Kazakhstan. Summary. Economic Indicators

Transcription

1 Kazakhstan Summary Moody s Baa3 / S&P BBB- / Fitch BBB 1 Economy: Agriculture 5%, Industry 34%, Services 61% Kazakhstan has abundant oil, natural gas, and other energy resources, which have fueled growth and allowed the country to accumulate reserves while maintaining low debt levels. However, Kazakhstan has faced challenges in recent years, owing to the sharp decline in global commodity prices and geopolitical tensions involving Russia. These factors contributed to a decline in government revenues, a deterioration of the country s external balances, and pressure on the exchange rate that forced the government to devalue its currency in This helped restore competitiveness, but Kazakhstan faces longer-term challenges to reduce the role of the state in the economy, diversify the economy, and strengthen its financial system, which suffered a series of crisies in recent years. Economic Indicators F 2018F Population (Millions) GDP per Capita (USD) 13,987 12,894 10,372 7,663 8,544 9,736 Nominal GDP (USD Billions) Real GDP (%) Year-End CPI (%) Fiscal Balance (% of GDP) Interest (% of Revenues) FC Debt/Public Debt (%) Government Debt (% of GDP) Government Debt (% of Revenue) Current Account (% of GDP) FDI (% of GDP) External Debt (% of GDP) Foreign Reserves/External Debt (%) Foreign Reserves (Mo. of imports) Foreign Reserves (% of GDP) As of November 2017 Forecasted or estimated results do not represent a promise or guarantee of future results and are subject to change. Reserve data include National Oil Fund assets. Source: Lazard, Bloomberg, Haver Analytics, IMF, Ministry of National Economy National Bank of Kazakhstan 135

2 Lazard Emerging Markets Debt Rating History Below is a history of the country s foreign and local currency ratings by the major agencies dating back to We have also included a chart of the country s hard currency external debt spread and the JP Morgan EMBI Global Diversified Index spread for comparison. Rating History Hard Currency Local Currency A- A BBB+ BBB A- BBB+ BBB- BBB BB+ BBB- BB BB+ BB- BB B+ BB- B B Moody s S&P Fitch Moody s S&P Fitch As of December 2017 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: Bloomberg, Fitch, Moody s, Standard and Poor s Bond Spreads Kazakhstan 2010 EMBIGD 2017 As of December 2017 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: JP Morgan 136

3 Kazakhstan Strengths Energy Sector Oil and natural gas are Kazakhstan s principal sources of export earnings. The country has more than 200 oil and gas fields; it ranks 11th in the world for oil reserves and 15th for natural gas. The country was the 18th-largest oil producer in the world in 2016, pumping 1.7 million barrels per day, and the 23rd-largest natural gas producer (1.24 billion cubic feet). 2 After years of delays, the government began exporting in 2016 from the Kashagan field, considered one of the largest oil and gas discoveries in several decades, with an estimated 7 billion to 9 billion barrels of recoverable reserves. However, it may take longer to establish broader and stable production from Kashagan. Kazakhstan exports 80% of its oil, primarily to Italy, China, and The Netherlands. In addition to its oil and natural gas resources, the country has the sixth-largest reserve of coal in the world (it is the tenth-largest coal producer), and the largest stock of uranium, accounting for 41% of global uranium production. 3 International Reserves and the National Oil Fund Kazakhstan has traditionally registered trade and current account surpluses driven largely by the export of mineral products, which account for almost 80% of all foreign shipments. This positive external balance has allowed the country to accumulate sizable international reserves and oil-related assets, which nearly doubled from US$47.6 billion in 2009 to nearly US$90 billion as of September Of this total, US$32.5 billion were official international reserves held by the National Bank of Kazakhstan, and US$56.8 billion were deposits in the National Oil Fund. 4 Official reserves represent 9.1 months of imports of goods and services, but import coverage rises to 25.6 months when National Fund assets are also considered. The primary sources of income to the National Fund are taxes paid by the petroleum industry as well as revenues from privatizations in the oil and mining sectors and the sale of agricultural lands. Approximately half of Kazakhstan s oil revenues are deposited in the National Oil Fund. The Fund serves as a fiscal stabilizer, since it may transfer US$8 billion per year to the national budget. These transfers may be raised or lowered by 15% according to fiscal conditions that is, the country can draw up to US$9.2 billion per year if needed. However, the minimum required balance of the National Fund is 30% of projected GDP for the relevant budget year. 5 In recent years, discretionary transfers have depleted the National Oil Fund, and going forward the Kazakh authorities are putting in place more formal guidelines to curtail these discretionary withdrawals. Transfers will be set in the Kazakhstan tenge (KZT), and are scheduled to gradually decline to KZT2 trillion (about US$7 billion) per year by The decline in global commodity prices in recent years has eroded Kazakhstan s external balance. After years of current account surpluses, the country registered deficits in 2015 and 2016, and these shortfalls are projected to continue over the forecast horizon. These developments will also slow the accumulation of assets into the National Fund. Nevertheless, this Fund will continue to provide an important source of support to the government s fiscal accounts and the overall economy. For example, the government earmarked US$9 billion of National Fund assets to help finance a three-year US$19.3 billion economic stimulus program between 2015 and 2017 (with the balance of financing to come from multilateral organizations and state development institutions). This program helped to offset the economic impact of the 2014 oil price shock, with the economy registering slight growth of about 1% in 2015 and Growth is projected to pick up over the forecast horizon, driven largely by increased activity in the oil and gas sectors. 137

