Kazakhstan & Central Asia Business Forecast Report Q3 2009

Publication Date	July 2009
Publisher	Business Monitor
Product Type	Report
Pages	56
ISBN Number	1746-5743
Product Code	BMI02092

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Summary

With Kazakhstan in the throes of recession and the Russian economy now projected to contract by 7.1% alongside a severe global downturn, the outlook for Central Asia remains bleak over the course of 2009 and 2010. Systemic weaknesses in Kazakhstan's banking sector will ensure that the economy remains in a fragile state over the medium term, while lower global commodity prices (compared with mid-2008 highs) will afflict exporters across the region. Moreover, we see scope for Central Asian governments to seek financial support from the IMF, though note that Astana's substantial bailout package (worth 25% of GDP) may negate the need for a credit facility in the case of Kazakhstan, provided the government takes an active role in reforming and restructuring the banking sector. Political risks are also likely to remain elevated across the region as economic activity slows and returning migrant workers drive up the unemployment rate. In all cases, however, we maintain that absent a complete collapse in social stability, there are limited risks of a change to the political status quo.

With Kyrgyz President Kurmanbek Bakiyev set to be re-elected in July and policy continuity likely to be sustained, the political status quo looks near certain. However, the president's stance over the US controlled Manas airbase remains uncertain, with significant implications for Kyrgyzstan's foreign policy bias. Indeed, despite issuing orders for the military to evacuate the airbase in February, the US embassy in Bishkek has maintained that dialogue with the president remains open over the issue, suggesting that the base may remain in operation for some time yet. Should it do so, Kyrgyzstan risks tempering relations with Russia, especially as Moscow's recently provided Bishkek with a substantial economic support loan. On the other hand, closure of the base would signal the alignment of Kyrgyzstan's foreign policy agenda with Russian interests, altering the foreign policy balance over the longer term.

The announcement by the State Statistics Agency that Kazakh real GDP fell by 2.2% year-on-year (y-o-y) during the first quarter of 2009 (having expanded by 3.2% in 2008) provides evidence that the economy has finally tipped over the edge, having been dealt a severe shock to the banking sector early on in the global financial crisis. While base effects are likely to see an improvement in headline growth at some point during H209 (growth has been slowing for eight straight quarters), we hold to our projection of a 1.9% full-year contraction for the Kazakh economy this year, in stark contrast to the official government forecast of a 1.0% expansion.

The National Bank of Kazakhstan (NBK) shaved a further 50bps off the main refinancing rate on June 10, in a further sign of the central bank's efforts to boost liquidity and rejuvenate the relatively inert domestic lending channel. The NBK has delivered a cumulative 250bps in rate cuts since the onset of the global financial crisis in mid-2008 (150bps in H109 alone), bringing the reference rate down to 8.50%. Going forward, we see scope for further monetary easing in a bid to embolden local credit markets, though caution that the NBK's resolve to maintain tenge stability will limit the extent of rate cutting. As such, we now target a fairly moderate 100bps in additional rate cuts by year-end

