1. REPUBLIC OF KAZAKHSTAN IN FIGURES

2. Economic growth and development 4
Executive summary 2
Economic growth and development 4
Fiscal management 20
Additional information 30
REPUBLIC FO KAZAKHSTAN

3. Executive Summary
After a decade of exceptionally strong economic growth and development, Kazakhstan’s ability to withstand shocks has been tested since the onset of the global liquidity crisis in Against expectations by many, appropriate policy responses and strong financial ratios have enabled Kazakhstan, which was identified as being among the worst affected, to avoid a severe banking crisis with a run on deposits, a currency crisis, depletion of FX reserves and prolonged recession.
Prudent macroeconomic policies in recent years have strengthened the authorities' position from which to navigate the financial storm. Despite of the deteriorating global economic outlook and a sharp fall in oil prices, by the Government there was maintained a positive growth of economy in 2009, by estimated 1.2%.
The government’s key priorities for the next two years include the stabilisation of the financial sector, supporting the small and medium sized enterprise (SME) sector, develop the agro-industrial sector and the real estate market, advancing the diversification of the economy, boosting employment and supporting socially vulnerable groups of the population.
Fiscal policies, despite the government’s planned support for the economy, remain conservative. The original oil price assumption in the 2010 budget is established at $ 65 pbl. and contingency plans have been made in case oil prices fall to $ 35 pbl. The consolidated fiscal balance in is forecast to continue to show moderate deficits due to low oil prices. State budget balances planned at around 4,1% of GDP in 2010 should be comfortably financed given the amounts of government’s assets and low debt levels.
In January-July 2010 to December 2009 inflation amounted at 4.6 % (at appropriate period of 2009 – 4.1%).
External liquidity position strengthened in the beginning of 2010 as a result of improved balance of payments dynamics. Due to comfortable export prices and continuous FDI inflows in 2010, the current account of balance of payments is expected positive.
Long-term prospects remain good given Kazakhstan’s vast endowment of natural resources and the government policies to support the economy’s diversification through infrastructure development and improvements to the business environment.
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4. Resilient fundamentals supported by a strong sovereign balance sheet…
At the end of 2010 GDP growth amounted 7 %. For 2010 GDP growth is forecast at 7,0%. Positive growth first of all maintained due to oil prices increase and smart policy of the Government to overcome the crisis.
Inflation potential in Kazakh economy in 2010 was – 7,8 %. In 2010 it is not expected any further inflation slowdown, due to having a number of risks. At the end of 2011 inflation is expected at 6-8%.
In 2009 GDP per capita grown up to $ 9000.
Gross international reserves of Kazakhstan as of amounted $ 37 bln.
Gross assets of National Fund as of amounted $ 36 bln.
ECONOMIC GROWTH AND DEVELOPMENT

5. Resilient fundamentals supported by a strong sovereign balance sheet…
Key macroeconomic indicators
2003
2004
2005
2006
2007
2008
2009
2010
GDP growth (%, change)
9,3
9,6
9,7
10,7
8,9
3,3
1,2
7,0
GDP per capita ($)
2068,0
2874,0
3771,0
5292,0
6772,0
8514,0
7257,1
9000
Current account (% to GDP)
(0,9)
(0,8)
(1,8)
(2,5)
(7,9)
(4,7)
(2,6)
9,5
Trade balance (% to GDP)
11,9
15,7
18,1
14,4
25,1
15,2
16,5
Exports of goods (%, change)
32,0
55,7
37,4
37,0
24,8
49,1
(39,3)
72,2
International reserves ($ bln.)
5,0
7,1
19,1
17,6
19,9
23,2 37
FDI (% to GDP)
7,2
12,6
3,7
8,2
7,6
11,1
8,3
12,2**
State debt (% to GDP)
15,0
11,4
8,1
6,7
5,9
6,4
13,0 -
National Fund (% to GDP)
11,5
14,2
20,0
20,5
21,2
24,5
*Jan-Jul 2010, **Report data as of Q1 2010
ECONOMIC GROWTH AND DEVELOPMENT
Forecasts
2007
2008
2009
2010
2011
report
forecast
GDP, $ bln
104,9
133,4
115,3
146.9
132,8
GDP, trillion tenge
12,8
16,1
17,0
21,6
19,9
GDP growth, %
8,9
3,3
1,2
7,0
GDP per capita, $
6772
8514
7257,1
9000
8299,4
Inflation (CPI), %
18,8
9,5
6,2
7,8
6,0-8,0
Average price for oil, $/per bar.
72,7
97,6
61,9
79,6
107,2
Oil & Gas production, mln. tones
67,1
70,7
76,4
79,7 81
National Bank and Statistics Agency

