July 13, 2024

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Mobilising effective private finance in Kazakhstan

Reform of Kazakhstan’s state-owned holding company Baiterek could deliver lasting development impacts, foster efficient financial markets, and mobilise private capital effectively.

To reach its full potential, Baiterek, Kazakhstan’s state-owned holding company, needs to realign its governance, organisational structure, and operations with a stronger emphasis on medium-term development impact and financial market creation, according to a new World Bank report.

Furthermore, Baiterek’s strategy can greatly benefit from integrating climate finance and green impacts, potentially positioning the institution as a global leader in the field of green finance development and a role model for institutions in other countries.

The report, Braced for Impact: Reforming Kazakhstan’s National Financial Holding for Development Effectiveness and Market Creation, offers a framework for assessing the capability of development finance institutions (DFIs) and their conglomerates to deliver credible development impact and create financial markets.

The framework focuses on accountability for impact, responsible leveraging of entrusted capital, holistic risk management, and proper governance. The report aims to assess and derive policy options and practical recommendations for the country.

Baiterek is Kazakhstan’s state-owned holding company for developing non-extractive sectors of the economy, including SMEs, agriculture, and housing, through concessional financing and risk-sharing using substantial public resources.

By 2022, Baiterek’s consolidated assets relative to the country’s GDP had surged to about 12 per cent making it a critical catalyst driving non-extractive economic sectors and shaping financial markets.

However, by providing widespread subsidies or competing directly in financial markets on unequal terms, Baiterek may create distortions and prevent private capital from entering markets or scaling up its provision of some financial services.

Proven policy choices

Such governance challenges and potential market distortions prevent the holding from reaching its development goals. Baiterek has embarked on a transformative journey to enhance its impact and governance, and the report emphasizes the need to speed up the process.

“This report suggests proven policy choices and provides recommendations to help Baiterek become an efficient development finance institution focusing on delivering positive impacts for targeted beneficiaries, creating private financial markets, and mobilising global private capital for local impact,” says Andrei Mikhnev, World Bank Country Manager for Kazakhstan.

The report argues that the company’s commitment to uplifting MSMEs and households is admirable, but its methodology for measuring impact requires improvement, and its focus on financial market creation needs much greater emphasis.

While Baiterek is proactive in advocating for the environmental, social, and governance (ESG) agenda, it could enhance its contribution to addressing climate mitigation and adaptation challenges in the economy and financial markets by incorporating climate finance and the impact of green initiatives into its strategy.

Lasting development impact

The World Bank’s comprehensive assessment and recommendations outlined in the report could serve the Kazakh government as a potential implementation roadmap for reforming Baiterek to deliver lasting development impacts, foster efficient financial markets, and mobilise private capital effectively.

The report provides a well-sequenced plan for enacting vital reforms, outlining implementation milestones, and identifying responsible entities. It highlights that Baiterek’s transformation journey will need to encompass both top-down and bottom-up approaches, ensuring that the organisation remains agile and adaptive.

This strategic direction will drive Baiterek toward a future of delivering sustainable impacts, creating deep financial markets, and pushing the frontier in green finance.

“To be fully accountable for medium-term impacts, Baiterek needs to gain full independence from the political and budget cycles, work under a credible impact framework, and be independently monitored and evaluated on impact,” adds Martin Melecky, World Bank Lead Economist at the Finance, Competitiveness and Innovation Global Practice.

The report highlights that if the suggested reforms are implemented, Baiterek will be reinforced to create positive impacts on Kazakhstani businesses, households, and the environment.

Lacking these reforms, Baiterek could face increased scrutiny and criticism from the concerned stakeholders.

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