Kazakhstan and Central Asia Business Forecast Report Q2 2008

Publication Date	April 2008
Publisher	Business Monitor
Product Type	Report
Pages	52
ISBN Number	1752-2919
Product Code	BMI01530

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Summary

Elevated Commodity Prices To Spur Growth

Growth is forecast to remain robust throughout the Central Asian region on the back of sustained high commodity prices and steady inflows of foreign investment. Indeed, signals of further economic reforms in Turkmenistan and Uzbekistan especially bode well for the future development of the region. That said, inflation continues to be a serious worry as the rise in global soft commodity prices impacts the key food component. Moreover, banking sector ructions are likely to persist in Kazakhstan weighing on the economy there through at least 2008.

We anticipate that the re-election of Uzbek President Karimov, who has been in power since becoming first secretary of the local Communist party in 1989 and has led the country since, will bring little change to Uzbekistan's political or economic environment. Karimov is unlikely to yield any ground to his opponents in the medium term, or make any improvements to Uzbekistan's poor human rights record. It appears that Karimov has little intention of allowing a smooth transfer of power to a hand-picked successor at any early date, or any moves towards a democratic system within his lifetime. Over the longer term, we caution that this could lead to an intra-clan power struggle when Karimov eventually departs, a scenario that could cause instability.

Short term, the effects upon the real economy of the banking sector ructions in Kazakhstan are going to be painful. Real GDP growth is forecast by BMI to decline from 8.5% in 2007 to 6.7% in 2008. The natural resources sector is expected to remain the prime driver of the economy as Brent crude oil prices have passed through the US$100/bbl mark, and metals are at historically elevated levels. This, together with the lingering effects of the poor 2007 harvest, will help to keep inflation in double figures for much of the year. Beyond 2008, and possibly 2009, the outlook is starting to look up for both the underlying causes of the Kazakh economic problems and the symptoms.

Starting at the core of the issue, we anticipate that there will be significant climatic and structural improvements. First, the credit crunch should have abated somewhat over a 12-month time horizon, and second, innovative funding sources are being mooted.

The Kazakh banking sector is likely to see further problems in 2008 before asset quality recovers on the back of tighter lending requirements that have been introduced by all of the major banks.

Indeed, Kazakh alliance Bank, the country's fourth-largest bank warned on March 25 that its assets would shrink by 7-9% in 2008 on the back of deteriorating loan quality, especially in the construction sector. The tightening credit market in Kazakhstan is a serious concern for the domestic business sector and is likely to negatively impact growth plans and investment opportunities at least through the short term.

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 tables
Executive Summary
- Elevated Commodity Prices to spur Growth
Chapter 1.1: Political Outlook - Kazakhstan
- SWOT analysis
- Domestic Politics
- Government Influence Over Energy Sector To Grow
- We believe that the government's growing influence in the energy sector will create a powerful bargaining tool
- in bilateral negotiations, particularly with Russia and China, the major energy export destinations.
Chapter 1.2: economic Outlook - Kazakhstan
- SWOT analysis
- Economic Activity
- Short-term Pain, long-term Gain
- It has been a turbulent few quarters for the Kazakh economy. We expect there to be further challenges ahead,
- especially in the light of the ongoing high levels of banking sector debt amortizations.
List of Tables
- table: Kazakhstan - economic activity
Chapter 2.1: Political Outlook - Kyrgyzstan
- Domestic Politics
- new Bill to improve investment Climate
- The proposed reform of Kyrgyzstan's subsoil law could lead to a marked improvement in the country's investment
- climate and stimulate investment inflows into the energy sector's under-developed infrastructure.
List of Tables
- table: Kyrgyzstan - Key Chapter 2.2: economic Outlook - Kyrgyzstan
- Debt Policy
- External Debt set to sustain
- We think that the Kyrgyz external debt pile is sustainable. The rise in the volume of private external debt will be
- compensated by the declining level of public external debt
Chapter 3.1: Political Outlook - Tajikistan
- Domestic Politics
- Risk Of Public Unrest On the rise
- A harsh winter and spiralling inflation (19.9% y-o-y by end-2007) are creating growing humanitarian concerns
- and, in our view, threaten overall social stability in Tajikistan.
Chapter 3.2: economic Outlook - Tajikistan
- Economic Activity
- Closing the Wealth Gap at a Glacial Pace
- Real GDP growth came in at a solid 7.8% in 2007, which underpins our view that the Tajik economy will expand
- by an average of 7.16% over our five-year forecast period.
Chapter 4.1: Political Outlook - Turkmenistan
- Domestic Politics
- Expect More Market reforms
- We see the government's decision to raise a price cap on petrol as a positive signal for further market reforms in
- Turkmenistan.
Chapter 4.2: economic Outlook - Turkmenistan
- Economic Activity
- Turkmen Bashing rival Pipeline Deals?
- The latest Caspian gas pipeline deal between Russia, Kazakhstan and Turkmenistan further strengthens
- Moscow's grip on Central Asian gas exports.
Chapter 5.1: Political Outlook - Uzbekistan
- Domestic Politics
- Karimov secures re-election
- The re-election of President Karimov for a third term in office will bring little or no change to the political or
- economic environment of Uzbekistan. Going forward, we believe this will hinder FDI inflows from Western investors.
- Foreign Policy
- Western eyes Back On Uzbekistan
- An improvement in ties between the West and Uzbekistan has the potential to be mutually beneficial. However,
- both sides continue to have their reservations, and any upgrading of relations is likely to be incremental, rather
- than a major step-change.
List of Tables
- table: Uzbekistan - Key Figures (as of september 2007)
Chapter 5.2: economic Outlook - Uzbekistan
- Economic Activity
- Trade surplus to Peak in 2009
- Uzbekistan's trade surplus will widen over the next two years as commodity prices will keep the country's export
- sector buoyed.
Chapter 6: special report
- Looking Beyond 2008
- Us: the rebalancing act
- Unwinding the imbalances
- We believe that a substantial, multi-year shift in the US external accounts is under way. A weak US dollar and
- subdued domestic consumption should lead to a narrowing in the US's structural current account deficit.
- China: What if We're all Wrong?
- Our Core scenario For China
- We are retaining our positive headline growth projections for China across the forecast period to 2012, with
- our expectations of the continued success of the urbanisation process and export-driven growth model
- underpinning our assumptions.
- Japan: immigration Key to long-term Growth
- Demographic Woes Portend long-term Decline
- Immigration remains the only realistic way that Japan can overcome its long-term economic challenges.
List of Tables
- Table: Kazakhstan - Key Table: Kyrgyzstan - Foreign Debt
- Table: Tajikistan - Key Table: Tajikistan - economic activity
- Table: Turkmenistan - Key Table: Turkmenistan - Economic Activity
- Table: Uzbekistan - Economic Activity