6. …and a government’s broad ranging Anti-Crisis Plan to limit the extent of the economic slowdown
Real Estate
Employment and Social Protection
From NFRK assets 120 bln tenge were directed for refinancing of mortgages and 240 bln tenge for solving of problems in real estate through Samruk-Kazyna’ Real Estate Fund, which purchases incomplete projects, completes construction and rents them to the public
48,8 bln tenge and 46,3 bln tenge were allocated to complete the construction of objects in Astana and Almaty. More than 20 thousand apartments were completed as a result. An additional 40,8 bln tenge was directed to purchase apartments by the Akimat of Astana. To date more than 5.5 thousand apartments have been purchased.
At the same time, a public housing program for was developed to resolve housing problems. The program, totaling 300 bln tenge, plans the construction of 28 million square meters of residential space
Moratorium on the immigration of non-skilled workforce and increasing control regarding illegal immigration
Contracts to prevent mass layoffs and preserve employment signed with 8,000 large and medium enterprises which employ 900,000 people
(Re-)schooling and training programs
Additional unemployment benefits and various kinds of social aid
Free school catering, improved pre-school education
Funds allocated for food security and (vital goods such as meat, dry milk, sugar)
Broad-ranging Road Map project to sustain/create jobs in the regions, in 2009 more than 380 thousand jobs created
The Road Map to continue in 2010 with bln tenge budgeted
E C O N O M I C   G R O W T H   A N D   D E V E L O P M E N T
SME’s
Other Industrial Sectors
From NFRK assets 120 bln tenge allocated for SME support:
117 bln tenge via DAMU fund and commercial banks directed for financing of SMEs (70% for refinancing of existing projects and 30% for new projects at a rate of 12.5%);
3 bln tenge will be directed to the direct lending for SME
In the framework of SME support (by three tranches & the “Damu – Regions” program) more than 8 thousands of SME projects were financed and 11.4 thousands of jobs were supported
Micro-project programs, operated through “Kazpost” offices
Measures to reduce “red tape” and to improve business environment for SME, including changes to Private entrepreneurship law to limit the number and duration of state inspections/audits and changes to licensing system
Funding of KazAgro via emission of bonds (120 bln tenge) to the Oil Fund
Channeling of investments into areas with high export potential
Mainly financial and institutional support for projects in the agriculture and food industry through the central state and regional budgets, the National Welfare Fund, and the state holding “KazAgro”
Mainly infrastructure and electricity sector projects (120 bln tenge from the Oil Fund)

7. Disbursement of assets for the realization of Anti-crisis measures of the Government for the period of
Total anti-crisis funds allocated amount bln tenge (20.2 bln. USD), including:
Anti-crisis measures on 5 directions – bln tenge (11.3 bln USD)
Reduction of minimal reserve requirements – 490 bln tenge (3.3 bln. USD)
Reduction of tax pressure bln tenge (3.3 bln. USD)
Implementation of new plan of further modernization of economy and realization of employment strategy (Road Map) bln tenge (2.3 bln. USD)
E C O N O M I C   G R O W T H   A N D   D E V E L O P M E N T

8. Disbursement of assets for the realization of Anti-crisis measures of the Government for the period of
mln. tenge
Item
2007
2008
2009
February 2010
Balance
allocated
disbursed 1
Financial sector stabilization
81 450 2
Houses construction
74 325
99 398 3
SME
48 800
85 417 4
Agroindustrial complex
24 400
50 422
13 360
120000 5
Implementation of investment projects of Samruk-Kazyna
27 200
92 800
Total
Anti-crisis measures
Reduction of minimal reserve requirements
Reduction of tax pressure
Implementation of new plan of further modernization of economy and realization of employment strategy (Road Map)
TOTAL
E C O N O M I C   G R O W T H   A N D   D E V E L O P M E N T

9. Strong economic growth in recent years fueled by private investment
GDP (% change) and GDP per capita in $
Investment in % of GDP and % yoy change
E C O N O M I C   G R O W T H   A N D   D E V E L O P M E N T
Source: MEDT, Statistics Agency
Source: Statistics Agency (2010 – Jan-Jun)

