Does oil truly rule Kazakhstan's economy?

As the oil patch goes, so goes Kazakhstan. Roughly a fourth of its economy depends directly on its global sales of oil and gas; so it rises and falls with oil prices, which are as volatile as gasoline fumes. Kazakhstan should steady its economy by diversifying. Or so people argue.

But a new study suggests that Kazakhstan already has a bulwark against the flighty oil sector. It’s called “the government.”

That’s surprising. Since becoming independent in 1991, Kazakhstan has chopped away at the government’s role in the economy. Today government consumption accounts for only about 12% of the economy (measured as gross domestic product, or GDP), according to the national Committee on Statistics. By Western standards, that’s low. But when the government does spend, it may make every tenge count, by concentrating on such strategic industries as banking. Kazakhstan gets slightly more bang per buck from the government than from oil.

Those ruminations arise from a statistical study of the effects of oil prices on Kazakhstan’s economy over time. In her master’s thesis at KIMEP University, Aliya Zhanadil finds that a 10% rise in oil prices relates to a 5.3% rise in GDP per capita (adjusted for price changes). That’s in line with other studies. What’s new is that government spending has a slightly bigger impact on the economy than oil does. A 10% rise in government spending increases GDP in the next quarter by 6%.  

These are direct effects.  Of course, oil prices also affect the government’s revenue, since it taxes exports; so they may influence GDP indirectly. But this effect looks small.  A 10% increase in oil prices raises government spending over nine months by only six-tenths of a percent, perhaps because Astana saves much of the oil revenue in its rainy-day account, the National Fund.  In any case, the indirect effect on GDP of the 10% oil-price increase is a boost of only four-tenths of a percent. 

Zhanadil’s results control for the labor force and the average level of prices (which may proxy for economic instability), neither of which had much additional effect on the size of the economy. The dataset covered all quarters in the period from 2000 through 2016.

The man on the street would probably tell you that oil matters more to Kazakhstan’s economy than the government does.  One reason for this mistaken impression may be that black gold has an oversized immediate impact on GDP. The impact fades in the next two quarters, so that the net effect after nine months is more modest than we realize. On the other hand, government spending has a sustained impact on GDP for at least six months, perhaps because it is less chaotic than oil prices.  People spend most of the 100,000-tenge check from the government because they know that they will get another check on the next payday.  Oil prices, on the other hand, come and go, so people may save much of any windfall. 

That's true for Astana, too. By banking windfalls, the National Fund can offset dips in GDP due to falling oil prices -- presuming that the government hasn't raided the Fund in the meantime as if it were a behemoth refrigerator that one can pilfer for midnight snacks.

In sum, more than a quarter-century after independence, Kazakhstan still has an economy with a few socialist tics, like a conspicuous government.  – Leon Taylor tayloralmaty@gmail.com

Disclosure: I advised Zhanadil’s thesis in the Master’s of Arts in Economics program.

References

Committee on Statistics of the Ministry of National Economy.  Various statistics.  2018.  www.stat.gov.kz 

Zhanadil, Aliya.  The effects of oil price shocks on real GDP in Kazakhstan.  Master’s thesis.  2018.  KIMEP University.