A Review of the National Development Plan to 2029

I have finally read the National Development Plan to 2029. On the positive side, it contains a great deal of useful analysis and many good initiatives that are certainly needed, and I will not describe them here. I first intended to go through all the initiatives and set out my comments on each, but there are many of them, they are small and unsystematic, albeit very important. So I decided to write instead about the systemic issues. The document itself reads like a "wish list" of how various sectors should ideally look, but it contains no mechanisms for achieving these goals; most likely they will be left to the programs of ministries and agencies. Yet there are questions that the development plan does not address at all, even though they are decisive, and they are covered only in fragments or not at all.

First, there is no analysis of why our labor productivity is low, why foreign investment does not come to us and why our exports are so weak. It is extremely difficult to raise labor productivity, attract investment or increase exports by administrative, "Soviet-style" methods, yet the whole document is steeped in them. Examples include attracting transnational corporations by hand, localizing production through protectionism, cheap tariffs, offtake contracts and so on. These are not the reasons investors stay away, and some of the initiatives will actually reduce labor productivity. Localization and protectionism, for instance, are certainly harmful to it.

Second, institutional reforms are barely described, even though the absence of working institutions is the main reason for low investment, low labor productivity and so on. There is a great deal that we need to change and introduce, and radical reforms are required. Fiscal rules do not work, the budget is not balanced, tax policy is uncertain, the rule of law raises questions, meritocracy in the civil service is badly eroded, public finances are not fully controlled by parliament, intergovernmental fiscal relations between regions are not progressive, the election of akims (governors and mayors) is undefined, and so on.

Third, there is no clear information on reducing the state's role in the economy through privatization of sectors, moving away from state financing and so on. For example, is the inefficient KazMunayGas needed at all, when it is currently sustained only by its stakes in Tengizchevroil, Karachaganak and other projects that are run by foreigners? In essence, Samruk can represent its interests in those companies without KMG. Or take Kazpost, which improved its profitability by using Samruk's liquidity amid high interest rates. There are also Samruk-Energo, Tau-Ken Samruk, QazaqGaz and so on. I do not dispute that there are many good managers who raise efficiency when they join a given state company, but this is not systemic, and with any change of management everything will go bad again. There are plenty of examples, and everyone knows them. Baiterek was supposedly to be reformed and become a full-fledged development institution rather than an institution for subsidies and cheap loans, but there is practically nothing about it.

The biggest problem now is the budget deficit, which is growing rather than shrinking. State spending is not consolidated, and there are no clear rules on when it should rise and when it should be cut, how it should be cut and how all this affects the country's macroeconomy. We adopt the budget first and build very optimistic revenue projections around it; then, when it dawns on us that there is no money, funds are taken from the National Fund without any discussion or process of cutting the budget. The movement of extra-budgetary financing is also not entirely transparent. For example, it was decided to use UAPF funds directly to finance infrastructure through bonds of quasi-state companies. The UAPF already buys Ministry of Finance bonds anyway, so why can this financing not be carried out through the republican budget? The risks remain with the state in any case, and the Ministry of Finance provides additional control.

This year the framework of the new Tax Code is to be settled. Taxes run through the entire document, but there is no clear picture of the new Tax Code. In one place it says we need to move from MET to taxing sales, which is right, but then comes a caveat that a pilot is needed because it is unclear how this would affect tax revenues. In another place it says we need to encourage the consolidation of SMEs, yet it also wants to develop SMEs. Elsewhere it says the number of tax breaks should be cut, but then proposes introducing protectionism and granting preferences for special economic zones and so on. Given the level of lobbying by business and individual companies, all this will mean that the new Tax Code will not solve the problem of raising revenue. We need to define, here and now at the strategy level, the clear contours of a proper tax system that is not only fiscal but also stimulating. This is a huge area, and it is one of the key foundations of our development.

On the rule of law, the plan says the usual things: there are no new initiatives that would radically address the transparency of judges, prosecutors and the police. There is nothing about the AIFC and that platform as one possible mechanism for resolving the problems of foreign companies.

The issue of corruption, which is one of the main problems, is covered very sparsely. In my view, corruption should be tackled not through punishment but through incentives, by introducing decent pay and a proper system of motivation for all employees of the civil service and the judiciary.

There is nothing at all about the stock market, how to develop it, or what will happen to KASE and AIX, even though these institutions are essential for developing long-term funding, corporate transparency and so on, and a great deal depends on their development.

The section on bank financing likewise contains mostly standard items that will not greatly change the lending landscape, because the reasons for low lending lie more in the protection of secured creditors, the transparency of potential borrowers and the inevitability of punishment for deliberately evading obligations.

In terms of structure, the document is very hard to read. It could more readily serve as a set of methodological recommendations for ministries and agencies on the direction in which we would like to move. In my view, many things should be reflected more in sector programs than here. In a strategic document I would like to see more of the key reforms aimed at solving institutional problems.

What is needed:

Principles

The goal is too debatable; what is needed is the well-being of people

The system of public administration is not reflected at all, although it is an important component

The budget needs

Tax Code

AIFC

Privatization

Raising labor productivity

Introduction of Yellow Pages