Kazakhstan suffered seriously from the transition to market economy from 1991, when it declared its independence, to 1998. As of 2000, with the increase in oil prices, Kazakhstan's real gross domestic product increased significantly. However, the country also witnessed the emergence of an economic structure that is highly dependent on the oil sector for production, employment and foreign trade. How Kazakh economy's dependence on the petroleum sector can be reduced is a critical question concerning the development of both short term and long term economic policies. This study demonstrates that the dependence of Kazakh economy on the oil sector is caused mainly by the problems concerning the use of foreign financial resources and the insufficiency of reform efforts. The study also discusses what role, if any, monetary policies could play in the short run in reducing Kazakhstan's dependence on oil. Finally, the study stresses the need for the Central Bank of Kazakhstan to move towards a system that could prevent Tenge's real value from destabilizing as a result of the changes in oil prices.