TRANSPARENCY SNAPSHOT

Kazakhstan has declared its commitment to improved transparency for extractive resource revenues, but authorities face two major challenges to growth and responsible revenue management: the impact of massive natural resource windfalls and the need for reform in the country's fragile banking sector. In 2007, efforts on both fronts were hampered by a lack of transparency in public spending and contract disputes with the international oil companies operating locally.

Oil revenues generated approximately 38% of total government revenues in 2006, and represented roughly 11% of GDP. With low domestic consumption rates for oil, and exports averaging one million barrels per day, Kazakhstan is a significant player in world oil markets.

Over the last decade, the Kazakh economy has sustained very strong growth, averaging 10% per year or higher. This phenomenal performance has substantially increased per capita incomes, stimulated employment and dramatically reduced poverty. The economy continued to grow at an impressive near double digit rate in 2007, though at rates that were somewhat lower than the previous year's and are expected to decelerate further in 2008.

Revenue Transparency

The government announced its plans to support EITI in 2005, and a multi-stakeholder implementation committee-called the National Stakeholder Council-was established. Although a working plan exists, civil society organizations which are part of the "Oil Revenues-Under Public Oversight" coalition contend that it needs to be updated and backed by funding to be useful in guiding implementation.¹ In December 2006 the government of Kazakhstan signed a memorandum of understanding with the World Bank to facilitate EITI implementation.

Following the September 2007 International EITI Board's pre-validation exercise, Kazakhstan achieved "Candidate Country" status.

Kazakhstan published its first EITI report in January 2008. Though this report is considered as a major victory for the EITI campaign in Kazakhstan, it has drawn some criticism. Among other things, the report does not include all oil producing companies operating in the country. Still, the first EITI report opens up opportunities for further dialogue on this issue.

Expenditure Transparency

The government provides certain budget information to the public, but room for improvement remains. The Open Budget Index notes that Kazakhstan provides "some" information on the budget to citizens, such as a budget proposal, in-year reports, and a year-end report. However, the year-end report "lacks the details needed to facilitate comparisons between enacted levels and actual outcomes."²

The most recent IMF Report on the Observance of Standards and Codes (ROSC) in Kazakhstan commended the government for its efforts to improve fiscal transparency and data dissemination. The report also indicated that there is room for further progress in budget data processing procedures.

National Oil Fund

The government established a national oil fund in August 2000. However, there is little evidence that the National Fund of the Republic of Kazakhstan is designed or managed in a way that ensures it can help alleviate poverty or improve the country's human development indicators.

The fund's charter states its founding purpose to be "stabilizing the socio-economic development of the country, accumulating savings for future generations, and reducing the country's vulnerability to external factors."³ This wording does not suggest that poverty reduction is a priority. Moreover, the fund was established by presidential decree, not by an act of parliament. Without a law governing the fund, its ultimate success is subject to presidential discretion rather than democratic control.

The fund also lacks the capacity to make independent decisions about how its assets are used. Ten percent of the total payments from selected companies in the natural resources sector go into the fund regardless of oil price changes and if oil prices exceed a certain level all taxes from the exceeding component of oil prices flow to the National oil fund. However, the assets of the fund are allocated through Kazakhstan's formal budget process. Thus, the parliament must approve transfers from the fund to finance selected development projects.⁴

Transfers from the fund to the national budget are calculated using a pre-specified formula that protects against excessive spending, but civil society representatives say there has been no indication so far that the government intends to spend the fund's assets on social services such as healthcare and education, or to lend money to prospective non-oil businesses. According to Revenue Watch allies, transfers from the fund are aggregated and deposited along with budget transfers into one account at the Ministry of Finance, making it nearly impossible to track how the funds are spent.

The fund operates with little to no transparency. Though the National Bank, publishes regular reports as the operator of the fund, the reports contain no information on individual company payments to the fund. The reports contain information on growth of the fund's assets, but they lack important data such as the external asset managers for the fund's portfolios.⁵

By the end of 2007 the fund has accumulated assets equal to $19 billion, or 19% percent of GDP.⁶

Freedom of Information

The government's increasingly audacious repression of independent media has reduced the likelihood that civil society groups can hold public officials accountable for the mismanagement of state revenue.

In its annual summary of human rights developments in Kazakhstan, Human Rights Watch noted that in July 2006 the government adopted amendments to Kazakhstan's media law to give itself unlimited power to close independent and opposition media outlets for technical violations and created "unduly restrictive" registration procedures for new media outlets. Human Rights Watch also observed that opposition newspapers and journalists were "routinely charged" with criminal libel for violating "the honor and dignity of the president," and that independent journalists continued to be the target of anonymous physical attacks that "appeared to be intended to intimidate and silence opposition media."⁷

---

1. "Statement of the Kazakh NGO Coalition Oil Revenues Under The Public Oversight," Oslo, October 16, 2006.
2. See www.openbudgetindex.org, Kazakhstan country summary.
3. Svetlana Tsalik, Caspian Oil Windfalls: Who Will Benefit? (NY: OSI, 2003), p. 146.
4. National Fund Concept Paper of the Government of Kazkahstan at http://www.government.kz/ru/doc/U051641__RUS.html
5. See Annual Reports of National Bank of Kazakhstan at http://www.nationalbank.kz
6. IMF, "Republic of Kazakhstan: Concluding Statement of the 2006 IMF Mission," October 20, 2006, Para 2.
7. Human Rights Watch, "Kazakhstan Country Summary," January 2007.