4 Lazard Emerging Markets Debt Favorable Debt Profile Kazakhstan s public sector debt profile is favorable, amounting to 25% of GDP, with public sector domestic and external debt equal to about 15% and 10% of GDP, respectively. Nearly half the country s external debt is owed to multilaterals. Kazakhstan has not tapped international capital markets since 2015, when it issued 10- and 30-year bonds. The government has no sovereign debt maturing until Kazakhstan s total external debt level is elevated at 103% of GDP, but 63% of this amount consists of long-term intercompany lending, mostly from international oil companies to their local affiliates, and this type of lending is generally less vulnerable to rapid reversals. Tradable external debt amounts to a more manageable US$18.3 billion (about 11.3% of GDP), including US$5.4 billion (market value) of sovereign debt and US$12.9 billion of corporate and quasi-sovereign (mostly the latter) debt. Political Stability Kazakhstan is one of the most politically stable countries in a region known for political turmoil. President Nursultan Nazarbayev has led the country since 1989, when Kazakhstan was still part of the Soviet Union, and he has been president since the country gained independence in The president retains control of public institutions, and family members and key allies hold senior government positions. Mr. Nazarbayev was re-elected by a landslide in April 2015 to a fifth consecutive term, and his party controls both houses of parliament by a wide margin. Although Mr. Nazarbayev s autocratic style has been criticized, his control over the country has enabled him to enact his market-friendly policies without meaningful political opposition and has contributed to a relatively stable investment environment. International Relations Kazakhstan has a good relationship with two of its principal trading partners, China and Russia, as well as with Europe and the United States. The European Union is Kazakhstan s main trade and investment partner, accounting for 53% of trade turnover and 49% of foreign inflows. 6 Kazakhstan is a founding member of the Eurasian Customs Union (along with Russia and Belarus), which was replaced by the Eurasian Economic Union (EEU) in The EEU was expanded in 2015 to include Armenia and Kyrgyzstan, creating a union of million people and a combined GDP of US$2.2 trillion. 7 Weaknesses Commodity Dependence Kazakhstan s economy is highly dependent on oil, which accounts for 24% of GDP, 50% of government revenues, and 70% of exports and foreign direct investment. 8 As a result, the 49% decline in global oil prices in the second half of 2014 had a significant impact on the Kazakh economy. The country s export earnings fell 39% in 2015 and real GDP growth slowed to 1.0% from 4.3% in The decline in oil prices pressured Kazakhstan s currency peg to the US dollar, while a loss of competitiveness resulting from the depreciation of the Russian ruble further strained Kazakhstan s currency regime. In August 2015, the Kazakh monetary authority abandoned the currency peg, causing the Kazakh tenge to depreciate more than 20%. The currency continued to weaken for the rest of the year, owing to the absence of clear policy direction from the central bank, and the depreciation caused a spike in inflation that was exacerbated by poor communication from the monetary authority. The currency has strengthened a bit and stabilized since early 2016, and the depreciation has helped to restore competitiveness, boosting exports and reducing the current account deficit. In addition, the government has adjusted its budget projections to reflect more realistic 138

