Identifier
Created
Classification
Origin
06ALMATY1404
2006-04-18 05:25:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
US Office Almaty
Cable title:
KAZAKHSTAN: AMBASSADOR'S MEETING WITH MINISTER OF
how-toVZCZCXRO5891 PP RUEHDBU RUEHLN RUEHVK RUEHYG DE RUEHTA #1404 1080525 ZNR UUUUU ZZH P 180525Z APR 06 FM AMEMBASSY ALMATY TO RUEHC/SECSTATE WASHDC PRIORITY 4969 INFO RUCNCIS/CIS COLLECTIVE RUEHBUL/AMEMBASSY KABUL 0164 RUEHNE/AMEMBASSY NEW DELHI 0304
UNCLAS ALMATY 001404
SIPDIS
SENSITIVE
SIPDIS
DEPARTMENT FOR SCA/CEN (J. MUDGE)
E.O. 12958: N/A
TAGS: ECON ETRD EFIN PREL KZ
SUBJECT: KAZAKHSTAN: AMBASSADOR'S MEETING WITH MINISTER OF
ECONOMY AND BUDGET PLANNING
UNCLAS ALMATY 001404
SIPDIS
SENSITIVE
SIPDIS
DEPARTMENT FOR SCA/CEN (J. MUDGE)
E.O. 12958: N/A
TAGS: ECON ETRD EFIN PREL KZ
SUBJECT: KAZAKHSTAN: AMBASSADOR'S MEETING WITH MINISTER OF
ECONOMY AND BUDGET PLANNING
1. (SBU) Summary: Minister of Economy and Budget Planning
Kelimbetov reports that the GOK has almost finished its
review of the draft MOU on the Program for Economic
Development; he will push for completion before the upcoming
VIP visit to Astana. Kelimbetov said that the Kazakhstani
government was concerned that rising oil revenues, the
credit boom, and increased state spending could overheat the
economy. They were taking a series of fiscal and monetary
measures to address the threat, as well as to promote
economic diversification. Kelimbetov confirmed that the GOK
is also considering increasing the reserve requirement for
loans obtained by Kazakhstani banks abroad. End summary.
2. (SBU) In an April 17 meeting with the Ambassador,
Minister of Economy and Budget Planning Kairat Kelimbetov
said that the draft MOU on the Program for Economic
Development (PED) was undergoing interagency review. He
expected that process to be completed in approximately a
week. Kelimbetov noted that the Kazakhstani government had
already allocated the money to fulfill its obligations under
the agreement. After approval by the government, the
document would have to be ratified by the parliament; this
normally took two months. In response to the Ambassador's
observation that completion of the agreement would help
create a positive atmosphere for the upcoming VIP visit to
Astana, Kelimbetov said he would push for completion before
the visit.
3. (SBU) The Ambassador asked about recent reports that the
Kazakhstani economy is overheating. Kelimbetov indicated
that inflation, although rising, was still under control.
Three factors could combine to create serious problems in
the future, however: an increase in the money supply due to
rising income from oil exports (expected to triple in the
near future from the current one million bpd); a credit
boom; and rising state budget expenditures. There are
definitely signs of some overheating, including rising
inflation, lower unemployment rates, and increased illegal
immigration.
4. (SBU) Kelimbetov commented that he is the "least
favorite" minister at the moment due to his efforts to stop
the rate of growth of state spending. He explained that
rising oil revenues had created a sense of "budget euphoria"
among ministries and the public. His task was to explain
the risk of uncontrolled inflation from increased spending.
President Nazarbayev's March 1 address to the nation had set
out an agenda of budget increases in certain areas. After
consultations with the Central Bank and the supervisory
agency, Kelimbetov had decided to focus on restricting
monetary policy this year and fiscal policy in the coming
years. As of July 1, all oil revenue will go directly into
the National Fund. The Budget Ministry will impose
budgetary discipline on other ministries by examining the
results of previous funding in key areas such as
diversification and infrastructure development. The goal is
to hold budgetary growth to no more than GDP growth. The
creation of national holding firms Samruk and Kazina would
serve to increase the budget transparency of firms such as
KMG and Kazakhstan Temir Zholiy.
5. (SBU) Kelimbetov also noted the importance of economic
diversification. This priority must be balanced with the
need to control inflation, since anti-inflationary measures
could affect the real exchange rate and harm non-oil
sectors. He emphasized the need to address the non-oil
budget deficit, which was 5-7% of GDP last year; the GOK was
shooting for 1.6% next year. Kelimbetov said that the GOK
had an ambitious fiscal reform agenda, which included plans
to reduce VAT from the current rate of 15% to 10% by 2010,
thereby leaving firms with more money for modernization.
