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Country Context

Kazakhstan, the world's largest landlocked country, boasts the ninth largest territory globally and a population of just over 20 million, resulting in one of the lowest population densities at 7.4 people per square kilometer. It shares borders with Russia, China, and other Central Asian economies and is a crucial part of the Middle Corridor, linking Chinese and European markets via Central Asia and the Caucasus.

The first wave of market transition reforms in the 1990s, coupled with new investments in the oil and gas industry, elevated Kazakhstan to an upper middle-income country. However, the transition to a market-based economy remains incomplete. The economy is heavily reliant on non-renewable natural resources such as oil, gas, uranium, coal, and gold. Despite substantial natural resources, Kazakhstan faces challenges of low and stagnant productivity and the dominance of extractive industries, which hinder economic diversification and growth.

Kazakhstan aims to double its economy by 2030 from 2023 levels, focusing on accelerating growth. To achieve this, the country must reduce state intervention, foster competition, invest in infrastructure and human capital, and advance decarbonization efforts. These measures are essential to enhance competitiveness and address the long-term challenges posed by global decarbonization efforts.

Strategy

The Country Partnership Framework for 2020¨C25

The partnership between Kazakhstan and the World Bank Group is outlined in the?Country Partnership Framework?(CPF), developed in consultation with counterparts and civil society to guide a new investment program and quality technical assistance to the Government of Kazakhstan for 2020¨C25. The CPF is fully aligned with the government¡¯s reform program and??to accelerate the country¡¯s transformation into a modern society with a knowledge-based, diversified, and private sector¨Cdriven economy.

The CPF focuses on the following priority areas:

• Promoting inclusive growth by strengthening the environment for private sector development, promoting the market-led transformation of the agriculture sector, and bolstering the connectivity infrastructure
• Strengthening human capital by closing the gap along regional and rural-urban divides in the delivery of education, health, and social protection services
• Securing sustainable, resilient, and low carbon growth?by managing natural capital, including land and water resources, promoting less energy intensity, and strengthening institutions and service delivery

Underlying these focus areas is the cross-cutting theme of more effective governance and strengthened market and social institutions.

Key Engagement

Since 2003, the World Bank has significantly extended its Advisory Services and Analytics (ASA) provided under the Joint Economic Reform Program (JERP). Over the years, JERP has proven to be an innovative solution, with a client-driven knowledge agenda and World Bank-selected work, bringing in and building up international experience.

The JERP is structured around the government¡¯s strategic priorities and focuses on development gaps in growth, governance, and the public service delivery agenda. The program is designed to ensure strong government ownership while enhancing the World Bank¡¯s contribution to the country¡¯s development in a way that goes beyond funding.

Economy

Recent Economic Developments

In 2024, Kazakhstan's GDP grew by 4.8%, driven by strong consumer spending and investment. Retail spending accelerated to 9.1% year-on-year (YoY) in real terms, up from 7.9% in 2023, supported by a 14.1% rise in consumer loans and a 1.9 % increase in real income. Investment expanded by 7.5% in real terms, buoyed by a strong housing market, although foreign direct investment (FDI) inflows declined.

On the supply side, industrial production grew by 2.8% in 2024, compared to 4.4% in 2023, hindered by a 2.7% decline in oil output. The services sector saw a 4.7 % increase, slightly down from 5.2% in 2023. Unemployment remained steady at 4.6%, and the government raised the minimum wage by 21.4% in nominal terms, contributing to a reduction in the poverty rate to 7.0% ($6.85/day).

Inflation eased to 8.6% by the end of 2024 but rose to 9.4% in February 2025 following utility price hikes, exceeding the National Bank¡¯s 5% target. Consequently, the policy rate was raised by 125 basis points to 16.5% in March 2025. The current account deficit narrowed to 1.5% of GDP in 2024 from -3.3% in 2023, reflecting lower FDI profit repatriation. National Bank reserves grew to $45.8 billion, covering seven months of imports. The tenge depreciated by 13.5% against the US dollar during 2024 but partially recovered in early 2025.

Fiscal policy shifted to an expansionary stance in 2024, pushing the deficit up to 3.7% of GDP from 1.6% in 2023, driven by weaker oil revenues. Government debt climbed to 23.7% of GDP, with debt service reaching a historic high of 1.6% of GDP. Real bank lending expanded by 11.7% YoY, with household borrowing accounting for three-quarters of this growth. The household debt-to-wage ratio at 49% in 2024 surpassed levels seen during the 2008¨C2009 global banking crisis. The banking sector enjoyed record profitability, with return on equity rising to 32.8% in 2024.

Economic Outlook

In 2025, Kazakhstan's economic growth is projected to moderate to 4.5%, supported by a one-off increase in oil production and further fiscal stimulus, before slowing towards its 3.5% growth potential. Household spending is expected to remain resilient, bolstered by social transfers and steady consumer borrowing. Exports are anticipated to expand, driven by strong crude oil shipments.

Inflation is set to rise in 2025, fueled by increases in utility and fuel prices due to subsidy reductions, along with a VAT hike. This inflationary pressure is expected to persist, keeping inflation above the National Bank's target beyond 2027. The positive output gap, estimated to widen in 2025, will also contribute to sustained inflationary pressures.

Declining oil prices and ongoing outflows of investment income from FDI in the mining sector are expected to widen the current account deficit, averaging 2.6% of GDP during the 2025¨C2027 period. Fiscal policy is likely to remain expansionary, with the deficit projected at 3.6% of GDP in 2025. While the new Tax Code is expected to boost non-oil revenues over time, this will be partially offset by lower oil-related receipts. The government is expected to rely on increased domestic borrowing and further drawdowns from its National Oil Fund to bridge the gap. Spending on social programs and infrastructure will remain a priority in the government's 2025¨C2027 fiscal plan.

The poverty rate is projected to decline gradually to 4.9% by 2027 (at the $6.85/day threshold). However, higher-than-projected inflation could disproportionately impact low-income households and delay poverty reduction. 

Risks to the growth outlook are tilted to the downside. The full impact of global trade measures remains uncertain as policy shifts continue to unfold. A decision by OPEC+ to lift output cuts could flood the market with crude oil, pushing prices down, while recent drone attacks on a Black Sea pumping station threaten to disrupt a vital pipeline, potentially constraining Kazakhstan¡¯s oil exports. Domestically, continued expansionary fiscal policy, particularly through quasi-fiscal operations misaligned with the economic cycle, risks stoking already high inflation and undermining monetary tightening efforts.