, reducing the shadow economy,” Mr. Tokayev insisted, including through digitalization and the use of artificial intelligence (see Kommersant Online), and in general “a fundamental reform is needed in tax and budgetary relations,” which will become “part of the new social contract between the state and business.”
Progress will be pushed by digital and AI
The President of the country, Kassym-Jomart Tokayev, sees digitalization and especially the use of artificial intelligence as a “fulcrum” that will allow for a qualitative change in the situation in the economy of Kazakhstan; since, objectively, Kazakhstan has something to be proud of here. “We have made significant progress in the digitalization of government and financial services. For example, at the end of 2023, the share of non-cash payments was 88%. Until 2020, this figure did not exceed 50%. Thus, in just four years, fintech has grown rapidly in Kazakhstan,” said Mr. Tokayev. In his opinion, such a breakthrough should become an example for other sectors of the economy. At the same time, the development of artificial intelligence requires special attention.
“The development of artificial intelligence can become a driving force for economic progress and innovation in our country. To do this, it is necessary to create a basic institutional environment. Data is a kind of fuel for artificial intelligence. It is important, on the one hand, to ensure access to them, and on the other, to guarantee the security, confidentiality and quality of data,” said the President of Kazakhstan.
Today, the government of the country has formed a so-called data lake, which includes 87 government databases, but this, according to the president, is no longer enough to create advanced artificial intelligence models. “It is necessary to accumulate anonymized data from both the public and commercial sectors, while introducing a unified architecture of data management systems,” Mr. Tokayev concluded. He also said that Kazakhstan is starting to create a high-performance supercomputer, “which will be available not only to scientists, but also to various companies operating in our market, which will give a powerful impetus to the widespread use of big data.”
The government is also ordered to intensify efforts to attract investment in the face of a fading investment cycle. For a long time, high FDI inflows into Kazakhstan were ensured by investments in the extractive sector (primarily the oil sector, where the era of large projects is ending) and the construction of Astana (also de facto completed) – and the country needs new growth drivers. “Enough funds are not being invested in the economy to at least maintain the current growth rates in the coming years,” noted Kassym-Jomart Tokayev.
The head of Kazakhstan called the high-quality preparation of the National Infrastructure Plan an important condition for this – its version, prepared by the government in 2023, caused severe criticism from Mr. Tokayev. “Collecting, as they say, all the ‘wants’ – and then complaining that funds have not been allocated from the budget – is … a receipt of one’s incompetence,” he said. Now the investment headquarters will have to solve the problems of attracting investments, with the personal responsibility of the prime minister – his report is expected in Astana based on the results of the first half of the year. The entire executive vertical, from ministers to heads of local government (akims), will also be required to increase investment activity. Businesses are promised a “special investment regime” for investments over $50 million.
In addition, the new government is expected to reform public procurement, PPP, construction regulation and “liberalize the economy” with a move away from large-scale government intervention in it – from the government, together with the Agency for Strategic Planning and Development and the Agency for the Protection and Development of Competition, the head of state is waiting for a draft special decree about this, dedicated to the development of competition, privatization and reform of the quasi-public sector.
Let us note that the problems faced by Kazakhstan as a major exporter of raw materials and the nature of its reforms are in many ways similar to the agenda characteristic of the Russian Federation during the times of “oil prosperity”, however, whether the final structure will retain its liberal orientation is unknown.
What do experts expect from Kazakhstan’s NEP?
“The previous government, on the whole, coped with everything – it was a good year, but it slowly moved towards internal reforms. These are the messages that I heard from the president’s speech at a government meeting. What is important, as it seems to me: firstly, a clear message that you need to focus on how to spend money and how to collect it. If everything else was more or less ritual and routine, then there was a clear focus,” economist, ex-adviser to the head of the National Bank of Kazakhstan Aidarkhan Kusainov told Kommersant.
Political scientist Gaziz Abishev notes another point. “One of the main ideas of President Tokayev at the extended government meeting was the idea of a new investment impulse, which should bring the economy to a new stage of development. Almost all points of his speech come down to this idea. Back in September, the government received the necessary amount of autonomous powers. An investment headquarters has been created, which has a wide range of tools for implementing investment policies and programs both in relation to individual departments and in relation to akimats of all levels. The President demands targeted support for large investors. At the same time, the state should not erect bureaucratic barriers on the path of investors, allowing officials to seek corrupt payments, but should take investors under a transparent umbrella, protecting them from “corruption sharks,” giving them the opportunity to implement their plans,” he wrote in his Telegram channel.
Economist Rakhim Oshakbaev believes that “inflated, ineffective budget expenditures, which can no longer be covered by both oil and non-oil revenues, will force the government to increase tax revenues by any means.” “The previous government tried to do this by increasing tax rates, which will obviously have a depressing effect on the business climate and accelerate inflation, as well as by refusing VAT refunds and advance tax collection from large taxpayers. It is important that the new government does not follow the same path. And he didn’t start squeezing the economy with taxes, but instead turned his attention to budget sequestration. Social spending accounts for only about half of spending. The rest can and should be examined in detail under a magnifying glass to determine whether it is necessary,” the economist believes.
According to Aidarkhan Kusainov, two significant and main trends are budgetary and fiscal discipline: “How to spend and how to collect – this is the Tax Code, this is the attitude towards taxes that there is no need to increase them madly, but need to creatively transform them. Accordingly, theses about digital tenge technologies, artificial intelligence, including in taxes, digitalization of taxes are key for collecting money and tax discipline. And the second question: how to spend the money? The point is not to cut support subsidies, but to streamline them and spend them effectively – not less, but more efficiently. Everything else is such ritual statements in the style of “strengthen”, “raise”, they are in the trend of all recent years, which is what the government of the previous Prime Minister Smailov did,” says the ex-adviser to the head of the National Bank of Kazakhstan.
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