The World Bank A Greener, More Inclusive, and Resilient Economic Recovery for Republic of Kazakhstan (P174367) Program Information Document (PID) Concept Stage | Date Prepared/Updated: 13-Apr-2021| Report No: PIDC30647 Page 1 of 6 The World Bank A Greener, More Inclusive, and Resilient Economic Recovery for Republic of Kazakhstan (P174367) BASIC INFORMATION A. Basic Project Data OPS TABLE Country Project ID Project Name Parent Project ID (if any) Kazakhstan P174367 A Greener Private Sector- Led Economic Recovery for Republic of Kazakhstan (P174367) Region Estimated Board Date Practice Area (Lead) Financing Instrument EUROPE AND CENTRAL ASIA May 27, 2021 Macroeconomics, Trade Development Policy and Investment Financing Borrower(s) Implementing Agency Ministry of Finance Ministry of Finance Proposed Development Objective(s) Support institutional and policy changes for: (i) a greener economic recovery and (ii) a more competitive economy and a more accountable public sector. Financing (in US$, Millions) FIN_SUMM_PUB_TBL SUMMARY Total Financing 500.00 DETAILS -NewFin3 Total World Bank Group Financing 500.00 World Bank Lending 500.00 Decision The review did authorize the preparation to continue B. Introduction and Context Country Context This proposed operation supports the government of Kazakhstan to implement reforms for a greener, sustainable, and resilient economic recovery, and transition to a a more competitive and accountable private-sector-led economy. The government responded to the pandemic with a substantial and well-targeted fiscal package – which included increased Page 2 of 6 The World Bank A Greener, More Inclusive, and Resilient Economic Recovery for Republic of Kazakhstan (P174367) outlays on social protection, health, and education – supplemented by robust provision of liquidity by the central bank. The attention of the authorities is now shifting to addressing the structural issues that constrain productive economic activities, such as the dominance of the state in the economy, overreliance in hydrocarbons, and institutional weakness in ensuring inclusive and sustainable growth. The government also is stepping up effort to make public institutions more accountable, responsive, and fair in protecting citizens. While the post-crisis recovery will depend on the extent of the global economic turnaround, the commodity demand abroad, another key factor in the recovery will be the shift of policy efforts towards addressing the country’s high energy intensity and inefficiency, substantial GHG emissions, and vulnerability to climate change. The macroeconomic policy framework is adequate for this operation, reflecting prudent economic management despite weaknesses in global and domestic economic conditions. After the 2020 contraction, the economy is likely to grow by 3-4 percent in 2021, thanks to a robust recovery in private consumption, investment, and exports. The government budget will prudently support the recovery, reducing the fiscal deficit only gradually in 2021 and beyond, avoiding a premature withdrawal of support. Government debt is likely to remain low and sustainable. Nonetheless, there are likely to be substantial spending pressures on the budget as the authorities transition from the current resource- and energy-intensive growth model to a more inclusive, resilient, and greener one. Stepped-up social protection, increased expenditures on education and infrastructure, among others, are also part of the government strategic priorities that will have substantial fiscal implications. These pressures will need to be countered with stronger efforts on domestic revenue mobilization, expenditure prioritization, and debt management. After one-off shocks from supply chain disruptions and higher increases in food priced, inflation is set to moderate to the upper bound of the central bank’s inflation target range. Relationship to CPF The reforms supported by this operation are aligned with two of the three focus areas of the CPF. These are focus area one (promoting inclusive growth) and focus area two (securing sustainable growth). To promote inclusive growth, this operation helps supports measures to improve the environment for private sector development through levelling the playing field for all enterprises, a more competitive and open public procurement system, and better functioning financial systems and markets. To help secure sustainable, resilient and low carbon growth, this operation is supporting the government to strengthen the institutional capacity and regulatory foundations to improve energy efficiency, reduce GHG emissions, and promote more investments in renewable energy. Finally, this operation also supports the cross- cutting theme of the CPF, which is effective governance and strengthened market and social institution, by supporting reducing corruption in public institutions. Several reforms supported by this operation, including on the greener growth agenda, public procurement system, and the telecom sector, are laying the foundations for further DPF and project support Kazakhstan authorities in implementing its medium-term development plan C. Proposed Development Objective Support institutional and policy changes for: (i) a greener, more inclusive, and resilient economic recovery and (ii) a more competitive and accountable private-sector-led economy Key Results This operation is expected to achieve the following results. First, the reforms supported in this operation will help achieve better energy efficiency, promote the use of renewable energy sources, help reduce GHG emissions, and Page 3 of 6 The World Bank A Greener, More Inclusive, and Resilient Economic Recovery for Republic of Kazakhstan (P174367) integrate sustainable development in economic activities. Second, improve the