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Threat of default in Kazakhstan assessed by analysts 21 августа 2015, 15:46

Kazakhstani experts comment on Bank of American Merrill Lynch placing the Central Asian country among ten countries most vulnerable to a sovereign default.
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Despite the forecasts announced by investment group Bank of America Merrill Lynch, Kazakhstani experts say that the probability of a default in Kazakhstan remains low, Tengrinews reports citing business newspaper Kursiv.

Last week, the American bank placed Kazakhstan on the ninth place among ten countries with the highest likelihood of sovereign default. Experts in the country acknowledge certain risks exist but contend that a default is not on the horizon.

IFC Markets analyst Dmitry Lukashov reminds that there is a real risk of default when the spread on credit default swaps exceeds 500 basis points. If it is lower, the country’s place is not particularly important.

"There are four countries in the world with the most difficult economic situation. These are Venezuela, Greece, Ukraine and Pakistan. With regard to the economy of Kazakhstan, one can note the high share of energy products in exports, reaching 80 percent. The decline in world energy prices reduces the foreign exchange earnings, which in turn increases the risks," the expert said.

Nevertheless, according to Director of Oil Gaz Project Zharas Akhmetov, there is enough money in the National Fund to service the foreign sovereign debt, making a default on the obligations in the near future unlikely. The situation is more difficult with corporate debt of quasi-state companies. In recent weeks those were been having a hard time servicing their obligations.

The analyst reminds that as of March 31, 2015 the foreign debt of Kazakh government and the National Bank of the Republic amounted to 7.83 billion dollars. As of July 2015, gross international reserves made 28.977 billion dollars, while assets of the National Fund – 68.182 billion dollars.

“The data shows that a default on public debt is not threatening Kazakhstan. The difficulties are awaiting Kazakhstan in the corporate sector. The external debt of the quasi-public sector as of March 31, 2015 is 22 billion 465 million dollars. And recent events have shown that they are having difficulties servicing their debt. In addition, external debt of the private sector as of March 31, 2015 is 122 billion 899 million dollars. With the deterioration of the external environment we may have difficulties here too," the expert said.

In turn, senior analyst of the company Alpari Vadim Iosub believes that the rating of the Bank of America Merrill Lynch is in no sense a forecast of default of Kazakhstan. According to the analyst, Kazakhstan’s position in the rating only shows that the theoretical risk of defaulting is relatively higher than that of many developed countries. But in absolute terms, it is probability quite low.

"According to the data presented, in comparison with Kazakhstan, CDS reflects an even higher probability of default, except for the three “leaders” mentioned, and even Pakistan, Egypt, Cyprus, Russia and Brazil. Still, even here it is incorrect to claim that these countries are awaited by an imminent default. In market terms, the probability in these countries is higher than in Kazakhstan,” he pointed out.

He also said that CDS should be treated with caution. “Typically, these derivatives are available as insurance against default on a particular debt - a particular issue of public or private bonds. Curious events occurred in the crisis year of 2009. The cost of CDS on Kazakhstan was also beating records then, which could be interpreted as a high risk of default. However, the trick was that at the time Kazakhstan had no external debt secured by credit default swaps. Which obligations exactly put Kazakhstan in danger of a default still remains a mystery," Iosub explained.

By Dinara Urazova

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