country economic forecasts - kazakhstan (1)

Kazakhstan

Highlights

Oil production was at its highest in a year in

October as a result of the Tengiz field

increasing output. But this is likely to be the

peak for a few months, with maintenance

increasing and Kashagan oil unlikely to flow

again until April because of leaky pipes. We

still see oil output rising by 5% in 2014 and

by 7% in 2015, after 3.2% this year.

GDP growth is forecast at 5.5% this year and

6.3% in 2014, up from 5% in 2012. This will

reflect not only rising oil production, but also

higher metal output, stronger agriculture and

construction and an improvement in key

export markets.

The current account surplus fell to just

US$153m in the first three quarters of 2013.

This principally reflected a 7% decline in

goods exports due to lower oil and metal

export prices as well as volumes. For 2013

as a whole we see a surplus of US$330m or

0.2% of GDP. We expect the surplus to rise

gradually from 2014, boosted initially by

stronger oil export volumes and then by

rising oil and copper prices.

The banking sector has a capital adequacy

ratio of 15.7% and an improving rate of

return on assets of 1% but is making slow

progress in resolving its non-performing

loans, which stand at more than 30% of the

total, albeit concentrated in a small number

of banks. Alliance Bank is set to join BTA in

entering into a second debt restructuring.

Nevertheless bank lending is gradually rising

at 14.75% in October.

Country Economic Forecast: 17 December 2013

2011 2012 2013 2014 2015 2016Real GDP growth (% year) 7.5 5.0 5.5 6.3 7.1 6.7

CPI inflation (%) 8.3 5.1 5.9 5.9 6.5 6.2

Exports of goods ($ bn) 85.2 86.9 84.1 91.7 101.6 112.9

Exports of services ($ bn) 4.3 4.8 4.8 5.3 6.0 6.7

Imports of goods ($ bn) 40.3 49.1 51.0 55.6 62.3 69.8

Imports of services ($ bn) 11.0 12.9 12.2 13.3 14.8 16.2

Exports of goods (% year) 38.8 2.0 -3.2 9.0 10.8 11.1

Imports of goods (% year) 22.7 21.6 4.0 9.0 12.0 12.0

Current account ($ bn) 10.2 0.6 0.3 1.8 2.3 2.6

Current account balance (% of GDP) 5.6 0.3 0.2 0.8 0.9 0.9

Exchange rate per USD (year average) 146.6 149.1 152.2 158.0 162.7 167.6

External debt total ($bn) 124.4 137.0 130.2 123.8 118.0 112.7

Government balance (% of GDP) -2.1 -3.0 -2.6 -2.3 -2.3 -2.4

Population (millions) 16.2 16.4 16.5 16.7 16.9 17.0

Nominal GDP ($bn) 183.1 200.5 215.1 233.2 258.2 284.2

GDP per capita ($ current prices) 11,304 12,247 13,001 13,953 15,294 16,676

Forecast for Kazakhstan

(Annual percentage changes unless specified)

For further information contact Patrick Dennis ([email protected])

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Forecast Overview

Gradual pick-up in growth We forecast GDP growth of 5.5% this year and 6.3%

in 2014. The government expects 6% this year, while

the IMF sees 5% in 2013 and 5.2% in 2014. The

gradual improvement reflects stronger growth in key

export markets, rising oil and metal production and

stronger agriculture and construction.

with GDP rising 5.5% in 2013 GDP grew 5.1% in H1, implying a pick-up to 5.5% in

Q2 from 4.7% in Q1, and latest data suggest a further

rise in Q3 and into Q4. Although industrial output

rose by just 2.3% on the year in January-November,

this was up from 1.8% in H1. Construction rose 2.9%

in the first eleven months of 2013 and agriculture

accelerated to 10.9%. Growth remains driven by

trade, transport and communication.

Fiscal and monetary support fiscal stimulus will

persist given the healthy public finances and

relatively high oil prices. And the National Oil Fund

continues to rise, almost US$70bn at end November.

In addition, the key refinancing rate is low, at 5.5%,

and will be kept low to support growth and the

banking sector providing inflation or private sector

credit growth do not take off.

Inflation fell again in November to 4.7%, its lowest

since August 2012, despite prices rising 0.5% on the

month. Headline inflation largely fell because of large

prices rises for utilities and postal services a year ago

dropping out of the annual comparison. We still

expect inflation to rise, averaging 5.9% in 2014, the

same as in 2013 and close to the bottom of the 6-8%

target range. Inflation will be driven by record low

interest rates, fiscal stimulus and rising local food

prices, but world food prices will be more subdued.

Pick-up in agriculture and construction farming

continues to recover from the drought that led to a

halving of grain output in 2012, and construction is

also supporting growth, aided by high state spending.

Weaker external support Russian growth is seen

at only 1.4% in 2013 compared with 3.4% in 2012.

Chinese and Eurozone growth rates are broadly

unchanged from those in 2012, but oil prices are

projected to fall by about 3% and metal prices by 4%.


