Year in Review
Translated from Russian with the help of AI. Original: Russian version
A review of 2023: holding the base rate, higher utility and fuel prices, tax reform, the ArcelorMittal deal, infrastructure, and elections of akims.
2023 has come to an end, and I would like to note the most important events of the year. But since the New Year is, after all, a holiday, I would like to highlight those developments that can be called positive and necessary for the country. I will speak only about the economic side:
The National Bank of Kazakhstan's firmness on the base rate helped keep inflation in check despite higher tariffs and rising fuel prices. Many wanted to cut the rate prematurely, but reason prevailed, and we now see encouraging inflation data. This will allow the base rate to be lowered much further and for longer in the future. In the long term, that will do far more for the economy than a short-lived, immediate cut, which would have triggered a new round of inflation and high rates.
The recognition that utility tariffs and fuel prices must rise to align with market levels, together with a phased increase in prices, makes these sectors more attractive and will help resolve the infrastructure problem. No one determines a fair price better than the market. Low utility tariffs are possible only through more efficient use of infrastructure and lower costs of maintaining and building it. I remember that about 5 years ago, in an effort to fight inflation, prices for heat and electricity were forcibly reduced. Whoever came up with that idea clearly did enormous damage to the economy. Today it all costs far more.
The initiatives in the Tax Code and the review of budget relations are a necessity rather than a choice. A budget deficit and the constant financing of that deficit from the National Fund will not make the state budget sustainable. Any sovereign default would, in the long term, have colossal consequences for the economy, so balancing the budget is a necessity. However much we might wish otherwise, tax rates will have to rise if we want sustainable growth in the country. This year a decision was finally made on the uranium industry, and given the rise in uranium prices, the country will receive tens of billions of tenge in additional taxes, which would previously have been impossible. A decision was also finally made to tax banks' income from securities. In 2023 banks earned huge profits because no interest is paid on current accounts, interest on foreign-currency deposits is low, and the base rate is high. I hope populists will not be able to stop this much-needed tax reform; otherwise things will be much worse later. Long-term goals must always take precedence over short-term ones.
Tax declaration has begun. The gradual introduction of declaring income and property is another step toward civilization. It will help reduce the shadow economy, increase tax revenues, and raise citizens' awareness of tax matters. Finally, from 2024, authorities will begin tracking transfers to individuals that have replaced payment for goods, works and services, and have thus been used to avoid taxes.
The closing of the deal with ArcelorMittal is the most telling event of the year in terms of the ability to negotiate. The positive investment climate was preserved, and the country obtained the asset on very comfortable terms. And at last, the issue of working conditions, which I have written about many times, was raised at the government level. Workplace safety must come first.
The election of district and city akims, although a political reform, has many economic consequences. Elections, of course, still need to be improved in terms of transparency and accessibility, but this is the beginning of a large system of oversight over district and city budgets. I hope this reform will be carried through to its logical conclusion.
The launch of the BAKAD ring road, the start of construction on many railway lines, and the continued construction of the LRT and of roads are greatly needed for the country's economic development. We need to build more transport infrastructure to realize the country's economic potential. Of course, I would like to see reform of KTZ, since a state holding company simply cannot compete with the private sector.
Many painful but much-needed reforms have been launched. The main thing is that they are not distorted and are carried through to the necessary result. But there is still a great deal to reform and change, and I hope 2024 will bring new and necessary changes for the good of the country.