Kazakhstan

Highlights
Oil production was at its highest in a year in

October as a result of the Tengiz field

increasing output. But this is likely to be the
peak for a few months, with maintenance
increasing and Kashagan oil unlikely to flow
again until April because of leaky pipes. We
still see oil output rising by 5% in 2014 and
by 7% in 2015, after 3.2% this year.
GDP growth is forecast at 5.5% this year and

6.3% in 2014, up from 5% in 2012. This will

reflect not only rising oil production, but also
higher metal output, stronger agriculture and
construction and an improvement in key
export markets.
The current account surplus fell to just

US$153m in the first three quarters of 2013.

This principally reflected a 7% decline in

goods exports due to lower oil and metal

export prices as well as volumes. For 2013
as a whole we see a surplus of US$330m or
0.2% of GDP. We expect the surplus to rise
gradually from 2014, boosted initially by
stronger oil export volumes and then by
rising oil and copper prices.
The banking sector has a capital adequacy

ratio of 15.7% and an improving rate of

return on assets of 1% but is making slow
progress in resolving its non-performing
loans, which stand at more than 30% of the
total, albeit concentrated in a small number
of banks. Alliance Bank is set to join BTA in
entering into a second debt restructuring.
Nevertheless bank lending is gradually rising
at 14.75% in October.

Forecast for Kazakhstan

(Annual percentage changes unless specified)
Real GDP growth (% year)
CPI inflation (%)
Exports of goods ($ bn)
Exports of services ($ bn)
Imports of goods ($ bn)
Imports of services ($ bn)
Exports of goods (% year)
Imports of goods (% year)
Current account ($ bn)
Current account balance (% of GDP)
Exchange rate per USD (year average)
External debt total ($bn)
Government balance (% of GDP)
Population (millions)
Nominal GDP ($bn)
GDP per capita ($ current prices)

2011

2012

2013

2014

2015

2016

7.5
8.3
85.2
4.3
40.3
11.0
38.8
22.7
10.2
5.6
146.6
124.4
-2.1
16.2
183.1
11,304

5.0
5.1
86.9
4.8
49.1
12.9
2.0
21.6
0.6
0.3
149.1
137.0
-3.0
16.4
200.5
12,247

5.5
5.9
84.1
4.8
51.0
12.2
-3.2
4.0
0.3
0.2
152.2
130.2
-2.6
16.5
215.1
13,001

6.3
5.9
91.7
5.3
55.6
13.3
9.0
9.0
1.8
0.8
158.0
123.8
-2.3
16.7
233.2
13,953

7.1
6.5
101.6
6.0
62.3
14.8
10.8
12.0
2.3
0.9
162.7
118.0
-2.3
16.9
258.2
15,294

6.7
6.2
112.9
6.7
69.8
16.2
11.1
12.0
2.6
0.9
167.6
112.7
-2.4
17.0
284.2
16,676

For further information contact Patrick Dennis (pdennis@oxfordeconomics.com)

Country Economic Forecast: 17 December 2013

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Kazakhstan
Forecast Overview
Gradual pick-up in growth

We forecast GDP growth of 5.5% this year and 6.3%

in 2014. The government expects 6% this year, while
the IMF sees 5% in 2013 and 5.2% in 2014. The
gradual improvement reflects stronger growth in key
export markets, rising oil and metal production and
stronger agriculture and construction.