Kazakhstan

-15

-10

-5

0

5

10

15

1994 1997 2000 2003 2006 2009 2012 2015

Source: Oxford Economics / World Bank

% year

Kazakhstan

Kazakhstan: Real GDP growth

F'cast

Europe &

Central Asia

0

3

6

9

12

15

18

2000 2002 2004 2006 2008 2010 2012 2014 2016Source: Oxford Economics / World Bank

% year

Kazakhstan: Inflation

F'cast

Europe & Central Asia

Kazakhstan

-15

-10

-5

0

5

10

15

1995 1998 2001 2004 2007 2010 2013 2016

-12

-8

-4

0

4

8

12

Source: Oxford Economics

US$ bn

% of GDP

(RHS)

US$ bn

(LHS)

Kazakhstan: Current account balance% of GDP

F'cast



Kazakhstan


and then 6.3% in 2014 GDP growth is forecast at 6.3% in 2014, and then

about 6.7% a year in 2015-17. This will be well above

the CIS average for 2014-17 and only marginally

below the Central Asian Republics. In 2008-13, growth

was much slower than the Central Asian average due

to the larger impact of the global financial crisis on

Kazakhstan.

The projected pick-up in growth from 2014 will reflect:

Surging oil production the giant US$46bn

Kashagan offshore oilfield, which has seen repeated

delays, has started production. The field holds up to

13bn barrels of recoverable oil reserves and could

result in a near-doubling of Kazakhstans output within

a decade. As well as supplying Europe, much of the

expanding oil output will go to China via increasing

pipeline capacity.

Strengthening global economy world GDP growth

is forecast to accelerate to 2.8% in 2014 and then to

average 3.3% a year in 2015-17. The EU is also

projected to pick up, albeit slowly, after falling in 2012

and being broadly flat this year. And oil prices are

expected to start rising gradually in 2015-17.

Continued policy support we expect large fiscal

stimulus to continue for the foreseeable future given

robust public finances and pledges to modernise and

diversify the economy and raise social spending. In

addition, investment for Expo 2017 will be high.

But GDP growth will fall short of the pace seen in

2000-07, in part due to more modest growth in public

spending but above all because the banking sector is

proving slow to recover from the global financial crisis.

Non-performing loans are still 30% of total loans and

banks continue to deleverage and are subject to tighter

regulation, not least on foreign borrowing.

Medium-term risks on the downside Commodity risks these relate to a possible slide in

commodity prices or a failure to raise oil and gas

output as expected, thereby undermining exports.

Political risks notably the succession after

President Nazarbayev, with elections due in 2016.

But large assets provide a buffer against external

shocks, while a smaller, less dollarised and less

externally-indebted banking system poses fewer risks

to the economy than previously.

-9

-6

-3

0

3

6

1995 1998 2001 2004 2007 2010 2013 2016

-9

-6

-3

0

3

6

US$ bn

(LHS)

F'cast

% of GDP

Source: Oxford Economics / Haver Analytics

% of GDP

(RHS)

Kazakhstan: Government budget balance

US$ bn

0

3

6

9

12

15

18

21

24

27

1990 1993 1996 1999 2002 2005 2008 2011

US = 100

Source: Oxford Economics / World Bank

Kazakhstan: GDP per capita* (US$)

Kazakhstan

Europe & Central Asia

All low & middle income economies

*calculated using market exchange rates

0

2000

4000

6000

8000

10000

12000

14000

2012

Kazakhstan

Commonwealth ofIndependent States

Emergers

$ PPP

Source: Oxford Economics / IMF

Kazakhstan: GDP per capita



Kazakhstan


Background

President Nursultan Nazarbayev has dominated politics in Kazakhstan since 1989, with family members and close

relatives occupying top posts in business and public administration; daughter Dariga Nazarbayevais is a prominent

member of parliament and non-governmental organisation figurehead with past links to major media groups, and

son-in-law Timur Kulibayev is chair of state oil company KazMunaiGaz. Although he led the country to

independence from the Soviet Union in 1991, Nazarbayev has maintained close links with Russia, recognising that

the economy is heavily geared towards it and that ethnic Russians still comprise up to 40% of the population

despite an initial exodus. Maintaining a policy of equidistance, Nazarbayevs regime has also developed close

relations with the US, the EU and, more recently, China. Retention of diplomatic support from these countries has

been made easier by their need to be future buyers of Kazakhstans large oil, gas and mineral reserves, and a

desire to secure involvement for their own oil and mining companies in Kazakhstans new exploration projects.

Official opposition has so far been kept strictly within the family: the only serious challenge to the presidents Otan

(Fatherland) party at the 2004 parliamentary election came from the Asar (Together) movement run by his

daughter Dariga. Asar was subsequently absorbed into Otan, confirming suspicion that it had only been formed to

prevent a protest vote from gathering behind more distinct opposition parties. None of these attained the 7%

minimum share required for lower-house representation in the parliamentary elections brought forward to August

2007. The deaths shortly before the December 2005 presidential election of Zamanbek Nurkadilov, and shortly

after it of former information minister Altynbek Sarsenbaiuly, removed two of the presidents more experienced

opponents. A controversial proposal to hold a referendum aimed at extending Nazarbayevs 20-year rule for a third

decade to 2020, and avoid an election due in 2012, was scrapped in January 2011 in an attempt to pre-empt any

parallels with Arab authoritarian leaders and a snap presidential election was held in April 2011, which

Nazarbayev won with an overwhelming 96% of the vote as the opposition decided to boycott the elections given

the lack of time to prepare. Parliamentary elections in January 2012 reinforced Nazarbayevs grip on power.

