Kazakhstan achieves medium overall compliance with international standards and codes, with a score of 50.83 out of 100 in our Standards Compliance Index. Kazakhstan fares reasonably well in macroeconomic fundamentals, with good data quality and a high degree of monetary policy transparency. Despite progress, fiscal transparency still needs reforms in many areas to meet the international standard but Kazakhstan's commitment to comply with the principles of the Extractive Industries Transparency Initiative is an important step forward. Observance of standards in the market infrastructure category represents a mixed picture. The Kazakh payment system compares well with core principles and its legal framework for accounting, auditing, and corporate governance meets international standards, but evidence of their successful enforcement is still outstanding. The country's compliance in anti-money laundering and combating the financing of terrorism has been assessed as poor, and while these weaknesses were supposedly being addressed in a package of draft laws, these have not been passed yet. Its insolvency framework suffers from deficiencies in the bankruptcy and liquidation process and overall weak implementation. Finally, the Kazakh system of financial supervision has seen ambitious legal reforms and the creation of a new integrated financial supervisory authority in 2004, but the effective implementation of the initiatives has not been assessed yet.

Macroeconomic Policy and Data Transparency

Kazakhstan subscribed to the International Monetary Fund's (IMF) Special Data Dissemination Standard (SDDS) on March 24, 2003 and started posting its metadata on the Dissemination Standards Bulletin Board on the same day. Based on information provided on the IMF's SDDS website, Kazakhstan meets SDDS requirements for periodicity, coverage, and timeliness of data, although it does avail of the flexibility option with regards to timeliness and periodicity for central government operations. Further, Kazakhstan fulfills, where applicable, relevant requirements for the access dimension. Information on the IMF's SDDS website, however, shows that Kazakhstan does not meet all requirements for integrity of data, because several data categories lack provision of information about revision and advance notice of major changes in methodology. Furthermore, the country does not provide information concerning identification of internal government access to data before release and identification of ministerial commentary on the occasion of statistical releases for the data category "population." Kazakhstan addresses the confidentiality of individually identifiable information for most data categories except for general government (public sector operations), central government debt, central government operations, share price index, and population. With regards to the quality of data, information provided on the IMF's SDDS website indicates that Kazakhstan fulfils most SDDS requirements except in the case of national accounts with regards to reconciliation with related data. More »

A 2000 Financial Sector Assessment Program (FSAP) report for Kazakhstan by the IMF observed that Kazakhstan was relatively transparent in its conduct of monetary policy. In 2004, the IMF issued a FSAP update that found the National Bank of Kazakhstan (NBK) to have maintained a high degree of transparency in the area of monetary policy because it improved its communication strategy, thereby achieving greater openness regarding its policy targets through a greater outreach to the public and an improved website. Nonetheless, the report found that improvements were needed in the areas of governance, accounting, and internal audit. As SDDS subscriber, Kazakhstan meets metadata requirements in terms of timeliness, periodicity, and coverage for its monetary data, according to the SDDS website. It also shows that advance release calendars are available for monetary data releases, and that the data is subject to simultaneous release to all interested parties. The 2008 IMF Report on the Observance of Standards and Codes data module for Kazakhstan discloses that the NBK's monetary data generally follows the standards and guidelines of the IMF's Monetary and Financial Statistics Manual. More »

In 2003, the IMF published its latest assessment of fiscal transparency for Kazakhstan. The IMF notes that the country has rapidly and substantially improved in three critical areas: simplification of intergovernmental fiscal relations, establishment of a new treasury system, and achievement of basic accounting transparency. However, the Fund cautioned that maintaining these achievements over the long term will require institutional reform, including a strong emphasis on establishing auditing institutions that adhere to international standards and practices. It also urged that the system of intergovernmental transfers be made more transparent. The IMF mission praised the Kazakh authorities on the availability of public information, stating that no further effort is required on this issue. In contrast, the 2006 Open Budget Index, tracking the production of seven key budget documents, rated Kazakhstan at only 43%. The IMF's concluding statement from its 2007 mission to Kazakhstan noted a number of promising initiatives that could lead to increased transparency and better economic management. Chief among them ranks Kazakhstan's commitment to comply with the principles of the Extractive Industries Transparency Initiative. More »

Institutional and market infrastructure

In 2003, the European Bank for Reconstruction and Development (EBRD) found Kazakhstan to have achieved only "medium" overall compliance with prevailing international standards for effective insolvency and creditor rights systems, even though its insolvency laws were found to be among the strongest in Central Asia. The reorganization and liquidation processes and the treatment of estate assets were identified as the main areas of deficiency. Harmer and Cooper, writing in 2004 for the EBRD, noted that the gap between the quality of Kazakh insolvency law and the effectiveness of its implementation was among the greatest to be found in the countries studied by the EBRD. Reforms took place through 2006, and the EBRD conducted a new assessment of the situation, which it reported in its 2006 "Strategy for Kazakhstan" paper. The paper found that the recent changes did only a little to address previously noted weaknesses and were primarily concerned with addressing the fraudulent use of bankruptcy proceedings. According to the World Bank's 2007 "Doing Business 2008" snapshot of business closings in Kazakhstan, it takes an average of 3.3 years to complete an insolvency action, compared to a regional average of 3.2 years and an average of 1.3 years among member states of the Organization for Economic Cooperation and Development. The cost of such proceedings in Kazakhstan averages 18 percent of the debtor estate, compared to 13.7 percent regionally and 7.5 percent within the OECD. Recoveries average 23.4 cents on the dollar in Kazakhstan, compared to 28.9 cents for the region and 74.1 cents on the dollar for OECD member states. More »