10. Outstanding and diverse natural resource wealth supports long-term growth prospects
The country holds about 3.2% of the world’s total proven oil reserves. Overall prospective resources are estimated at between two and three times the size of proven reserves
Over the next decade, Kazakhstan is expected to double oil production on the back of higher production at the Tengiz field and launch of the Kashagan field, which is the fifth largest in the world by reserves
The republic holds 1.4% and 3.4% of the total world reserves of natural gas and coal, respectively.
Kazakhstan possesses all known useful minerals including major deposits of ferrous and non-ferrous metals, uranium and gold
Kazakhstan is also a significant exporter of grain, ranking among the world’s leading ten exporting countries
E C O N O M I C   G R O W T H   A N D   D E V E L O P M E N T

11. Outstanding and diverse natural resource endowment supports long-term growth prospects
Oil reserves (% total world reserves), 2009
Kazakhstan Mineral Resources (% World Total & Rank) 11 9 5 11 6 4 4 5 5 3 1
Source: BP Statistics, Broker’s research
Source: USGS #
World Rank
E C O N O M I C   G R O W T H   A N D   D E V E L O P M E N T
Source: Geological Committee of Ministry of Oil and Gas, RK

12. Rising energy production will partially compensate for the decline in prices
Oil production (mln ton)
Source: MOG, MEDT
Natural gas production (bln m3)
E C O N O M I C   G R O W T H   A N D   D E V E L O P M E N T
Source: MOG, MEDT – Statistics Agency operative data

13. New measures of the Government for the industry development
The Program of accelerated industrial-innovative development of Kazakhstan for (PAIID)
Main goal of PAIID – accelerated industrialization and economic diversification to support long-term sustainable economic growth
PAIID Objectives:
Consolidation of public and private efforts and concentration of state resources for development of priority sectors of economy;
Ensuring a favorable macroeconomic and investment climate and building effective institutions and mechanisms of government and business interaction
Within the framework of PAIID the Industrialization Map is being implemented
At present the Gross Industrialization Map includes 237 projects with amount of 7,26 trillion tenge.
Republican Map includes 101 project with the sum of 6,76 trillion tenge, Regional Map includes 136 projects with the sum of 493 bln. tenge.
At the end of first half of 2010 there were launched 72 projects with the sum of 381 bln. tenge, at the second half it is planned to accomplish 72 projects with the sum of 459 bln. tenge.
Expected results:
Sustained pace of economic development with the annual EVA growth approx. to 50%
Structural shifts in the economy and industry towards greater production of value-added products; increase in the proportion of manufacturing up to 12.5%
Greater economic productivity
E C O N O M I C   G R O W T H   A N D   D E V E L O P M E N T
Source: MEDP

14. Selected projects of the Industrialization Map1
Agriculture: Construction of grain elevator complex in Mangystau oblast, 6.9 bln. tenge 2
Construction industry and production of construction materials: Construction of cement plant 19.5 bln. tenge 3
Oil processing, infrastructure of oil & gas sector: Modernization and reconstruction of Atyrau Oil processing plant, bln. tenge 4
Metallurgy and production of finished metal products: Reconstruction of Taraz metallurgy plant, 11.6 bln. tenge 5
Chemical and pharmaceutical industry: Construction of Gas-Chemical complex in Atyrau oblast, 945 bln. tenge
E C O N O M I C   G R O W T H   A N D   D E V E L O P M E N T 6
Energy: Construction of Balkhash thermal power-station, bln. tenge 7
Transport and telecommunication infrastructure: Reconstruction of “West Europe – West China” road, bln. tenge
Source: MEDP

15. Multi- annual foreign investment projects ensures sustainability of FDI inflows despite the global crisis
Kazakhstan has become a regional leader in attracting FDI, with the EU and the US amongst the largest investors in the country.
FDI inflows have become increasingly diversified, flowing into various non-oil sectors of economy such as metallurgy manufacture and financial sector.
Despite the crisis FDI inflows will continue to come into projects of oil & gas sector development.
E C O N O M I C   G R O W T H   A N D   D E V E L O P M E N T

16. Multi- annual foreign investment projects ensures sustainability of FDI inflows despite the global crisis
FDI growth, $ mln.
Source: National Bank
Exploration and mining sector dominate in FDI activity
(Q1 2010)
FDI inflow by several main countries
(Q1 2010), % shares
E C O N O M I C   G R O W T H   A N D   D E V E L O P M E N T
Source: National Bank
Source: National Bank

17. State budget deficits remain moderate in 2009-2011 as prudent fiscal policies are the focus
At the end of 2009, the state budget deficit amounted to 3.1 %, which is modest given the Government’s significant Anti-Crisis support
For 2010 the deficit is forecast to reach 4.4 %, it is projected to slowdown it up to 3.4 % by 2012
Oil price projections in the budget during are set at $65 per barrel
F I S C A L   M A N A G E M E N T