Reductions in the social tax rate would permit salary
increases and decrease the incentive for off-the-books pay.
Tax rates for SMEs are also being reduced drastically, said
Kelimbetov.
6. (SBU) The Ambassador asked Kelimbetov about recent
reports that Kazakhstan would increase the reserve
requirement for loans obtained by Kazakhstani banks abroad.
Kelimbetov confirmed that the proposal was under
consideration.
ORDWAY
SIPDIS
SENSITIVE
SIPDIS
DEPARTMENT FOR SCA/CEN (J. MUDGE)
E.O. 12958: N/A
TAGS: ECON ETRD EFIN PREL KZ
SUBJECT: KAZAKHSTAN: AMBASSADOR'S MEETING WITH MINISTER OF
ECONOMY AND BUDGET PLANNING
1. (SBU) Summary: Minister of Economy and Budget Planning
Kelimbetov reports that the GOK has almost finished its
review of the draft MOU on the Program for Economic
Development; he will push for completion before the upcoming
VIP visit to Astana. Kelimbetov said that the Kazakhstani
government was concerned that rising oil revenues, the
credit boom, and increased state spending could overheat the
economy. They were taking a series of fiscal and monetary
measures to address the threat, as well as to promote
economic diversification. Kelimbetov confirmed that the GOK
is also considering increasing the reserve requirement for
loans obtained by Kazakhstani banks abroad. End summary.
2. (SBU) In an April 17 meeting with the Ambassador,
Minister of Economy and Budget Planning Kairat Kelimbetov
said that the draft MOU on the Program for Economic
Development (PED) was undergoing interagency review. He
expected that process to be completed in approximately a
week. Kelimbetov noted that the Kazakhstani government had
already allocated the money to fulfill its obligations under
the agreement. After approval by the government, the
document would have to be ratified by the parliament; this
normally took two months. In response to the Ambassador's
observation that completion of the agreement would help
create a positive atmosphere for the upcoming VIP visit to
Astana, Kelimbetov said he would push for completion before
the visit.
3. (SBU) The Ambassador asked about recent reports that the
Kazakhstani economy is overheating. Kelimbetov indicated
that inflation, although rising, was still under control.
Three factors could combine to create serious problems in
the future, however: an increase in the money supply due to
rising income from oil exports (expected to triple in the
near future from the current one million bpd); a credit
boom; and rising state budget expenditures. There are
definitely signs of some overheating, including rising
inflation, lower unemployment rates, and increased illegal
immigration.
4. (SBU) Kelimbetov commented that he is the "least
favorite" minister at the moment due to his efforts to stop
the rate of growth of state spending. He explained that
rising oil revenues had created a sense of "budget euphoria"
among ministries and the public. His task was to explain
the risk of uncontrolled inflation from increased spending.
President Nazarbayev's March 1 address to the nation had set
out an agenda of budget increases in certain areas. After
consultations with the Central Bank and the supervisory
agency, Kelimbetov had decided to focus on restricting
monetary policy this year and fiscal policy in the coming
years. As of July 1, all oil revenue will go directly into
the National Fund. The Budget Ministry will impose
budgetary discipline on other ministries by examining the
results of previous funding in key areas such as
diversification and infrastructure development. The goal is
to hold budgetary growth to no more than GDP growth. The
creation of national holding firms Samruk and Kazina would
serve to increase the budget transparency of firms such as
KMG and Kazakhstan Temir Zholiy.
5. (SBU) Kelimbetov also noted the importance of economic
diversification. This priority must be balanced with the
need to control inflation, since anti-inflationary measures
could affect the real exchange rate and harm non-oil
sectors. He emphasized the need to address the non-oil
budget deficit, which was 5-7% of GDP last year; the GOK was
shooting for 1.6% next year. Kelimbetov said that the GOK
had an ambitious fiscal reform agenda, which included plans
to reduce VAT from the current rate of 15% to 10% by 2010,
thereby leaving firms with more money for modernization.
Reductions in the social tax rate would permit salary
increases and decrease the incentive for off-the-books pay.
Tax rates for SMEs are also being reduced drastically, said
Kelimbetov.
6. (SBU) The Ambassador asked Kelimbetov about recent
reports that Kazakhstan would increase the reserve
requirement for loans obtained by Kazakhstani banks abroad.
Kelimbetov confirmed that the proposal was under
consideration.
ORDWAY