The Kazakh accounting framework is primarily governed by the provisions of the Law on Accounting and Financial Reporting of 1995, which was last amended in 2007. According to a 2007 World Bank assessment, the amendments enacted in February 2007 mandate the application of International Financial Reporting Standards (IFRSs) by listed companies, large companies, and companies that qualify as public interest entities. However, small and medium-sized entities and companies that cannot be defined as public interest entities apply the Kazakh Accounting Standards (KASs). The report explained that KASs, although said to be based on IFRSs, differ significantly from their international equivalents. Differences arise largely from fact that KASs were developed in 1995, and, therefore, do not take into account any subsequent revisions made to the international standards. Thus, certain areas covered by IFRSs are not addressed by an equivalent KAS. Additionally, the assessment identified differences in disclosure requirements and accounting policies under the two frameworks. For entities that do not qualify as public interest entities, the World Bank recommended setting up a committee to develop a simplified financial reporting system. More »

In its 2004 Corporate Governance Sector Assessment Project, the EBRD observed that corporate governance legislation in Kazakhstan is in "high compliance" with the Organization for Economic Cooperation and Development's Principles of Corporate Governance. Nonetheless, the report identified weaknesses with regard to the responsibilities of the board, disclosure, and transparency. Many of these deficiencies have since been addressed, in particular, with the introduction of the Law on Joint Stock Companies in 2003 and its subsequent amendments in 2005, as a 2006 EBRD report has noted. The report observed that these amendments enhanced the system of state regulation of joint stock companies' activity and the protection of shareholders' and investors' rights. Kazakhstan also introduced new auditing and accounting related legislation, requiring application of International Financial Reporting Standards (for listed entities) and International Standards on Auditing. In addition, the International Financial Corporation initiated the Central Asia Corporate Governance Project starting October 2006 (to be conducted over a period of three years) to improve corporate governance practices of joint stock companies and banks in Kazakhstan. More »

According to the 2007 World Bank assessment of accounting and auditing practices in Kazakhstan, a 2006 Law on Audit mandates the use of International Standards on Auditing (ISAs) issued by the International Auditing and Assurance Standards Board (IAASB) effective November 2006. A 2007 Chamber of Auditors of the Republic of Kazakhstan self-assessment confirmed that the new Law adopts IAASB pronouncements as the auditing standards applicable in Kazakstan. Previously, the 1998 Law on Audit required the use of Kazakh Standards on Auditing which, the World Bank noted, fell "significantly short of ISAs." Although the new law introduced significant changes in the auditing framework, the World Bank observed that compliance with the 2006 Audit Law may prove challenging, because local professionals are not familiar with the international standards. Furthermore, the World Bank made a number of recommendations to the Kazakh authorities, including introduction the requirement for an audit regardless of the entity's legal form only when there is a public interest for such an audit. The assessment also recommended making audited financial statements available to the public, establishing in the long term a public oversight mechanism for the audit profession, and developing a standard audit methodology and audit manual for ISAs. More »

The IMF conducted an assessment of Kazakhstan's compliance with the Financial Action Task Force's (FATF) recommendations and special recommendations on anti-money laundering (AML) and combating the financing of terrorism (CFT), the results of which were published in the 2004 Financial System Stability Assessment (FSSA) Update and the 2004 FSAP Update. The 2004 FSSA Update noted that the Kazakh AML legal framework was not in line with international standards, terrorist financing had not been criminalized as a separate offense, and there was no functioning Financial Intelligence Unit (FIU). These findings were also confirmed by the U.S. Department of State in its 2005 report. According to a March 2006 report by the Office for Democratic Institution and Human Rights, some of these deficiencies have been addressed in a package of draft laws. However, the IMF assessment was conducted on the basis of the FATF's 2002 methodology, which was subsequently revised in 2004 and there is little information publicly available regarding Kazakhstan's compliance with the FATF recommendations per its 2004 methodology. As of June 2007, based on a report by the Eurasia Group, the draft AML/CFT laws had not been enacted and the FIU had not been established. More »

