Strategy 2025: Where Will the Money for Kindergartens and 100 Million Square Meters of Housing Come From?

Strategy 2025

Strategy 2025 brings together all of the country's program documents, of which we have a great many. I think the purpose of this document is consolidation: eliminating contradictions and getting all of the country's documents to work together toward the goals set out in the strategy.

That is a positive.

Another positive is the document's clearly social orientation: everything is aimed at improving quality of life. But it seems to me that such a document would be better suited to the Ministry of Social Development. As I see it, the task of the Ministry of National Economy is economic growth and creating the conditions for the economy to grow through liberal reforms.

The second task is the effective management of the national budget. It is within that framework that social programs should be pursued.

And here we come to the document's main weakness: there is no real understanding of where the country will find the money to carry out all of the planned measures.

1. For example, there are currently about 8,000 preschool institutions in the country, covering 46 percent of children (although the strategy says 56, while the statistical yearbook, for some reason, says 46). To reach even 80 percent by 2025, taking population growth into account (and we do have natural population growth now), we would need to build another 8,000 preschool institutions. Even if each one costs KZT 200 million, another 8,000 kindergartens would require KZT 1.6 trillion, or KZT 160 billion a year.
2. Or take the target of 100 million square meters of housing. First, more than 100 million will be needed, because by 2025 the population will grow, at our current pace, by at least 2 million people, from 17 million to 19 million. That means that to provide 25 square meters per person, we would need to go from the current housing stock of 340 million square meters to 480 million, an increase of 140 million square meters. In other words, the document did not account for population growth in planning construction.

The average price of 1 square meter is KZT 300,000. That means money would have to be found to cover demand for housing of KZT 42 trillion!!!! That is in current prices, or it would mean spending 10 percent of GDP on housing every year.

We simply do not have the demand to absorb that much housing. The government will not have that kind of money, and for the private sector to sustain such demand, at least two things are needed:

• Long-term funding, so that mortgages can be issued.
• Wages sufficient to service such a loan. The average wage in the country is currently around KZT 130,000. 25 square meters per person means 100 square meters per family. That is an apartment costing around KZT 30 million. Even if the mortgage is taken for 20 years, that means repaying at least KZT 1.5 million a year, or KZT 125,000 a month, and that is without interest. With interest, it would be more than KZT 200,000.

Accordingly, the private sector cannot possibly absorb such a volume.

The government simply will not have enough money to build that much, and there would be no one to transfer it to. How this target is to be achieved is therefore a great mystery.

Moreover, from a macroeconomic standpoint, this does not stimulate the economy as a whole, because it is painfully well known that government spending on consumer goods does not stimulate value added the way productive assets do.

In this situation, it is best to build productive infrastructure, which also stimulates the construction industry but yields returns through the production sector.

In other words, to have bigger apartments, we must first earn the money for them and only then build them, and that is not a task for the next ten years.

These are only two examples, but they would significantly affect the national budget and require more detailed calculations and justification.

I hope attention will be paid to this.

In my next post, I will discuss other interesting calculations in the Strategy.