Country Report Kazakhstan March 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 economic growth slows 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 slowing GDP growth.
• With oil prices set to weaken sharply, the Economist Intelligence Unit expects real GDP growth to slow to 0.3% in 2009. A pick-up in oil prices will result in a slight acceleration in growth in 2010, to 3%.
• Average annual consumer price inflation is expected to decelerate from 17% in 2008 to around 6.7% in 2009-10, owing to much weaker global commodity prices and slower credit growth than in recent years.
• With economic growth slowing and export competitiveness coming under threat, there is a risk of speculative attacks against the tenge, forcing the authorities to oversee another devaluation of the currency.
• Although import costs are forecast to fall in 2009, owing to weak domestic demand, low oil-related export revenue will push the current account into deficit. The deficit will narrow in 2010, owing to a pick-up in oil prices.

Monthly review

• Mr Nazarbayev has reaffirmed his commitment to further closer integration within regional groupings such as the Collective Security Treaty Organisation (CSTO) and the Eurasian Economic Community (Eurasec).
• The authorities have devalued the tenge in the face of sustained downward pressure on reserves and a potential loss of competitiveness.
• The government has taken control of BTA Bank and Alliance Bank—the country's largest and fourth-largest commercial banks by assets—taking a stake of around 77% in each. Two other banks have also received assistance.
• The decision to intervene in the banks came partly in response to concerns that they might face difficulties meeting their debt repayments. Kazakh commercial banks face US$11bn in external debt repayments in 2009.
• The government has sought to alleviate public concerns at the worsening economic environment by affirming its commitment to meet its social spending obligations, and pledging to cut capital expenditure if necessary.
• Real GDP growth in 2008, at 3.2%, was higher than initial estimates had indicated, but trends in important sectors such as construction and financial services indicate that growth in 2009 will be much weaker.