In 2000, the IMF assessed Kazakhstan's compliance with the Committee on Payment and Settlement Systems' (CPSS) Core Principles for Systemically Important Payment Systems (SIPS). At the time, the IMF identified the Interbank System of Money Transfers (ISMT) and System of Retail Payments as the SIPSs. However, in the 2004 IMF FSSA Update of the 2000 assessment only the ISMT was found to be of systemic importance. The IMF's 2004 FSAP Update notes that the ISMT observes all Core Principles (CP) with the exception of CP 1. With regards to this principle, the assessment finds inconsistencies between the Law on Payments and Money Transfers and the Bankruptcy Law concerning real-time finality or irrevocability of payments. However, the Kazakhstani authorities note that they do not consider the law to hinder any aspect of irrevocability. The 2004 IMF FSAP Update nonetheless recommends that a clause be inserted into the Bankruptcy Law to strengthen the irrevocability of payments. According to the NBK's 2007 Financial Stability Report, the bulk of non-cash transactions, 98.5 percent, are processed through the ISMT system. In their 2003 report, the NBK and the CPSS indicate that to closely monitor and contain any systemic and/or liquidity risks, the NBK supervises the ISMT payments system . More »

Financial Regulation and Supervision

The financial system in Kazakhstan, which is dominated by private commercial banks, has been one of the most rapidly growing sectors of the economy. The IMF's 2004 FSAP Update concluded that changes have been observed in the implementation of the Basel Core Principles (BCPs) for Effective Banking Supervision in Kazakhstan since the 2000 FSAP. The report found that Kazakhstan was compliant or largely compliant with almost three quarters of the BCPs, and had upgraded principles that had been rated as non-compliant in 2000. The 2004 FSAP also acknowledged that, in many cases, amendments to the legal framework were so recent that there was little information regarding actual implementation of these regulations. For example, while significant legal improvements regarding consolidated supervision and risk management were introduced in late 2003, they had not been fully implemented at the time of the 2004 FSAP. Similarly, the 2004 FSAP reported that at the time of the update, a new supervisory agency had just been established. Therefore, a thorough assessment of the agency's implementation of its functions was not yet possible. The legal framework for banking supervision in Kazakhstan is mainly comprised of the Banking Law and several resolutions of the NBK that address prudential standards and reporting requirements. While many supervisory powers of the NBK have been passed to the new integrated financial supervisory authority, known as the Agency of the Republic of Kazakhstan on Regulation and Supervision of Financial Markets and Financial Organizations (FSA), both agencies still share responsibilities in licensing, and the establishment of accounting standards. More »

According to its 2006 report on Commercial Laws, the EBRD carried out a study in 2004 that assessed the securities market legislation in Kazakhstan against the International Organization of Securities Commissions' Objectives and Principles of Securities Regulation. The report found Kazakhstan to be in "medium compliance." Per the same report, a 2005 update of Kazakhstan's securities markets legislation showed improvements that nearly brought it to a high compliance level. The 2000 FSAP by the IMF concluded that, while the core legal infrastructure of the securities market was in place, the regulatory framework remained weak. Since 2000, Kazakhstan has substantially improved its legal framework for securities regulation by enacting the Law on the Securities Market and the Law on Joint Stock Companies in 2003. Effective January 1, 2004, the FSA replaced the National Securities Commission as the regulator of the securities market in Kazakhstan. As stated in the IMF's 2004 FSAP Update, while the new laws provide the FSA with a clear and consistent regulatory framework; it is still too early to assess their effective implementation, and no comprehensive assessment has been published since. More »

The main recommendations of the 2000 FSAP by the IMF, which assessed Kazakstan's compliance with the Insurance Core Principles (ICPs) developed by the International Association of Insurance Supervisors, were to adopt a new insurance legislation consistent with international best practices, upgrade supervision to meet the requirements of the new legislation, strengthen implementation and enforcement practices, and develop an actuarial profession. According to the IMF's 2004 FSAP Update, the Kazakh authorities have made good progress in updating insurance legislation. The new Insurance Law complies with international best practices and gives sufficient powers to regulate the insurance industry. On January 1, 2004, the FSA replaced the NBK as the supervisory and regulatory authority for the insurance market. The IMF report noted that it was unclear to what extent the insurance industry and the FSA had implementational capacity to fully meet the legislative requirements, due particularly to a lack of staff and formal training in the FSA's insurance department. Given the revision in October 2003 of the ICPs and Methodology, and the fact that the IMF did not rate the principles in 2004, there is insufficient information publicly available regarding Kazakhstan's compliance with the new, more stringent principles. More »

Legend:

Credit Ratings

Moody's Baa2/Stable

Fitch BBB/Negative

Standard & Poor's BBB-/Stable

Macroeconomic Data

2007 GDP (Current Prices): 103.84 billion USD (IMF)

2007 GDP (Per Capita): 6,868 USD (IMF)

2008 GDP (Growth Forecast): 5% (IMF)

2008 Inflation (CPI): 17.1% (IMF)

2007 Unemployment: 7.1% (CIA)

2006 Foreign Direct Investment

FDI (Inward): 6.143 billion USD (UNCTAD)

FDI (Outward): -0.412 billion USD (UNCTAD)

2006 Official Development Assistance

ODA (Received): 172 million USD (OECD)

ODA (Disbursed): N/A million USD (OECD)