By offering favourable terms to companies willing to invest in its large but geologically difficult Caspian fields,

Kazakhstan took an early lead in attracting FDI. Its FDI inflow per capita was above that of Russia for much of the

1990s, helped by an avoidance of political instability and positive signals sent by an early deregulation of the

banks and partial privatisation of pensions. FDI and the stable business environment moved the capital account

into surplus, in sharp contrast to the capital flight that kept Russias capital account in regular deficit until early

2006, enabling Kazakhstan to finance a current account deficit and significantly outpace Russias growth rate.

GDP has grown strongly since the post-Soviet dislocation, averaging some 10% pa in 2000-07, making this the

strongest growing Central Asian economy prior to the onset of global recession in late 2008. GDP growth fell to

just 1.2% in 2009 as a result of much-reduced international capital flows (which hit heavily borrowed banks),

sharply lower oil revenues and the impact of deep recession in Russia on trade and remittances, before recovering

strongly in 2010-11 on the back of high oil and metal prices, substantial fiscal easing and bank restructuring.

Kazakhstans ability to attract inward investment, and to stop its own high income earners diverting their savings

and investments abroad, owes much to the relative political and social stability since independence in 1991. The

retention of internal ethnic and regional balance has been assisted by redistributive policies. With its per capita

income both substantially higher than other Central Asian countries and more evenly spread, Kazakhstan is more

socially stable and politically robust than neighbouring Kyrgyzstan, which experienced political turmoil in 2005 and

2010, and also Uzbekistan, where serious unrest has resulted in international isolation.

Inflation and exchange rate appreciation are symptomatic of a general absorption problem, as current and capital

account surpluses generate more inflow of funds than Kazakhstans still largely rural economy can readily absorb.

With oil and gas prices staying strong, the trade surplus widened in 2007 and 2008 despite an upturn in consumer

spending, before falling back in 2009 as oil revenues declined. Surging oil and other commodity prices saw the

external surplus rising strongly again from 2010. Kazakhstan has managed its oil wealth prudently. Some of its oil

proceeds have contributed to financing development and diversification needs and the rest has been saved for

future generations and to insulate the economy from oil price fluctuations. The oil stabilisation fund was valued at

almost US$70bn in October 2013, while net international reserves are around US$25bn.




Kazakhstan

Key Facts

PoliticsHead of state: President Nursultan A. NAZARBAYEV

Head of government: Prime Minister Serik AKHMETOV

Political system: Republic

Date of next presidential election: 2016

Date of next legislative election: 2017

Currency: Tenge (KZT)

Long-term economic & social development1980 1990 2000 2011*

GDP per capita (US$) - 1647 1229 11304

Inflation (%) - - 13.4 8.3

Population (mn) 14.52 16.17 14.96 16.20

Urban population (% of total) 54.1 56.3 55.7 53.5

Life expectancy (years) 66.6 68.3 65.5 68.9

Source : Oxford Economics & World Bank

Structure of GDP by output * 2011 or latest2011 available year

Agriculture 5.5% Source : CIA Factbook

Industry 40.2% Central Asia, northwest of China; a small portion west of the

Services 54.3% Ural river (CIA Factbook)

Source : World Bank

Long-term sovereign credit ratings & outlook Corruption perceptions index 2012Foreign currency Local currency Score

Fitch BBB+ (Stable) A- (Stable) Developed economies (average) 74.8

Moody's Baa2 (Positive) Baa2 (Positive) Emerging economies (average) 38.0

S&P BBB+ (Stable) BBB+ (Stable) Kazakhstan 28.0

Emerging Europe 45.0

Source: Transparency International

Structural economic indicators Scoring system 100 = highly clean, 0 = highly corrupt1990 1995 2000 2011*

Current account (US$ million) - -213 366 10207

Trade balance (US$ million) - 114 2168 44844

FDI (US$ million) - 964 1283 13227

Debt service (US$ million) - 235 3392 32862

Debt service (% of exports) - 3.9 32.4 34.6

External debt (% of GDP) - 18.4 70.5 66.7

Oil production (000 bpd) - 414 718 1553

Oil consumption (000 bpd) - 269 195 216

Source : Oxford Economics / World Bank / EIA

Destination of goods' exports (2012)European Union (27) 50.2%

China 17.9%

Russian Federation 7.3%

Switzerland 5.4%

Turkey 3.5%

Source : WTO Source : WTO

Composition of goods & services exports,

2012

Agricultural

products

3.3%

Fuels and

mining

products

79.1%

Manufactures

11.9%

Other goods

exports

0.9%

Transportation

2.6%

Travel

1.4%

Other

commercial

services

0.7%



country economic forecasts - kazakhstan (1)

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