World Bank Report: Kazakhstan's Economic Outlook Mixed, Calls for Tax Reforms and Fiscal Discipline

The World Bank’s latest economic update on Kazakhstan outlines a mixed economic forecast, with calls for structural reforms and increased revenue mobilization to address fiscal challenges.

The World Bank’s latest economic report on Kazakhstan, titled “Funding the Future: Boosting Revenues for Lasting Investments,” highlights a mixed economic outlook for the country. The report forecasts a growth acceleration from 4 percent in 2024 to 4.5-5 percent in 2025, primarily driven by increased oil production and continued fiscal support. However, after 2025, the pace of growth is expected to slow due to low productivity and declining investments.

Inflation, while gradually decreasing, remains above target, and the report predicts it will decline to 7.5-8 percent by 2025, reaching 6 percent by 2026. Nonetheless, ongoing fiscal expansion and rising currency volatility could maintain inflationary pressures in the coming years.

“Kazakhstan’s fiscal policy continues to be expansionary, with an elevated budget deficit projected for 2025-2026,” said Andrei Mikhnev, World Bank Country Manager for Kazakhstan. “While public debt remains manageable, the increasing reliance on domestic borrowing and withdrawals from the National Oil Fund to cover fiscal shortfalls raises sustainability concerns. This report underscores the need for fiscal discipline and the diversification of revenue sources to secure long-term stability.”

Risks to Economic Stability

The report identifies several key risks to Kazakhstan’s economic future, including:

• A potential decline in global oil demand, which would negatively impact Kazakhstan’s oil exports and revenue.
• The continued expansion of fiscal spending, which may lead to fiscal imbalances.
• The vulnerability of critical infrastructure and business activities to extreme weather events, which could disrupt economic performance.

These risks, combined with other challenges, could jeopardize Kazakhstan’s growth prospects and long-term financial sustainability.

Tax Revenue Challenges and Reforms

A major concern raised in the report is Kazakhstan’s low tax revenue compared to its peers, which limits the ability of the government to fund essential public services and invest in long-term growth opportunities. To address these fiscal challenges, the report proposes comprehensive tax reforms aimed at boosting revenue mobilization.

The proposed reforms include:

• Transitioning to a progressive income tax system to ensure that higher earners contribute more.
• Phasing out inefficient tax incentives that reduce the tax base without yielding substantial benefits.
• Reforming the Value-Added Tax (VAT) system to improve compliance and efficiency.
• Aligning excise taxes with environmental objectives to support sustainable development.
• Enhancing tax administration to close loopholes and reduce tax evasion.

These reforms are critical for improving fiscal health, ensuring that the government has the resources needed for public services, infrastructure investment, and long-term development.

Infrastructure Investment and Sustainability

The report also emphasizes the pressing need for increased investment in Kazakhstan’s infrastructure. The country faces a significant infrastructure gap, which if left unaddressed, could hinder productivity and disrupt essential public services. To ensure long-term sustainability and growth, the report stresses the importance of ramping up infrastructure investments and securing adequate funding through improved revenue mobilization.

In conclusion, the World Bank calls for a balanced approach that combines fiscal discipline, tax reforms, and strategic investments in infrastructure to ensure Kazakhstan’s economic stability and future growth. Addressing these challenges will be key to sustaining long-term development and achieving more inclusive prosperity.