VZCZCXRO5891
PP RUEHDBU RUEHLN RUEHVK RUEHYG
DE RUEHTA #1404 1080525
ZNR UUUUU ZZH
P 180525Z APR 06
FM AMEMBASSY ALMATY
TO RUEHC/SECSTATE WASHDC PRIORITY 4969
INFO RUCNCIS/CIS COLLECTIVE
RUEHBUL/AMEMBASSY KABUL 0164
RUEHNE/AMEMBASSY NEW DELHI 0304

UNCLAS ALMATY 001404 
 
SIPDIS 
 
 
SENSITIVE 
 
SIPDIS 
 
DEPARTMENT FOR SCA/CEN (J. MUDGE) 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EFIN PREL KZ
SUBJECT: KAZAKHSTAN: AMBASSADOR'S MEETING WITH MINISTER OF 
ECONOMY AND BUDGET PLANNING 
 
 
¶1. (SBU) Summary:  Minister of Economy and Budget Planning 
Kelimbetov reports that the GOK has almost finished its 
review of the draft MOU on the Program for Economic 
Development; he will push for completion before the upcoming 
VIP visit to Astana.  Kelimbetov said that the Kazakhstani 
government was concerned that rising oil revenues, the 
credit boom, and increased state spending could overheat the 
economy.  They were taking a series of fiscal and monetary 
measures to address the threat, as well as to promote 
economic diversification.  Kelimbetov confirmed that the GOK 
is also considering increasing the reserve requirement for 
loans obtained by Kazakhstani banks abroad.  End summary. 
 
¶2. (SBU) In an April 17 meeting with the Ambassador, 
Minister of Economy and Budget Planning Kairat Kelimbetov 
said that the draft MOU on the Program for Economic 
Development (PED) was undergoing interagency review.  He 
expected that process to be completed in approximately a 
week.  Kelimbetov noted that the Kazakhstani government had 
already allocated the money to fulfill its obligations under 
the agreement.  After approval by the government, the 
document would have to be ratified by the parliament; this 
normally took two months.  In response to the Ambassador's 
observation that completion of the agreement would help 
create a positive atmosphere for the upcoming VIP visit to 
Astana, Kelimbetov said he would push for completion before 
the visit. 
 
¶3. (SBU) The Ambassador asked about recent reports that the 
Kazakhstani economy is overheating.  Kelimbetov indicated 
that inflation, although rising, was still under control. 
Three factors could combine to create serious problems in 
the future, however:  an increase in the money supply due to 
rising income from oil exports (expected to triple in the 
near future from the current one million bpd); a credit 
boom; and rising state budget expenditures.  There are 
definitely signs of some overheating, including rising 
inflation, lower unemployment rates, and increased illegal 
immigration. 
 
¶4. (SBU) Kelimbetov commented that he is the "least 
favorite" minister at the moment due to his efforts to stop 
the rate of growth of state spending.  He explained that 
rising oil revenues had created a sense of "budget euphoria" 
among ministries and the public.  His task was to explain 
the risk of uncontrolled inflation from increased spending. 
President Nazarbayev's March 1 address to the nation had set 
out an agenda of budget increases in certain areas.  After 
consultations with the Central Bank and the supervisory 
agency, Kelimbetov had decided to focus on restricting 
monetary policy this year and fiscal policy in the coming 
years.  As of July 1, all oil revenue will go directly into 
the National Fund.  The Budget Ministry will impose 
budgetary discipline on other ministries by examining the 
results of previous funding in key areas such as 
diversification and infrastructure development.  The goal is 
to hold budgetary growth to no more than GDP growth.  The 
creation of national holding firms Samruk and Kazina would 
serve to increase the budget transparency of firms such as 
KMG and Kazakhstan Temir Zholiy. 
 
¶5. (SBU) Kelimbetov also noted the importance of economic 
diversification.  This priority must be balanced with the 
need to control inflation, since anti-inflationary measures 
could affect the real exchange rate and harm non-oil 
sectors.  He emphasized the need to address the non-oil 
budget deficit, which was 5-7% of GDP last year; the GOK was 
shooting for 1.6% next year.  Kelimbetov said that the GOK 
had an ambitious fiscal reform agenda, which included plans 
to reduce VAT from the current rate of 15% to 10% by 2010, 
thereby leaving firms with more money for modernization. 
Reductions in the social tax rate would permit salary 
increases and decrease the incentive for off-the-books pay. 
Tax rates for SMEs are also being reduced drastically, said 
Kelimbetov. 
 
¶6. (SBU) The Ambassador asked Kelimbetov about recent 
reports that Kazakhstan would increase the reserve 
requirement for loans obtained by Kazakhstani banks abroad. 
Kelimbetov confirmed that the proposal was under 
consideration. 
 
ORDWAY