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Standard & Poor’s rating agency predicts a decline in Kazakhstan GDP to 4.5% due to reduced volumes of oil production and a slowdown of the Russian economy, Tengrinews reports citing IA Novosti-Kazakhstan.
Standard & Poor’s rating agency predicts a decline in Kazakhstan GDP to 4.5% due to reduced volumes of oil production and a slowdown of the Russian economy, Tengrinews reports citing IA Novosti-Kazakhstan.
S&P has already downgraded Kazakhstan’s credit-rating outlook from “stable” to “negative” as a result of reduced economic growth and affirmed it as BBB+.
The agency cites smaller-than-expected levels of oil production and relatively stable oil prices as primary reasons for the forecast.
Previously anticipated increases in oil production with the opening of Kashagan field have not been fulfilled due to the complications in the project. This seriously affected Kazakhstan's GDP growth per capita.
Kashagan is a large offshore oil and gas field in the Caspian Sea. Even though it has been called one of the biggest oil discoveries for the past three decades, the project has become a matter of controversy. Cost overruns and delays add to the worries about the country's economic growth prospects.
“Growth could remain below previous expectations for instance due either to prolonged delays of production at the Kashagan field or a lack of structural reform to support long-term sustainable and inclusive growth,” S&P said.
The report also added Kazakhstan’s deteriorating situation in the monetary sphere and the weakening of the relevant monetary transmission mechanism. All the while the exchange rate policy has become tougher, the volatility on the monetary market increased and the national currency is experiencing a liquidity deficit.
In its latest pension reform Kazakhstan merged all privately-owned pension funds into a single state-run Pension Savings Fund. 11 pension funds as of December 1, 2012 were reduced in August 2013 to the Single Pension Fund, which is managed by the central bank. It needed several months to become fully operational, Now, there are 9.7 million accounts in the Fund totaling $21.3 billion.
The government did not stop on this. In February this year the Kazakh central bank announced the devaluation of the national currency, the Tenge, by 19%. This helped the oil-exporting country improve its macroeconomic characteristics by making its exports more attractive and producing a growth rate of 6%. However, the population faced challenges on the internal market. Moreover, international ratings of the country deteriorated.
S&P said that the decision to nationalize 11 private pension funds is already constraining the development of the capital market, which is evident from a decrease in the volume of trading in the domestic securities market. The effectiveness of monetary policy and trust in those implementing it has weakened because the 19% devaluation has not been properly justified to the market. The agency’s analysts believe that this seriously undermines the prospects of attracting long-term investment in Tenge and the growth of the private sector.
S&P also noted the effects of slowdown of Russian economy on Kazakhstan. Russia has been excluded from G8 and may possibly experience third-degree sanctions, which would have a substantial effect on its economy. In an effort to mitigate some of these possibilities it looked to the East and concluded a $400 billion energy deal with China. Russia is Kazakhstan’s northern neighbor and a large share of Kazakhstan’s hydrocarbons exports reaches Europe via Russia. Adding to this the new Eurasian Economic Union deal by which the economies of Belarus, Kazakhstan and Russia will be drawn closer together, S&P’s forecast becomes more understandable.
However, the agency believes that growth will continue. It said that the economic growth will be maintained by government allocating 1 trillion Tenge ($ 5.5 billion, or 2.5% of GDP) from the National Fund through development institutions. The money will be used to support the industrial sector and small and medium-sized businesses.
B Dinara Urazova