Content

BMI Ratings
BMI Risk Ratings - Kazakhstan
BMI Risk Ratings - Kyrgyzstan
BMI Risk Ratings - Tajikistan
BMI Risk Ratings - Turkmenistan
BMI Risk Ratings - Uzbekistan
Europe - Ratings League Executive Summary
IMF Support Still on The Cards
Chapter 1.1: Political Outlook - Kazakhstan
- Domestic Politics
- Imf Bailout Still on The Cards
- Though The Kazakh Government Has Shrugged off The Need for An Imf Credit Facility, We Caution That The Potential L Ack of Sovereign Guarantees for The Banking Sector Risks Escalating The Economic Downturn, in Turn Forcing Astana to Turn to The International Lender.
Chapter 1.2: Economic Outlook - Kazakhstan
- Economic Activity
- Economic Growth to Fall Well Short of Government Forecast
- despite The Pledge of A Substantial Financial Support Package Equivalent to 25% of Gdp, We Hold to Our View That The
- Kazakh Economy Will Not Be Able to Escape Recession This Year.
- Table: Kazakhstan - Economic Activity
- Monetary Policy
- Monetary Easing to Buoy Inflationary Impact of Bailout
- Though in Itself Unlikely Substantially to Boost Liquidity and Inflation, We Believe That Further Rate-Cutting from The
- National Bank of Kazakhstan Will Exacerbate The Inflationary Impact of The Government's Financial Bailout and Previous Currency Devaluation.
- Table: Monetar Y Policy
Chapter 1.3: 10-Year Forecast - Kazakhstan
- The Kazakh Economy to 2018
- Developing Non-Oil Sectors Key to Sustaining Growth
- The Kazakh Government's Drive to Diversify The Non-Oil Sector and Invest in Developing Strategic Industries and The National Infrastructure Supports Our Favourable Long-Term Outlook for The Economy.
Chapter 2.1: Political Outlook - Kyrgyzstan
- Domestic Politics
- Limited Risks to Political Status Quo
- with Presidential Elections in Kyrgyzstan Looming, We Affirm Our View That Kumanbek Bakiyev Is Likely to Be Re-Elected, with Limited Threats to Policy Continuity over The Longer Term.
Chapter 2.2: Economic Outlook - Kyrgyzstan
- Economic Activity
- 2009: No Avoiding Recession
- with Economic Activity across The Emerging Europe Region Continuing to Come off The Boil, We Do Not Believe
- Kyrgyzstan Will Be Able to Avoid Recession in 2009.
- Table: Kyrgyzstan - Economic Activity
Chapter 3.1: Political Outlook - Tajikistan
- Domestic Politics
- Government Anti-Crisis Plan Likely to Fall Short of The Mark
- We Believe That The Tajik Government's Fairly Weak Response to The International Financial and Economic Crisis Is Likely to Escalate The Domestic Downturn, and Concomitantly Elevate The Risks to Social Stability.
Chapter 3.2: Economic Outlook - Tajikistan
- Economic Activity
- Flooding Risks to Delay Recovery
- Heavy Rainfall and Mudslides in Recent Weeks Pose A Key Downside Risk to Our Forecast of A -1.2% Contraction in Real Gdp in Tajikistan in 2009.
- Table: Taji Kistan - Economic Activity
Chapter 4.1: Political Outlook - Turkmenistan
- Foreign Policy
- Chinese Loan Paves The Way for Further Investment
- with Global Energy Prices Still Far off Their 2008 Highs, and with The Ongoing Dispute with Russia over A Gas Pipeline Explosion Threatening to Further Disrupt Gas Exports, We Caution That Turkmenistan's Economic Outlook Remains Dire in 2009.
Chapter 4.2: Economic Outlook - Turkmenistan
- Economic Activity
- Capacity Constraints Hinder Nabucco Prospects
- despite Efforts by Eu Leaders to Push Forward with The Planned Nabucco Gas Pipeline, We Caution That The Ability of Turkmenistan to Supply The Network Remains in Doubt.
- Table: Turkmenistan - Economic Activity
Chapter 5.1: Political Outlook - Uzbekistan
- Domestic Politics
- Kyrgyz Airbase Closure Would Provide Scope to Re-Open K2
- Should Kyrgyzstan Enforce Its Decision to Evict The US Military from The Manas Airbase, There Will Be Renewed Impetus for Washington to Seek to Reopen The Karshi-Khanabad (K2) Base in Uzbekistan.
Chapter 5.2: Economic Outlook - Uzbekistan
- Economic Activity
- Economic Growth Still Positive in 2009
- The Relatively Strong Gdp Growth Figure for The First Quarter of 2009 Is Supportive of Our View That The Uzbek Economy Will Avoid Recession in 2009, and Instead Post A Relatively Healthy 5.1% Rate of Economic Expansion.
- Table: Uzbekistan - Economic Activity
Chapter 6: Special Report
- The Outlook for Global Banking
- Table: Loan-to-Deposit Rati Os, Selected States
- Table: Loan Growth (% Chg Y-O-Y), Selected States
- Table: Commercial Banking Business Environment Ratin Gs, Selected States
- Business Environment Rating Outlook
Chapter 7: BMI Global Assumptions
- Global Assumptions
- Table: Global Assumptions
- Table: Global & Regional Real Gdp Growth
- Table: Commodities
List of Tables
- Table: Kazakhstan Political Overview Table
- Table: Kazakhstan Lo Ng-Term Macroeconomic Forecasts
- Table: Krygy Zstan Political Overview
- Table: Tajikistan Political Overview
- Table: Turkmenistan Political Overview