Country Report Kazakhstan June 2009

Outlook for 2009-10

• The president, Nursultan Nazarbayev, is expected to stay in power in 2009-10, but he could face growing dissatisfaction with his rule as the recession takes hold, unemployment rises and household incomes fall.
• The role of the state in the economy is set to increase under the government's Action Plan for 2009-10 as the authorities attempt to combat liquidity problems in the banking sector and cope with slowing GDP growth.
• Falling domestic demand and export volumes will result in GDP contracting by 0.6% in real terms in 2009. A slightly stronger external environment will help a return to positive growth, of 0.6%, in 2010.
• Average annual consumer price inflation is expected to decelerate from 17% in 2008 to around 7.5% in 2009-10, owing to much weaker global commodity prices and slower credit growth than in recent years.
• There is a risk of speculative attacks against the tenge, forcing the authorities to oversee another devaluation of the currency.
• Import costs are forecast to fall in 2009-10, owing to weak domestic demand, but low oil-related export revenue will push the current account into deficit.

Monthly review

• The main opposition parties have announced that they are exploring the possibility of uniting to form a more powerful political force that could compete with the ruling Nur Otan (Light-Fatherland) party in future elections.
• The Kazakh authorities have been courting the US by offering to host a global nuclear fuel bank, but also reaffirmed their support for Russia by declining to take part in NATO-led exercises in Georgia in early May.
• The country's largest bank, BTA Bank, announced on April 24th that it would be making only interest payments on its foreign debt, pending talks with creditors on a restructuring.
• China is to extend credit worth US$10bn to Kazakhstan, and is investing heavily in the country's oil and gas sector.
• The state budget produced an unexpected cash surplus of Tenge87.3bn (US$582m) in the first quarter of 2009, owing mainly to below-target expenditure, which came in 13.7% below the projected level.
• GDP declined by 2% year on year in real terms in the first quarter of 2009, according to preliminary data, with a 4.6% fall in industrial production.
• The trade surplus dropped by almost 80% year on year in the first quarter of 2009, to US$2bn, as low oil prices led to plummeting export revenue.