Central Asia’s Off-Center Interference

Kazakh bank external debt was again marked down and shunned as BTA requested another round of creditor concessions from the committee comprised of well-known houses like Ashmore and JP Morgan who had previously acquiesced to two-thirds reduction. The state investment fund, in pursuit of assets reportedly stashed abroad by its former chief executive, a relative of President Nazarbaev, rejected help after a missed payment on the restructured 2018 Eurobond. The estimated hole is $5 billion, and larger Halyk Bank has urged the government to liquidate the unit to end the continued slide. System non-performing loans remain one-third of the total, with S&P placing it in the “high risk” category. With hydrocarbons’ upswing GDP growth should hit 6 percent on inflation around the same number, but demand is cooling for main customers China and Italy. The budget deficit lingers and the projected current account surplus at 4 percent of GDP could be endangered by income repatriation as foreign energy firms try to cope with ever shifting ownership and royalty divides. International reserves have rebounded to $35 billion with an additional $45 billion available in the backup stabilization fund but the central bank continues to draw on the pool to maintain the exchange rate corridor established post-crisis. Rumors of the President’s ill health have been rampant after recent parliamentary elections which allowed formal opposition, and the stock market has been a frontier leader on his promise of “people’s ipos” to distribute wealth to all citizens as a legacy. His reputation has been battered by oil field unrest and a lackluster agricultural harvest that may reintroduce food shortages. In neighboring Mongolia popular mining share flotations have also been announced, but the key South Gobi coal project was recently challenged by authorities over dealings between Canadian and Chinese developers. The company which is dual-listed in Hong Kong and Toronto experienced a 10 percent price drop and its auditor resigned on the inquiry. The sovereign-guaranteed Development Bank issued a 5-year bond in March yielding 5.75 percent on eager appetite but soon after the former President was arrested on corruption charges underscoring political fragility in the run-up to parliamentary elections. GDP growth and inflation are running at double-digits with a persistent fiscal deficit despite adoption of a responsibility law.

The country has exited its IMF program, unlike in Georgia further afield where a new $400 million precautionary arrangement was just inked. Elections are approaching with strong opposition to the US-educated president and his party, as the government tries to emphasize public-private partnership potential in resort building and other areas which brought a visit from New York real estate mogul Donald Trump. Unemployment is over 15 percent, and the current account gap is 12 percent of GDP, which investors may not have foremost on their mind considering novelty value in an exotic EMBI sub-index.