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Kazakhstan: Making the Most of Its Oil Wealth

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  • The oil sector has lifted growth and improved well-being
  • But oil activity has only limited spillovers on other economic sectors
  • Diversification can help buffer against oil shocks, spur job creation

Oil plays a big role in Kazakhstan. With nearly 40 billion barrels in reserves and 2 percent of global production, the country has the world’s ninth largest proven reserves and is among the 20 largest oil producers.

In 2010, the oil sector accounted for more than 11 percent of GDP, and oil exports represented nearly 57 percent of total exports of goods and services.

With major new discoveries in recent years and the development, notably, of the Kashagan oil field in the northern part of the Caspian Sea, oil will continue to attract major investments and act as a main driver of the country’s growth. Kazakhstan, located in Central Asia, is the world’s largest landlocked country.

A new IMF study finds that a key challenge for the government is to ensure that the benefits from oil wealth are shared by the population as a whole. In an interview, Ana Lucia Coronel (IMF Mission Chief for Kazakhstan) and Narayanan Raman (Economist in the IMF’s Strategy, Policy, and Review Department) spoke about what oil wealth means for Kazakhstan’s development.

IMF Survey online: How is Kazakhstan managing its oil wealth?

Coronel: Prudently. Part of the oil proceeds contribute to financing development needs, while another significant part is saved for the benefit of future generations and to help insulate the economy from swings in inflows generated by global oil price fluctuations. Kazakhstan’s stabilization fund—the National Fund of the Republic of Kazakhstan—is the cornerstone to managing and preserving the country’s oil wealth. The central bank manages the fund, using it to save the bulk of oil-related fiscal revenues. The government budget is allocated a fixed annual transfer of $8 billion from the fund. Because of the authorities’ discipline in adhering to this target, and thanks to high oil prices, the fund has increased from about $20 billion in mid-2009 to over $38.7 billion in July 2011.

online: What challenges does the country’s dependence on oil pose?

Raman: As with other oil exporters, the volatility of oil prices presents challenges. The government depends on oil for the largest part of its revenues. For instance, in 2010, almost one half of government revenues came from extraction and exports of oil. Thus, when oil prices fall, the lack of other sources of revenue may constrain fiscal spending. Lower prices could also hinder exploration and development of new wells, especially in the new Kashagan oilfield, where the bulk of proven oil reserves is located. But Kazakhstan’s prudent policy of saving the lion’s share of the oil proceeds in the oil fund lessens these risks.

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