(SRI) - Kazakhstan's oil wealth has had a positive effect on economic growth but the country needs to step up its efforts to develop other sectors of the economy, the International Monetary Fund (IMF) said in a report published last week.
Diversification would reduce Kazakhstan's oil dependency and help protect its economy against oil shocks, the fund said. It would also stimulate job creation and help spread the benefits from oil wealth among a broader spectrum of the population.
Kazakhstan has been successful in prudently managing its oil wealth, using some of the oil proceeds to fund the country's development needs, and saving a significant part for the benefit of future generations and to help insulate the economy against global oil price fluctuations, IMF Mission Chief for Kazakhstan Ana Lucia Coronel said.
However, the country faces similar challenges and risks as other oil exporters, Narayanan Raman, an economist in the IMF's Strategy, Policy, and Review Department, said. Kazakhstan depends on oil for the largest part of its revenues and a fall in oil prices could adversely impact its fiscal situation. Moreover, the geological challenges to explore and develop some of Kazakhstan's most promising oil deposits makes operations in Kazakhstan only viable during periods of high oil prices, and "volatility in oil prices could therefore lead to planned investment being delayed," Raman said.
Raman also pointed out that the capital intensive oil sector is not a major source of job opportunities, thus even "significant expansion of the sector is unlikely to lead to a corresponding increase in job creation."
Despite increased activity in the oil sector, only certain industries including transportation and communications while other "key drivers of growth" - including manufacturing, construction, real estate, and various other services - do not appear to benefit directly from oil sector activity, Coronel said.
Kazakhstan needs to further improve the business and investment climate to facilitate development in non-oil sectors, despite recent advances in on this front, according to Raman. Citing the World Bank's 2011 Doing Business ranking, the IMF representative said that while Kazakhstan rose by 15 places since last year, a number of areas for improvement stand out, including cross-border trade, access to credit, health and education.