Kazakhstan’s Eurasia Solidarity Split
Kazakh shares tried to keep their 5 percent MSCI advance through end-July as the central bank mounted over $500 million in daily intervention to stabilize the currency at 185 to the dollar following recent 20 percent devaluation before the bite of Western sanctions against Russia in the shared Eurasia Economic Union. Reappointed Prime Minister Massimov reiterated economic fundamentals were sound despite a downbeat IMF Article IV review citing macro and banking system slippage. GDP growth will be under 5 percent due to weaker external demand from China and elsewhere and slowing credit’s household consumption effect. Inflation could near double-digits with the depreciation, although it will reprise the current account surplus and send foreign reserves excluding the oil wealth funds toward $30 billion or 5 months’ imports. FDI has been sidetracked by delays in Kashagan field production to repair pipeline cracks and settle international partner disputes. The fiscal balance remains positive after the government announced a stimulus package and monetary policy has tightened as officials opened foreign exchange swap lines with the 40 percent dollarization of loans and deposits. NPLs are still one-third the total concentrated in the state-owned units after Kazkommerts bought double defaulter BTA for $400 million from the sovereign wealth arm. The combined entity plans regional expansion as Russian banks which control one-tenth of the local sector experience US and EU securities embargo impact which have yet to reverberate throughout the Eurasia alliance. However Russian companies provide one-third of mainly capital goods imports and are prominent in mining and Kazakh gas exports transit through Ukraine and may suffer interruption. Fitch Ratings reaffirmed the sovereign BBB-plus with a stable outlook while stressing these risks. It also urged the acceleration of workout efforts through the central disposal fund and proposed special-purpose vehicles to halve the NPL ratio to the 15 percent near-term target. Macro-prudential measures have been imposed to brake consumer credit skyrocketing 45 percent in 2013, although Tier I capital adequacy is solid at 12 percent of assets. The IMF urged the central bank to adopt a policy interest rate supported by liquidity operations and to introduce greater exchange rate flexibility through band widening.
It questioned the potential conflict in acting both as overseer and manager of the consolidated pension fund folding in private plans instrumental in domestic debt and equity market development. The Article IV reiterated the importance of eventual inflation targeting but pointed out the difficulties posed by recent resort to staple price controls. A new insolvency law is under preparation as part of a structural reform push to overhaul the business and labor climate with assistance from official development agencies. President Nazarbaev has previewed possible minority stake stock exchange sales of major state enterprises but momentum stalled with corporate governance investigations into London listed ENRC and more rumors of ill health and succession battles reflecting façade cracks.
