CIC Special Briefing - Kazakhstan's economy: The Transition to the Free Market

Kazakhstan has the freest of the Central Asian economies - and consequently the most successful. In the annual Index of Economic Freedom produced jointly by the Wall Street Journal and the Washington-based think-tank, The Heritage Foundation, Kazakhstan was placed at 119, eight places ahead of China, 17 places ahead of its own 1998 rating, and sharing the same ranking as India. This is a remarkable achievement for a state that did not achieve independence until 1991, and that was more closely integrated into the centralised economic command structure of the Soviet Union, than any of the other former republics in the region.

No sector of Kazakhstan's economy is closed to foreign investment, although foreign investment in the banking sector is capped. There is a minimum legal wage (as in many Western countries), but price and wage controls were almost entirely abolished in 1991 when the government launched a series of reforms to move from a "planned" to a "market" economy. The top rate of income tax is 30 per cent, while the figures available for 2002 show that the marginal rate for the average taxpayer was ten per cent. The country's moderate tax rates reflect moderate levels of public spending. According to the Asian Development Bank, in 2000 government expenditure accounted for 24.6 per cent of GDP.

According to a US Government background paper: "The Government of Kazakhstan has made significant progress in creating a favorable investment climate ? These reforms include de-monopolisation, privatisation, debt restructuring, lifting profitability controls, price liberalisation, customs reform, and tax reform ? Kazakhstan also established a security and control commission, liberalised trade, enacted laws on investment, and reformed the banking system."

According to outside sources, including the Heritage Foundation, the country's banking system now approaches Western standards of reliability and efficiency.

In acknowledgement of the structural reforms carried out by the Astana government, the European Union formally recognised Kazakhstan as a market-based economy in October 2000. Similar recognition was accorded by the United States in March, 2002.