Country Report Kazakhstan July 2008

Outlook for 2008-09

• The president, Nursultan Nazarbayev, will stay in power in 2008-09, having consolidated his hold on Kazakhstan's political structures, but could face growing dissatisfaction among businesses owing to the slow pace of reforms.
• Rising inflation and liquidity problems in the banking sector will be among the government's main policy challenges in 2008-09.
• The National Bank of Kazakhstan (NBK, the central bank) might be forced to raise the refinancing rate from 11% if inflation remains higher than targeted.
• The Economist Intelligence Unit forecasts real GDP growth of 5.9% in 2008 and 6.2% in 2009. This is much slower than in recent years and reflects the dampening effect of the global credit squeeze on growth.
• High food prices and a loosening fiscal policy will exert upward pressure on consumer prices, pushing average annual inflation up to just over 18% in 2008, from 10.8% in 2007. Disinflation should take hold in 2009.
• The possibility of more sustained downward pressure on the currency has arisen, and greater volatility than in recent years is likely.
• The current account should post a small surplus in 2008 because of higher oil prices, before returning to deficit in 2009.

Monthly review

• Russia's new president, Dmitry Medvedev, made Kazakhstan his initial stop on his first foreign trip as head of state in May, indicating the importance that Russia attaches to their bilateral relationship.
• A new umbrella group to unite opposition forces was set up in May, but its power to influence Mr Nazarbayev's administration was immediately undermined when one main opposition party, Azat, refused to join.
• Speculation is growing that an early parliamentary election could be called for 2009 to avoid the potential embarrassment of Kazakhstan taking over the OSCE chairmanship in 2010 with a one-party parliament.
• The government has revised the 2008 republican (central) budget, increasing its expenditure target by Tenge153bn (US$1.3bn) to allow for higher social spending. It has revised its deficit target upwards from 1.4% to 2.1% of GDP.
• The central bank plans to reduce banks' minimum reserve requirements, but has said that it might have to raise the refinancing rate to combat inflation, which was at an eight-year high of 19.5% year on year in May.
• High oil prices have boosted export revenue, pushing the trade surplus up from US$4.5bn in January-April 2007 to US$11.4bn in the same period of 2008.