Kazakhstan and Central Asia Business Forecast Report

IMF Support Still On The Cards While the economic downturn across Central Asia continues to play out (for the most part), we have revised up our 2009 growth forecasts for Kyrgyzstan and Tajikistan to reflect the less severe deterioration through the first half of the year. We still believe that the region's economic recovery will be fairly mild and dependent on the improvement in external demand conditions. In the case of Kazakhstan, we also caution that the financial sector (and in particular its overleveraged banks) will remain in a fragile condition going forward. That two of the country's biggest banks, BTA and Alliance, are in the process of attempting to restructure their external debts, despite being bailed out by the government earlier in the year, continues to raise concerns over financial stability as well as the extent of government support.

Our core view that Kyrgyz presidential elections held on July 23 would likely result in opposition protests has played out, with a series of demonstrations held in the capital Bishkek through late July and early August. Even before polls had closed on the day of the election, 2,000 opposition protestors gathered outside key government buildings demanding Bakiyev's resignation and supporting Social Democratic Party leader Almazbek Atambayev's candidacy. However, we do not believe that the opposition movement will gain sufficient momentum fundamentally to destabilise the Bakiyev government. Our core view is that protracted, large-scale protests as seen in Georgia after parliamentary elections in May 2008 or during the varying 'colour' revolutions throughout the region from 2003-2005 are unlikely to develop.

Tajikistan has not been immune to the global recession and we hold to our core view for a sharp economic slowdown in 2009, with only a tentative recovery in 2010. Tajikistan's outlook is closely interlinked with global demand and its impact on the price of aluminium - the country's chief trade commodity and source of foreign income. Indeed, through to Q209, aluminium accounted for more than 60% of total exports, while gross export earnings in 2008 totalled US$1.5bn (29% of GDP).

However, with commodity prices collapsing through 2009 on the back of the financial crisis, so too have Tajikistan's foreign capital inflows linked through trade. The global slowdown has also impacted Tajikistan through remittances which, according to IMF estimates, have fallen by up to 30% thus far in 2009.

Kazakh and Chinese state energy firms have put on hold their joint acquisition of Mangistau- MunaiGaz (MMG), Kazakhstan's fifth-largest oil producer. The evaluation of the deal has been indefinitely extended 'by the parties' mutual agreement' pending the resolution of 'several issues', according to a spokesman for Kazakh state energy company (KMG). The joint acquisition of MMG by (CNPC) and KMG was part of the US$10bn loans-for-oil deal signed between Beijing and Astana in April 2009.