Wednesday, August 18, 2010

Kazakhstan: Oil-rich Kazakhstan has more than one reason to rejoice

By Prakash Joshi

Republished courtesy of IDN-InDepth NewsAnalysis

President Nursultan Nazarbayev of the oil-rich Central Asian Republic of Kazakhstan has more than one reason to rejoice. Both the International Monetary Fund (IMF) and a new opinion poll have good news for the life-time president.

The International Monetary Fund (IMF) predicts that the Kazakh economy will grow by 4 percent in 2010, mainly driven by higher exports, increasing commodity prices, and foreign direct investment. However, it adds, Kazakhstan must resolve bank weaknesses exposed by the crisis.

At the same time, a new opinion poll finds that Nazarbayev's approval ratings "remain in the stratosphere as the country's economy perks up after two years of doom and gloom".

The poll reveals that the public sees Nazarbayev as the main guarantor of stability, which they value even more in the wake of the political and ethnic strife in neighboring Kyrgyzstan.

"The main thing (for the public) is that the ruling power in the country should be very strong, one which will provide people with order, calm, peace, and an absence of the upheavals we are observing in the neighboring country," Gulmira Ileuova, head of the respected Strategy Center of Social and Political Studies, told a journalists in Almaty on August 16.

"So the main thing is that they see the assurance of this calm in the institution of the presidency… President Nazarbayev is (perceived as) a guarantee of that stability," says Joanna Lillis in a report for

The study, which polled 1,592 people nationwide from July12 to 20 -- showed that 89 percent are satisfied with Nazarbayev's work, up 4 percent from February 2010. The figure is in line with previous polls, which regularly reveal the president enjoying approval ratings of around 90 percent.

"Nazarbayev enjoys genuine popularity among ordinary people, though detractors say this can be partly attributed to the administration’s stranglehold over the political process and a largely tame media," reports EurasiaNet.

"The poll indicated strong backing for recent legal amendments granting Nazarbayev the title 'Leader of the Nation', which were criticized as undermining democratic principles: 73 percent favored them, 7 percent were against, and 20 percent were neutral."


The ethnic unrest in Kyrgyzstan caused people in Kazakhstan to "experience a moral and emotional shock," Olga Simakova, a Strategy Center sociologist, told journalists. "A clear understanding has emerged among the public in Kazakhstan that 'someone needed all this', that a fight for power is under way in Kyrgyzstan, that this was not a spontaneous public uprising, and in this case the population of the Kyrgyz Republic is just a tool and is in no way the driving force of revolution," Simakova said.

Yet Kazakhs were split as to the causes of the April 2010 uprising that forced President Kurmanbek Bakiyev out of office. The poll showed 21 percent believing the event was a "popular democratic revolution", 35 percent thinking it was the result of a power struggle between political clans, and 32 percent seeing it as simply the latest in Kyrgyzstan's ongoing political crises; 12 percent were unable to determine a cause.

People in Kazakhstan are inclined to see June’s ethnic clashes in southern Kyrgyzstan as the product of low living standards rather than tensions between the Kyrgyz and Uzbek communities: just 13 percent blamed unresolved ethnic conflicts, while 39 percent blamed a low standard of living, 38 percent pointed to the authorities' weakness, and 21 percent saw the hand of Bakiyev's supporters.

An analysis of the opinion poll points out that "along with strong presidential rule and effective power structures, people also cited better socio-economic conditions as a factor in preventing ethnic tension in Kazakhstan".

It adds: "They have a point: the economy posted 8 percent growth in the first half of 2010 and is expecting growth of 4 percent this year. By contrast, Kyrgyzstan’s economy is expected to shrink by 5 percent."

IMF points out that Kazakhstan, the largest landlocked country in the world, is the site of the most significant new oil discovery in recent years. The oil sector dominates the economy, accounting for one-fourth of GDP, 60 percent of total exports, and 40 percent of total budget revenues. Major foreign investment in this sector helped fuel strong GDP growth between 2000 and 2007, averaging about 10 percent a year.

Explaining the weakness of the banks, IMF says: "At the same time the economy was experiencing rapid growth, Kazakhstani banks borrowed heavily from abroad, amassing external debt amounting to roughly 44 percent of GDP to fund a rapid expansion of credit, largely concentrated in construction and real estate."

When the global financial crisis hit and capital stopped flowing into the country, credit growth ground to a halt, and property prices slumped. With oil prices plummeting, Kazakhstan faced a drop in the value of its exports from $76.4 billion in 2008 to $48.2 billion in 2009.

The combination of weak economic growth, currency-induced credit exposure, and increased uncertainty led to significant difficulties in the banking system. Four Kazakhstani banks were forced to restructure their external obligations, and nonperforming loans -- that is, loans that are either in default or close to it -- began to rise sharply.


But the saving grace is that owing to the government’s ample resources and low public debt, the authorities were able to respond swiftly to the crisis. Drawing upon savings in the National Oil Fund -- a nest egg established by the government in 2001 to save oil income for future generations and to reduce dependency on the budget when shocks arise -- the authorities helped stabilize banks with a large-scale policy package.

The government took equity stakes in four large distressed banks; public entities transferred deposits from elsewhere into the troubled banks; and sectors where nonperforming loans were concentrated (mainly real estate and construction) received funding on preferential terms.

IMF goes on to say: Because public debt is less than 20 percent of GDP, the government was able to use fiscal measures to counter the crisis impact, increasing budgetary outlays for pensions, public sector wages, and social benefits.

Monetary policy was likewise supportive in 2009, with low interest rates and easy access to liquidity contributing to an improvement in bank liquidity. And the tenge, Kazakhstan's currency, was devalued by 20 percent in early 2009, easing pressures on reserves and restoring competitiveness with Russia, its large neighbor and key trading partner.

"Over the longer term, the Kazakhstani authorities plan to reduce their dependency on oil and advance diversification of their economy by improving the business environment, modernizing enterprises, creating new high value-added export-oriented sectors, and providing support to industries such as telecommunications and transport," IMF economists say.

They add: "The government's development strategy for the next decade, announced earlier this year, provides a strong basis for the economy’s gradual diversification -- but its success hinges on the support of a well-capitalized and well-regulated financial system."