Primeminister.kz continues to publish a series of interviews on the fulfilment of the Head of State's instructions in various areas and topical issues of socio-economic development of Kazakhstan. The speaker of the new issue is Deputy Prime Minister - Minister of National Economy Nurlan Baibazarov.

The main topics of the conversation were attraction of investments, launching new development programmes in various sectors of the economy, modernisation of the housing and utilities sector, formation of the National Infrastructure Plan, elaboration of the new Tax Code and others.

Alisher Kozhasbaev:

- How would you characterise the current state of the economy? What is happening to it now?

Nurlan Baibazarov, Deputy Prime Minister - Minister of National Economy:

- Today Kazakhstan's economy is developing steadily. Growth rates in some sectors exceed the indicators for the same periods of last year. But, of course, there are sectors whose growth rates have decreased. If we talk about the results of five months, the trade sector has suffered the most. This is largely due to the large-scale floods that occurred in our country in the spring of this year. More than half of the regions were in such a state, when business activity fell, infrastructure suffered, respectively, trade turnover and logistics links were disrupted. The same reasons affected the transport and communication industries, which also, we can say, reduced their growth rates.

- What about oil production?

- In terms of oil production we are on schedule - the plan is fulfilled by 99.9%. The minimum decrease in production was due to the fields in the Atyrau region.

- What are the Government's plans to solve the accumulated problems in the economy, infrastructure, manufacturing industry for this year?

- Today we have identified sources and areas for investment: in infrastructure, manufacturing, agro-industrial complex.

In terms of figures, we estimate investments to ensure economic growth at 9.6 trillion tenge. This amount includes budget investments, which we have already budgeted. The main part is taken up by off-budget sources of investment in the amount of 7 trillion tenge.

First of all, these are the funds of our national holdings: all free liquidity that Samruk-Kazyna and Baiterek have is directed to this growth programme.

The second source is the domestic and foreign capital markets. We are now actively using internal resources. These are funds of second-tier banks and other institutional domestic investors.

Important work is being done with international financial organisations. We attract long favourable financing for our projects.

And another source is private investment from both domestic domestic investors and foreign investors. These are the main sources of investment that we have now mobilised.

- Tell us more about the three areas: infrastructure, manufacturing and agribusiness.

- Firstly, these are the infrastructural initiatives of the Head of State, which were voiced during the National Kurultai in the city of Atyrau. These are the construction of roads and housing for the population, the launch of new preferential mortgage programmes, gasification, and the modernisation of our country's housing and utilities sector. We are allocating 2.6 trillion tenge of investments to these four areas.

As I have already said, the sources have been identified. These are mainly extrabudgetary sources of funding. The regions are now actively implementing all these areas.

In terms of gasification of the population, we plan to gasify 87 settlements, where more than 300 thousand of our citizens live, at the expense of allocated funds in the amount of 195 billion tenge.

This year Otbasy Bank launched new mortgage programmes - Otau and Nauryz. KZT 450 billion will be invested for these purposes.

12 thousand kilometres of roads are to be repaired and constructed this year. These works have also been intensified since the beginning of the spring period.

Modernisation of the housing and utilities sector also continues. This year we will have to repair 6.5 thousand networks and put 55 heat sources in order.

I would also like to note that from July the Development Bank of Kazakhstan is launching a new programme to provide tenge financing for natural monopolies and utilities. This concerns the financing of capital expenditures in this sphere. We plan to allocate at least 300 billion tenge over the first 5 years.

In addition, this year we are starting to actively restore the water management system of our country. The floods that took place in spring showed the underdeveloped infrastructure in this area. We have identified 16 projects that require investments of more than 500 billion tenge. The sources of these investments have also been identified. We are now at the stage of attracting favourable financing from the Islamic Development Bank. The funds are provided for a long period of time and at a very low rate. This will allow us to solve the accumulated problems in this area.

- In the water industry?

- In the water sector, yes. Of course, this will also allow us to influence the expansion of irrigated lands and contribute to the development of the agro-industrial complex.

- So it's a cumulative effect?

- Yes, these will be reservoirs and irrigation canals. All necessary infrastructure will be either newly built or reconstructed. We are strengthening not only the water management infrastructure, but also the technical infrastructure of the services involved in this sphere.

