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Kazakhstan: Government battles Dutch disease

High oil prices threaten Kazakhstan's economy with inflationary pressures.

By Simon Pirani

The Kazakh government is keeping a watchful eye on inflation and dollarization of the economy as it struggles with the financial consequences of stratospheric oil prices, deputy finance minister Gani Uzbekov tells Euromoney.

Kazakhstan's diversion of oil revenues into the national stabilization fund has been welcomed as an antidote to "Dutch disease" (an over-reliance on natural resources revenues). However, there are aspects of economic overheating that the fund has not solved, warns the 31-year-old Harvard graduate who arrived at the finance ministry in 2003 after a spell at the UN's internal audit department.

"We have to reckon with the fact that the national oil fund has not dealt completely with the growing inflationary pressure on the economy and the strong increase in the tenge exchange rate," Uzbekov says. "Although for the last two years inflation has been held at 6.4% to 6.9%, the financial authorities have held it at that level only with great difficulty."

Signs of disease

The government and central bank set an inflation target of 5% to 7% for this year, amended upwards from a previous level of 4.9% to 6.5%. "But the tenge's real exchange rate rose by 12.6%

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