Kazakstan Tightens Belt as Oil Price Falls

Analysts say that if the international economic crisis continues, the Kazak government may find it hard to keep its promise to maintain social-sector spending despite falling oil revenues.



The government’s 2009 budget, on which President Nursultan Nazarbaev signed off on December 4, represents a radical revision of the original draft.



A substantial proportion of revenues come from Kazakstan’s oil exports, and the initial forecast for the budget over a three-year period was based on an oil price of 60 US dollars a barrel. This must have seemed realistic given that world prices came close to 150 dollars a barrel over the summer.



As the global financial crisis and economic slowdown depressed demand for oil, this assumption was revised down to 40 dollars a barrel for 2009 and 50 for the two subsequent years.



By this week, oil prices had already fallen almost to 40 dollars a barrel.



The revised forecast not may be drastic enough. On December 10, Prime Minister Karim Masimov ordered the economy and budget-planning ministry to “consider the possibility that the economic situation will worsen further, and look at a budget based on 25 dollars a barrel”.



“If the oil price falls to 25, we have to be prepared,” he said.



Masimov gave an assurance that this major belt-tightening exercise would not affect spending on things like welfare and pensions.



“Not a tenge of social spending will be touched,” he said.



After a December 13 meeting to look at the options, the economics ministry issued a statement reiterating that the list of government projects that might be cut back would not include spending on social programmes.



It has not yet been made clear what is in this “untouchable” category. Pensions, welfare benefits, the building of schools and hospitals seem to be included, but public-sector wage levels and increases may not be. Based on more optimistic predictions earlier in the year, the government committed itself to 25 per cent public-sector wage rises next year and the one after, with pensions and student grants following suit.



An anonymous government official told the KazTAG news agency that savings would be sought initially in administrative costs and government-funded investment.



Commentators say it makes sense for the government to commit itself to maintaining spending levels in key areas, although some doubt whether it can realistically keep this promise if the economic environment deteriorates.



“It’s a difficult situation [already] and if social programmes start being cut as well, people might not take it well, and they might go out onto the streets,” Timur Nazkhanov, deputy head of Kazakstan’s Independent Association of Entrepreneurs, told IWPR. “The state’s principal concern will be social stability, so it look for options and reserves that the government probably has.”



Nazkhanov agreed that the most obvious areas for cutbacks were in the administration itself – ministries, parliament, state-run corporations and perhaps even defence. Some of these institutions, particularly the corporations, were prone to padding out their costs so could probably live with a bit of pruning, he added.



Other analysts expressed doubts about whether the government could curtail overall spending without touching the social sector.



According to political analyst and opposition activist Petr Svoik, it may just be a matter of time before the multiple effects of the financial crisis hit home.



“It probably won’t happen immediately, but of course it will hit [social spending], because the budget is based on exporting raw materials and if these run into problems, the budget will be also in difficulty,” he said. “There are things that can be cut aside from social spending, but inevitable this will have an impact on social affairs.”



Svoik said oil was the only thing that kept the government budget afloat, and if the slump in word oil prices proved “permanent and long-term”, as he believed it would, that meant there was no obvious way out.



Yevgeny Zhovtis, who heads the Kazakstan International Bureau for Human Rights, is also certain that cutbacks are inevitable if the decline in revenues proves steep and long-lasting.



“It’s obvious there are major problems with [government] revenues resulting from the fall in oil prices, the reduction in business activity, the decline in demand and so on,” he said. “So it’s obvious the budget has to be cut and it’s also obvious that however hard the government tries and whatever it says, this is going to mean cuts in social spending.”



Igor Yaroslavtsev is an IWPR-trained journalist in Almaty.