First of all, on the instructions of the Head of State, we will carry out a complete renewal of equipment and facilities in the system of the Ministry of Emergency Situations. In the water sector, we will also equip the Kazvodkhoz system with the necessary equipment.

- Can I clarify: are these funds of "Zhasyl Damu" going there? It is important to talk about where this money goes.

- Zhasyl Damu" funds are used to upgrade and equip those spheres that need it. These are forestry, water management and the emergency system.

We will allocate more than 200 billion tenge for these purposes. Implementation of the projects has already begun. The first batch of equipment will be delivered this year.

- You mentioned roads. Can we talk about them a little bit more?

- This is a historical maximum: never in our country have so many roads been built and repaired. Even when we implemented the "Nurly Zhol" project, there were no such volumes - 12 thousand kilometres of roads. It is clear that this is not the volume of one year, but this year we will finish the construction of roads that were started earlier. These include the Taldykorgan-Oskemen highway, reconstruction of the Astana-Almaty road, reconstruction and construction of roads around Balkhash and some roads in the western region.

Construction of the Dostyk - Moyinty railway, Almaty city bypass, Darbaza - Maktaaral, and Bakhty - Ayagoz railways continues. The projects were started last year.

All of them are aimed at developing transit potential and consolidating our country's position as the main transit hub in the Central Asian region. The implementation of all these projects, of course, contributes to the development of the Middle Corridor.

Also in this regard, we are actively renewing fixed assets in the system of "Kazakhstan Temir Zholy". We purchase new freight wagons. Domestic production capacities are involved in this work. We load our factories in this sphere with orders. All this is aimed at ensuring the development of transport and transit potential.

- What about the National Infrastructure Plan? The head of state set the task, it had to be developed.

- These projects are part of the National Infrastructure Plan. It has been developed and is now at the stage of approval by the Government. In general, the plan envisages the implementation of more than 200 projects between this year and 2029 inclusive.

The volume of investments is more than 40 trillion tenge. These are quite significant investments, and we realise that it is a serious task to attract them. We expect to finance the National Infrastructure Plan through private investment and external direct investment.

- Many people are interested in the development of the manufacturing industry. What measures are being taken to increase the utilisation of domestic manufacturers?

- The development of the manufacturing industry can be divided into two parts. The first part is the creation of new production facilities, as well as the reconstruction and modernisation of existing ones. The second part is the utilisation of established or modernised enterprises.

Work is underway on the first part. This is the creation of the industrial framework of our country on the instructions of the Head of State. In this direction we are working on the implementation of major industrial projects. We have compiled a list of them worth more than 15 trillion tenge. This concerns ferrous and non-ferrous metallurgy, oil and gas chemistry, chemical industry, food industry, machine building, including automotive industry.

We can say separately about the tourism sector, because it is also a priority for our Government. Recently, the Head of State held a special meeting on the development of the tourism industry. We are also implementing major projects in this area. Because tourism creates a multiplier effect. In particular, the demand for the same products of the manufacturing industry.

As for the second part of the question on the utilisation of enterprises, there must certainly be demand for the products of domestic producers. This demand is created by the public sector and the private sector. If we take the public sector, we have so-called regulated procurement, which includes public procurement and quasi-public sector procurement. This is a huge market. To this we can also add the procurement of subsoil users, which we indirectly regulate to a greater or lesser extent. This market is estimated at more than 20 trillion tenge. Every year there are purchases of goods, works and services.

And this huge demand market must be satisfied by the supply from our producers. One of the Government's priority tasks this year is to create this synergy. That is, on the one hand, there must be production that will be bought by our public sector. On the other hand, the public sector should be open for these purchases.

We are implementing concrete steps in this direction. Firstly, we have expanded the list of the system of national exemptions and purchases of goods, works and services that can be purchased by our public sector from domestic producers on a priority basis.

The second direction is that we are now working on improving the law on public procurement. This law is now in Parliament. It will make it possible to consolidate measures aimed at purchasing domestic products and simplifying these procedures. This issue is under the control of the Government.

- If we talk about growth points, this year's priorities are infrastructure, manufacturing, and support for domestic producers. Maybe there is something else?

- This is the agro-industrial complex. This year we are not only focusing on food processing in this sector, but also multiplied the financing of spring field work. Farmers got access to favourable money at 5% per annum in tenge.

