/REUTERS, Almaty, Olzhas Auyezov, November 16, 04 - Kazakh oil has attracted massive foreign investment and fuelled rapid economic growth, but "the black gold" may turn into a millstone if the government does not fight corruption and bolster reforms, the IMF said.

The Central Asian state enjoyed real gross domestic product (GDP) growth of over 10 percent on average during 2001-03, the International Monetary Fund said in a new survey of the Kazakh economy.

"Based on conservative estimates, the share of the oil economy, including associated services, has now reached about 25 percent of GDP and 50 percent of exports," the Fund said in the report posted on its Web site www.imf.org late on Monday.

The oil sector has attracted large scale foreign direct investment of $3 billion to $4 billion a year, stimulated construction, transportation, other service sectors and generated large budget revenues.

"However, at the same time, the challenge of how to cope with the rapidly rising oil wealth is mounting as a two- to three-fold increase in oil production over the next 10-15 years is projected," the IMF said.

Mineral-rich Kazakhstan, the size of western Europe but populated by just 15 million, plans to produce 3.0 million barrels per day of oil by 2015, which will put the steppe nation among the world's 10 top producers.

"NATURAL RESOURCE CURSE"

But the IMF warned that economic growth had been less rapid than in other economies as a result of the "natural resource curse".

"The flow of income to the government from oil and other natural resources has often allowed the government rather than the private sector to take a central role in the economy," it said.

"Weak institutions, corruption, lack of transparency, and political pressures have often led to serious misuse and misallocation of resources, misguided investment strategies and spending on prestige objects."

Kazakhstan, which has not held elections judged either free or fair and where state power is concentrated in the hands of veteran President Nursultan Nazarbayev, is viewed as more liberal than autocratic neighbors Turkmenistan and Uzbekistan.

But citing the experience of some other oil-rich states, the IMF said that "oil wealth has been found to affect negatively the establishment of democratic institutions".

On the economic front, Kazakhstan's tenge currency has been rapidly appreciating, leading to a sharp growth in imports, due to the massive influx of easy petrodollars.

"Real appreciation is an equilibrating phenomenon under Kazakhstan's circumstances, and resisting it will put the economy on a slower growth path," the IMF said.

"Trade liberalization will enhance growth prospects and facilitate adjustment of Kazakhstan's economy and structural reforms."

[2004-11-16]