18. State budget deficits remain moderate in 2009-2012 as prudent fiscal policies are maintained
State budget indicators and forecasts (KZT bln)
F I S C A L   M A N A G E M E N T
Source: Ministry of Finance

19. The consolidated budget feels the impact of lower oil prices, continues to show a moderate deficit
Consolidated budget indicators and forecasts (KZT bln)*
Consolidated budget, % of GDP
F I S C A L   M A N A G E M E N T
Source: MEDT

20. Authorities continue to demonstrate commitment to conservative fiscal policy despite the economic crisis
State budget expenditures show stable increase in expenses with reduction of development expenses.
In state budget revenues the transfers increase proportionally to increase of tax receipts. In 2009 to 2012 it is projected to increase of tax receipts by 1.4 times.
The state budget deficit increased by 1.7 times from 2007 to As a result the Government’s anti-crisis measures and conservative fiscal policy it is the deficit is expected to remain at around 3,5 % of GDP through 2012.
F I S C A L   M A N A G E M E N T

21. Authorities continue to demonstrate commitment to conservative fiscal policy despite the economic crisis
State budget expenditures (KZT bln and % GDP)
Government revenues (bln KZT)
Government expenditures (bln KZT)
State budget deficit for
F I S C A L   M A N A G E M E N T
Source: Ministry of Finance

22. New tax code aims to support economic diversification and general economic activity
Republican budget for provides for retention of current 20% CIT rate for
Efficient tax system that supports diversification of the economy and expansion of tax base through legalization of shadow business.
Kazakhstan is ranked 52nd in Paying taxes metric by the World Bank’s “Doing business” report in 2010.
F I S C A L   M A N A G E M E N T

23. New tax code aims to support economic diversification and general economic activity
Measures in the New Tax Code
Accommodation of all changes/amendments/interpretations to the Tax Code made during the last 5 years
Adjustment of the Tax Code for the application of IAS, IFRS
Revocation of advance payments of corporate income tax for small business enterprises
Extension of loss deferral period to 10 years
Stage-by-stage introduction of traditional VAT payment scheme (introduce reimbursement of VAT receivables from the budget)
Introduction of common social tax rate (11%) instead of regressive scale
Reduction of VAT to 12% from 13%
Corporate Income Tax Reform
Taxation of Mineral Extractive Sector
Optimization of investment tax preferences
Revocation of advance payments of corporate income tax for small business enterprises
Extension of loss deferral period from 3 to 10 years
Reduction of CIT from 30% to 20% in 2009
Allow processing industries to file for tax deductions for construction expenditures and cost of fixed assets within a three year period
Replace the old royalty-based tax system with the new Mineral Extractive Tax that directs flow of the new tax by oil and tax companies to the National Fund and by other energy sector to the budget
Change the calculation of rent taxes, including change of base price levels from selling price to the world price levels and inclusion of coal in the tax base
Starting from January 2009 the government stopped issuing production sharing agreements (existing agreements will stay in force)
Increase tax burden of the energy sector from 49% to 62% (at base price 72.7 $/b)
Introduction of a more flexible EPT calculation
F I S C A L   M A N A G E M E N T

24. Very low sovereign debt and substantial assets allow the government to finance comfortably the projected deficits
Public sector gross debt (%GDP)
Assets of National Fund (% GDP and US$)
Public sector debt breakdown as of January 1, 2010, bln. tenge
F I S C A L   M A N A G E M E N T
Source: Ministry of Finance
Source: Ministry of Finance, MEDT

25. Creation of a Customs Union
Perspectives of Customs Union (CU) in framework of EurAzEC
1. Increase of trade turnover between countries (Belarus, Kazakhstan and Russia). For local enterprises the market will expand to around 170 mln people.
2. As a result of unification of customs tariffs on goods from third countries, the weighted average tariff almost doubled. This will promote the decrease of reliance on imports.
This will give the chance to Kazakh goods to penetrate the markets which were firmly occupied by goods from third countries (particularly, from China) due to the difficulty of price competition.
3. Improving the investment and business climate in Kazakhstan (lower VAT, employment taxes) should help to secure foreign investment inflows to non-oil sectors aimed at common market.
4. The customs union will be a stimulus for cooperation of complementary enterprises and creation of vertically-integrated corporations in Russia, Belarus and Kazakhstan.
5. Unification of tax tariffs will lead to its growth for Kazakhstan, and with additional investment attracted would lead to increase state budget revenues
A D D I T I O N A L I N F O R M A T I O N