Population 16.691 million
GDP 200.642 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
| GDP growth (%) |
7.3 |
7.5 |
5.9 |
6 |
| Inflation (yearly average) (%) |
7.4 |
8.3 |
6.3 |
7 |
| Budget balance (% GDP) |
1.4 |
5.5 |
4.9 |
4.5 |
| Current account balance (% GDP) |
2 |
7.7 |
5.3 |
4.7 |
| Public debt (% GDP) |
10.7 |
10.5 |
9.9 |
8.7 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Abundant and diversified natural resources (oil, gas, uranium and iron)
- Increase in oil exports predicted thanks to exploitation of the Kashagan oilfield
- Abundance of foreign direct investments
- Strategic position between Asia and Europe.
WEAKNESSES
- Weaknesses in the banking system
- Persistent shortcomings of the legal and institutional framework
- Risk of political instability in the event of a succession to President Nazarbayev being precipitated
Risk assessment
Dominance of the oil sector
Kazakhstan posted strong growth in 2012 and this is expected to continue in 2013. Private consumption will remain the main contributor to the economy, driven by the rise in disposable income due to the 16% rise in public spending provided for in the 2012-2014 budget. The start of production at the Kashagan oilfield (during 2013) and the continued high per-barrel price will boost exports, still a major component of growth. Industrial production will rebound in a context of a moderate recovery of private sector credit and the Central Bank cut in the refinancing rate in 2012. The development of the mining sector will continue to be supported by the flow of foreign investments, mainly from China. The rise in food prices, resulting from the summer drought in the region, will lead to a slight acceleration of inflation, which is expected, nevertheless, to remain within the 6-8% target range set by the Central Bank (NBK).
Contained sovereign risk but banking sector still weak
The non-oil budget deficit is mainly offset by transfers from the National Oil Fund (NRFK), enabling the Kazakh state to deliver a surplus, which will stabilise in 2013. Public revenues (27% of GDP) will benefit from the rise in oil taxes linked to the start of operations at the Kashan field. Non-oil revenues are also expected to grow thanks to improved tax collection and the dynamism of the economy. Higher public spending (22% of GDP), still directed to social spending but also spending aimed at diversifying the economy, will not threaten the soundness of the public finances. Public debt will remain broadly sustainable, especially since the experience of the second BTA bank default at the beginning of 2012 confirmed the Kazakh government’s refusal to guarantee bank debt even if it is held by state-owned entities.
The current account surplus, which remains comfortable, is expected to fall in 2013 due to the increase in imports driven by household consumption. The eurozone slowdown is unlikely to affect the growth of exports, particularly of hydrocarbons (over 60% of the total) in 2013. Nevertheless, the profit repatriation, linked to business’s need for liquidity in a worsened international economic context, could threaten the external accounts. Kazakhstan therefore remains exposed to external shocks but its foreign exchange reserves (5 months of imports) give it considerable leeway as regards liquid assets.
Despite the restructuring of the BTA, Temir and Alliance banks in 2010, the banking sector remains the economy’s main weakness, as shown by the second BTA default (in 2 years) in January 2012. The quality of the portfolios continues to deteriorate and capitalisation is still inadequate. The risk of further defaults still needs watching.
“Arab Spring” scenario unlikely in the short term
The country has been led by Nursultan Nazarbayev since its creation (1991). The January 2012 parliamentary elections confirmed the dominant position of his party (Nur Otan), though the poll was judged by international observers not to have been democratic. Growing discontent with regard to economic performance in a context of corruption and high levels of poverty is fuelling tension, as demonstrated by the social unrest which broke out in the Zhanaozen region in 2011. However, oil wealth has enabled the state to improve the population’s standard of living and reduce inequalities, conferring on the President a popularity, which at this stage removes the risk e “Arab Spring” type protests. However, N. Nazarbayev’s health is creating uncertainty regarding political stability due to the risk of conflict breaking out between the different government factions, if his succession had to be rushed.
On-going negotiations for joining the WTO could improve a business environment impeded by state intervention in the economy, shortcomings institutional effectiveness and the rule of law and, above all, by a level of corruption which puts the country at 180th (out of 212) for this World Bank governance indicator. But Kazakhstan’s underground wealth will continue to attract investors, particularly from emerging countries.