5 Kazakhstan assumptions about a new environment of lower growth and reduced oil-related revenues. However, sustainable longer-term growth will require deeper structural reforms to diversify the economy, reduce the role of the state in the economy, and establish more transparent rules for conducting monetary policy. Although the government is making efforts on these fronts, and it became the 162nd member of the World Trade Organization in July 2015, Kazakhstan is likely to remain an oil-based economy in the medium-to-long term. The country currently ranks 53rd of 138 countries in the World Economic Forum s competitiveness report. 9 Banking Sector Kazakhstan s banking sector has faced difficulties in the past, including a government bailout in 2009 that amounted to 6.4% of GDP, with additional periodic government support since that time. Although the financial system is healthier today, currency mismatches risk further balancesheet pressures, particularly during periods of large and abrupt currency shifts like we saw in the latter half of Dollarization of bank deposits has fallen from more than 70% in early 2016, but remains high at 55% as of July 2017, and loan growth remains moribund as households and corporates continue to adjust to the devaluation of the tenge. 10 Although official figures show nonperforming loans (NPLs) have fallen from 24% in December 2014 to less than 10%, a broader definition that includes problem loans from delicensed bank BTA, NPLs in off-balance sheet special purpose vehicles, and restructured loans suggest overall problem loans amount to more than 40% of total loans. 11 Stress tests reveal that high credit concentration, potential exchange-rate risks, and a poor regulatory environment pose ongoing risks to the banking sector. Geopolitical Risk Given its close economic ties with Russia, Kazakhstan was adversely affected by the Russia Ukraine conflict since the country was obliged to adhere to the sanctions imposed against Russia by the EU and the United States. Kazakhstan receives one-third of its imports from Russia, and 7% of its exports go to Russia, and exports to and imports from Russia declined 12% and 24%, respectively, in Trade was further undermined by the appreciation of the tenge relative to the ruble when the latter currency began weakening against the US dollar, while the former held its peg to the dollar. Moreover, four Russian banks account for 10% of banking assets in Kazakhstan, and the countries share extensive oil and natural gas pipeline linkages. Political Transition and Human Rights Although Kazakhstan s political and social stability has been attributed to President Nazarbayev s tight control over political institutions, this concentration of power has raised concerns about the country s eventual political transition. Mr. Nazarbayev has been in power since 1989 and is rumored to be in poor health, yet there are no high-profile political candidates with broad popular appeal who could readily replace him. The president appointed his daughter Dariga Nazarbayeva to the position of deputy prime minister in 2015 before transferring her to the Senate in September 2016 (the Kazakh constitution stipulates that the head of the Senate will assume power in the event of the president s death). In early 2017, Nazarbayev announced measures to devolve some of his powers to the parliament and to his cabinet. Although these changes will, in theory, decentralize economic policymaking, strengthen the parliament s legislative powers, and hasten the emergence of more prominent leaders, the President remains firmly in control of the government and there is no guarantee these changes will result in a smooth transition. Moreover, Nazarbayev has repressed any opposition, and maintains tight control over the media. In December 2011, a confrontation between police and protesting oil workers resulted in the death of more than a dozen workers. Since then, the government has increased social spending, especially in rural areas. The government is also pressuring companies to meet workers demands in an effort to curb potential unrest. Kazakhstan ranked 131st of 176 in Transparency International s 2016 Corruption Perceptions Index. 139

6 Lazard Emerging Markets Debt Country Background Size Capital Population 2,724,900 KM 2 (9th) Astana 18.6 Million Religion Muslim 70.2%, Russian Orthodox 26.2%, Other 3.6% Median Age 30.6 Years Literacy Rate 99.8% Independence 16 December 1991 Political System Government Leadership Next Election 2020 Presidential Republic President Nursultan Abishuly Nazarbayev; Prime Minister Bakytzhan Sagintayev Economy Agriculture 4.8%, Industry 33.9%, Services 61.3% Labor Force Agriculture 18.1%, Industry 20.4%, Services 61.6% Merchandise Exports Oil and Oil Products, Natural Gas, Ferrous Metals, Chemicals, Machinery, Grain, Wool, Meat, Coal Export Partners Italy 20.3%, China 11.5%, Russia 9.5%, Netherlands 8.9%, Switzerland 7.3%, France 4.9% Currency Kazakhstan Tenge (KZT) As of November 2017 Source: CIA 140

