The American Chamber of Commerce in Kazakhstan posted a report on their web site covering the economic situation in Kazakhstan. This post provides the Executive Summary (below) and you can read the full report on the AmCham.kz web site (here).
Kazakhstan
Macroeconomic Situation – January 2010
Sergey Kasyanenko, Edilberto L. Segura
- Last year the Kazakh economy grew by 1.2%.
- In 2009, the state budget deficit approached 3% of GDP.
- In 2009, consumer prices grew by only 6.2% compared with 10% and 19% in 2008 and 2007.
- Funding pressure in the banking sector are likely to persist in 2010.
Executive Summary
Last year the Kazakh economy grew by only 1% as tight bank lending restrained private demand. Nevertheless, steady growth in the mining industry has mitigated difficulties in other sectors. Meanwhile, improving foreign demand for Kazakh metals supported a turnaround in manufacturing during the second half of 2009. That said, on the balance, near-term economic performance will be driven by external factors, most importantly by the strength of the economic rebound in developing countries. At the same time, domestic demand is unlikely to regain its precrisis momentum under the weight of the ongoing restructuring in the banking sector.
Stabilization of the banking sector and social protection were the main priorities of the Kazakh government in 2009. At the beginning of the year, the government withdrew the equivalent of 15% of GDP from its Oil Fund to support the financial sector and the real economy. This helped stabilize the banking sector, while a full-scale financial panic was avoided. Investors’ confidence appears to be returning and debt renegotiation talks are advancing, which will allow distressed banks to reemerge as viable lenders. Indeed, in January, Fitch revised outlooks for the two largest Kazakh banks to stable, while, according to S&P, the likelihood of new bank defaults in Kazakhstan remains very low.
In 2009, the state budget deficit approached 3% of GDP or about 10% if transfers from the National Oil Fund, which amounted to over 30% of all budget revenues, are not included. However, public external debt stood at around 2% of GDP, while total public and publicly guaranteed debt remained below 13% of GDP. That said, the low levels of external debt and large forex reserves are still supporting a sufficient degree of fiscal flexibility to prop up the economy.
Last year, monetary policy was broadly successful as well. In 2009, consumer prices grew by only 6.2% compared with 10% and 19% in 2008 and 2007. Meanwhile, the central bank expects inflation to remain within 6-8% in 2010 as incomes and credit growth remain subdued.
Funding pressure in the banking sector are likely to persist due to the lack of external financing, large losses and a growing share of bad loans. Foreign debt restructuring by Alliance Bank, BTA Bank, and BTA-owned Temirbank weighs on the banking sector recovery as well. Furthermore, the government still has to define its exit strategy from the banks’ capital, which adds to the uncertainty in the banking industry.
Currency devaluation in February 2009 helped protect forex reserves and curbed the current account gap. Indeed, falling demand for imports and a reversal of the downtrend in export prices helped narrow the current account deficit to only $0.5 billion in the third quarter of 2009. Meanwhile, by the beginning of this year, Kazakhstan had $47.6 billion in forex reserves, which will allow the central bank to move back toward a more flexible exchange rate in 2010.
For the complete report, including charts click here.