level playing field for all enterprises through improved public procurement and better implementation of competition policies. Third, improve access to digital telecommunications and attract more private. Fourth, improving the stability and functioning of the financial market. Fifth, reduce corruption in public institutions. D. Concept Description This proposed standalone Development Policy Financing (DPF) of US$500 million supports the authorities' program to deliver a greener and more resilient and inclusive recovery and transition to a more competitive private-sector-led economy. The operation is aligned with the authorities' Strategy Kazakhstan 2050, the National Plan for the Development of the Republic of Kazakhstan 2025, the 2013 Transition to Green Economy, as well as the World Bank's COVID-19 response as outlined in the Approach Paper and the GRID approach. This operation will be supported by parallel financing by the French Development Agency (Agence Française de Développement, AFD) of about €100-150 million. This operation has two pillars of reform areas: • The first pillar of the DPF supports the delivery of a more sustainable, more resilient, and greener recovery. Kazakhstan has pledged to become carbon neutral by 2060. The government recently introduced legislative amendments to integrate sustainable development principles in sector policies and programs, reduce greenhouse gas (GHG) emissions, promote energy efficiency, and facilitate more investments in renewable energy. Furthermore, the proposed operation lays the foundation for longer-term green growth and resilience. It supports measures to address Kazakhstan's climate change vulnerabilities in sectors such as agriculture, water management, and forestry. • The second pillar supports a decisive shift to a more competitive and inclusive economy driven by vibrant private and financial sectors. To reduce explicit and implicit preferences for state-owned and state-influenced enterprises and improve the environment for private sector growth, an independent Competition Agency is being set-up to oversee competition policy and help level the playing field for all enterprises. Strengthening the governance and audit oversight of state-owned enterprises (SOEs) and advancing privatization will help reduce the state role in the economy and bolster competition. A more stable and vibrant financial sector, along with a reduced role of the state in credit markets, is essential for supporting viable small- and medium-sized enterprises (SMEs), while helping non- viable firms exit. The DPF also supports reforms of procurement by the government and the Sovereign Wealth Fund Samruk-Kazyna -- the conglomerate that holds the government shares in non-financial companies – to make it open to more competition, more transparent, and less costly. E. Poverty and Social Impacts, and Environmental, Forests, and Other Natural Resource Aspects Poverty and Social Impacts Most of the actions will have an indirect impact on poverty, shared prosperity and welfare . Actions to promote better energy efficiency, control GHG emissions, and implement more environmentally sustainable technologies will be beneficial for both human and economic health and productivity. Additionally, those benefits will be particularly important for the poor and vulnerable, whether they be living near industrial sites or in rural areas, as they often have less voice and fewer means to cope with pollution or build resilience to climate change. Actions to promote better public procurement, lower corruption, and promote privatization will improve transparency and accountability, reducing the burden on the government budget and on businesses, and can provide additional resources for education, health, and social protection. Reforms to promote competition, improve mobile broadband and the digital sector, and improve Page 4 of 6 The World Bank A Greener, More Inclusive, and Resilient Economic Recovery for Republic of Kazakhstan (P174367) financial market will have positive effect on job creation. Actions to promote privatization might have adverse impacts on poverty in the short term, as unviable private enterprises cannot sustain their businesses and some job losses are inevitable. These negative impacts can be mitigated by better social protection programs, increased unemployment benefits, and access to retraining, which the government plans to expand in 2021. Environmental, Forests, and Other Natural Resource Aspects Prior actions supported by this operation are not expected to have any significant negative effects on the environment, forests, and other natural resources. The prior actions under the first pillar are expected to support building a more sustainable, greener, and more resilient economy and each of them should improve the overall environmental situation. The prior actions under the second pillar focus on more competitive and accountable private sector growth, which will, through greater accountability in particular, promote more sustainable environmental practices as mandated by the new Environmental Code . CONTACT POINT World Bank Ivailo V. Izvorski, Sjamsu Rahardja Lead Economist Borrower/Client/Recipient Ministry of Finance Assanali Dusembai Depity Director State Borrowing Department a.dusembai@minfin.gov.kz Implementing Agencies Ministry of Finance Assanali Dusembai Deputy Director State Borrowing Agency a.dusembai@minfin.gov.kz Page 5 of 6 The World Bank A Greener, More Inclusive, and Resilient Economic Recovery for Republic of Kazakhstan (P174367) FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 473-1000 Web: http://www.worldbank.org/projects APPROVAL Task Team Leader(s): Ivailo V. Izvorski, Sjamsu Rahardja Approved By APPROVALTBL Country Director: Lilia Burunciuc 02-May-2021 Page 6 of 6