7 Kazakhstan Country Timeline 1991 Nursultan Nazarbayev wins uncontested presidential elections; Kazakhstan declares independence from the Soviet Union and joins the Commonwealth of Independent States (CIS) A new constitution increasing presidential powers is adopted; a major privatisation programme is launched; Kazakhstan ratifies the first Strategic Arms Reduction Treaty and the Treaty on the Non-Proliferation of Nuclear Weapons Kazakhstan signs economic and military cooperation pact with Russia; nuclear-free status is obtained; President Nazarbayev's term in office is extended until December 2000 and a new constitution adopted by national referendum Major oil agreements secured with China. The Kazakh capital is moved from Almaty in the south to Akmola (formerly Tselinograd) in the north Nursultan Nazarbayev re-elected president after main rival, former PM Akezhan Kazhegeldin, barred from standing. Subsequent parliamentary elections criticised by OSCE for irregularities President Nazarbayev purges government of officials accused of joining newly-formed Democratic Choice reform movement Deal signed with China on construction of oil pipeline to Chinese border Court orders dissolution of Democratic Choice, one of the country's main opposition parties. The party is accused of breaching state security by calling on supporters to protest against parliamentary election results. Opposition figure Zamanbek Nurkadilov, a vocal critic of President Nazarbayev, found shot dead at his home. Nursultan Nazarbayev returned for further term as president with more than 90% of vote. Western observers say poll flawed. President Nazarbayev inaugurates a 1,000-km (620 mile) pipeline to carry oil to western China Parliament votes to allow President Nazarbayev to stay in office for an unlimited number of terms. Mr Nazarbayev fires son-in-law Rakhat Aliyev in an apparent power struggle Chinese President Hu Jintao and President Nazarbayev unveil the Kazakh section of a natural gas pipeline joining Central Asia to China Parliament approves a bill granting more powers to President Nazarbayev, granting him the title of "leader of the nation" and immunity from prosecution President Nazarbayev calls early presidential election, after a planned referendum on allowing him to stay on unopposed until 2020 is ruled unconstitutional. President Nazarbayev wins reelection in a poll boycotted by the opposition Eurasian Economic Union between Russia, Kazahkstan and Belarus comes into force. The Eurasian Economic Union aims to create a shared market and integrate economic policy across the three former Soviet countries. President Nazarbayev is re-elected with 97.7 per cent of votes cast. Opposition parties did not field any candidates and the two other contenders were widely seen as pro-government. Kazakhstan's currency, the tenge, plunges in value by more than a third in one day precipitated by the government floating the currency after spending 28 billion US dollars propping it up. President Nazarbayev appoints his daughter, Dariga, as deputy prime minister in a move linked to possible succession planning Parliament approves constitutional reforms that will reduce the president's powers in favor of lawmakers and the cabinet. Source: BBC 141

8 Lazard Emerging Markets Debt Notes 1 As of October Kazakhstan, U.S. Energy Information Agency, 10 May 2017, 3 Kazakhstan, U.S. Energy Information Agency, 10 May 2017, country.cfm?iso=kaz and World Nuclear Association, facts-and-figures/uranium-production-figures.aspx. 4 As of September 2017, Source: National Bank of Kazakhstan. 5 Republic of Kazakhstan Bond Prospectus, 19 June Ibid. 7 Eurasian Economic Union, 8 Republic of Kazakhstan Bond Prospectus, 19 June The Global Competitiveness Report , World Economic Forum, docs/gcr /05fullreport/theglobalcompetitivenessreport _final.pdf. 10 Republic of Kazakhstan: 2017 Article IV Consultation, International Monetary Fund, IMF Country Report No. 17/108, May 2017, 11 Ibid. 142

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