Also, just the other day, Baiterek Holding launched a new leasing programme for renewal of agricultural machinery, also at 5% for agrarians. Here we also stimulate domestic production of agricultural machinery. Our producers receive orders for their products in this way.

- I would like to ask you about the liberalisation of the economy. This decree was signed by the Head of State. Can you tell us a little bit more about what this decree is? What does it mean for the economy and for people?

- This is the most important structural reform we have to implement. What are the main directions of this decree? Firstly, of course, it is to reduce the share of the state in the economy. Now, according to various estimates, the state's share is over 40 per cent. This decree is aimed precisely at reducing it. For this purpose, we must privatise state assets. We must fulfil this task by the end of 2028. That is, we must gradually privatise state assets.

In accordance with the decree, the National Privatisation Office was established. Its task by the end of the year is to audit all state assets, analyse the validity of their participation in the economy, analyse their condition and efficiency. After that, we will form a list of assets that will be gradually put up for privatisation.

This work has already been and is being carried out. There is a Comprehensive Privatisation Plan, which is also being implemented. But the National Office is designed to assess the privatisation potential once again, to evaluate the role of state institutions that work in various sectors of the economy and on commodity markets. This is the first part.

The second part is the development of competition through the removal of norms and restrictions that hinder the formation of market prices in the economy. This is a radical reduction of cross-subsidisation in the economy, when other sectors of the economy are subsidised at the expense of the revenues of one sector. We must finish this work by the end of 2029. We need to determine in which spheres this work should be carried out, which sectors need to reduce cross-subsidies or completely abandon them, which regulations hinder business development, which restrict competition. Because privatisation means the entry of private investors into those sectors where the public sector operates.

- The issue that is most discussed now is the Tax Code. Can you tell us what will be tightened or softened? Why is the Tax Code being changed? What new things should be brought into it?

- The main contours of the Tax Code, as it should be, have been outlined by the Head of State. This is, first of all, the principle of balance. That is, the Tax Code, on the one hand, should ensure sufficient budget revenues for the functioning of the social sphere, for the fulfilment of other state tasks. On the other hand, it should stimulate business and investment, ensure economic growth, increase production. This balance is the main task of the new Tax Code.

What are the main areas? Firstly, it is tax administration. Transition to a service model, when we apply not punitive measures, but, on the contrary, stimulating and supportive measures, advisory measures to accompany business from the beginning of its creation. Everything should follow the service model. This is the first task. Here we are talking about improving tax administration and full digitalisation. This is the first direction.

The second direction is the reduction of tax exemptions. The head of state has set a specific task - to reduce at least 20 per cent of tax exemptions. We have carried out work on the general assessment of the situation and now we propose to reduce tax benefits to the amount of more than 1.3 trillion tenge.

The third direction is the reduction or optimisation of taxes and fees in general. There are proposals here too.

Another important area is, of course, the block of stimulating the economy, investment and business. We propose to retain all the main investment preferences that are in the Tax Code. We also propose a number of new measures to stimulate foreign and domestic investment. We will also actively stimulate geological exploration, because our subsoil has sufficient reserves, they need to be further explored and we need to understand the potential for further development of the mining industry.

We are also working on expanding the tax base and reducing the shadow economy. This primarily concerns small and medium-sized businesses. We propose to simplify special tax regimes. We want to reduce them to three: for the self-employed, for small businesses and for farmers. The three main regimes we propose are.

As for increasing budget revenues, we propose a differentiated approach to corporate income tax. We propose to increase the CIT in high-margin financial operations in the gambling business, but at the same time we retain the current CIT rate for the real sector. But we propose to reduce the CIT by 2 times to 10 per cent for investments in high value-added processing in the manufacturing industry. That is, it should also stimulate business to actively invest in the manufacturing industry.

- You mean not to export raw materials, but to process and sell?

- Yes. Another important issue is the automation of the VAT refund process. This will also be addressed in the new Tax Code.

To support the incomes of our pensioners, we propose to eliminate the imposition of a 10 per cent individual income tax on pension income.

- You're removing that norm now, right?

- We propose to remove it. But decisions will still be made by the Parliament and the Head of State.

#Economy #Nurlan Baibazarov