with GDP rising 5.5% in 2013

GDP grew 5.1% in H1, implying a pick-up to 5.5% in

Q2 from 4.7% in Q1, and latest data suggest a further
rise in Q3 and into Q4. Although industrial output
rose by just 2.3% on the year in January-November,
this was up from 1.8% in H1. Construction rose 2.9%
in the first eleven months of 2013 and agriculture
accelerated to 10.9%. Growth remains driven by
trade, transport and communication.
Fiscal and monetary support fiscal stimulus will
persist given the healthy public finances and
relatively high oil prices. And the National Oil Fund
continues to rise, almost US$70bn at end November.
In addition, the key refinancing rate is low, at 5.5%,
and will be kept low to support growth and the
banking sector providing inflation or private sector
credit growth do not take off.
Inflation fell again in November to 4.7%, its lowest
since August 2012, despite prices rising 0.5% on the
month. Headline inflation largely fell because of large
prices rises for utilities and postal services a year ago
dropping out of the annual comparison. We still
expect inflation to rise, averaging 5.9% in 2014, the
same as in 2013 and close to the bottom of the 6-8%
target range. Inflation will be driven by record low
interest rates, fiscal stimulus and rising local food
prices, but world food prices will be more subdued.
Pick-up in agriculture and construction farming
continues to recover from the drought that led to a
halving of grain output in 2012, and construction is
also supporting growth, aided by high state spending.
Weaker external support Russian growth is seen
at only 1.4% in 2013 compared with 3.4% in 2012.
Chinese and Eurozone growth rates are broadly
unchanged from those in 2012, but oil prices are
projected to fall by about 3% and metal prices by 4%.

Kazakhstan: Real GDP growth

% year
15
Kazakhstan
10
5

Europe &
Central Asia

0
-5
-10
F'cast
-15
1994

1997

2000

2003

2006

2009

2012

2015

Source: Oxford Economics / World Bank

Kazakhstan: Inflation
% year
18
F'cast

15

Europe & Central Asia

12
9
6
Kazakhstan
3
0
2000

2002

2004

2006

2008

2010

2012

2014

2016

Source: Oxford Economics / World Bank

Kazakhstan: Current account balance

% of GDP

US$ bn
15

12
US$ bn
(LHS)

10

-5

-4
% of GDP
(RHS)

-10

-8
F'cast

-15

-12
1995

1998

2001

2004

2007

2010

2013

2016

Source: Oxford Economics

Country Economic Forecast: 17 December 2013

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Kazakhstan
and then 6.3% in 2014

GDP growth is forecast at 6.3% in 2014, and then

about 6.7% a year in 2015-17. This will be well above
the CIS average for 2014-17 and only marginally
below the Central Asian Republics. In 2008-13, growth
was much slower than the Central Asian average due
to the larger impact of the global financial crisis on
Kazakhstan.

Kazakhstan: Government budget balance

The projected pick-up in growth from 2014 will reflect:

Surging oil production the giant US$46bn

Kashagan offshore oilfield, which has seen repeated
delays, has started production. The field holds up to
13bn barrels of recoverable oil reserves and could
result in a near-doubling of Kazakhstans output within
a decade. As well as supplying Europe, much of the
expanding oil output will go to China via increasing
pipeline capacity.
Strengthening global economy world GDP growth
is forecast to accelerate to 2.8% in 2014 and then to
average 3.3% a year in 2015-17. The EU is also
projected to pick up, albeit slowly, after falling in 2012
and being broadly flat this year. And oil prices are
expected to start rising gradually in 2015-17.

% of GDP
6

US$ bn
6

F'cast
3

-3

-3
US$ bn
(LHS)

% of GDP
(RHS)

-6

-6

-9

-9
1995

1998

2001

2004

2007

2010

2013

2016

Source: Oxford Economics / Haver Analytics

Kazakhstan: GDP per capita* (US$)

US = 100
27

*calculated using market exchange rates

24
Kazakhstan

21
18
15
12

Continued policy support we expect large fiscal

stimulus to continue for the foreseeable future given
robust public finances and pledges to modernise and
diversify the economy and raise social spending. In
addition, investment for Expo 2017 will be high.

Europe & Central Asia

6
3

All low & middle income economies

0
1990

1993

1996

1999

2002

2005

2008

2011

Source: Oxford Economics / World Bank

But GDP growth will fall short of the pace seen in

2000-07, in part due to more modest growth in public
spending but above all because the banking sector is
proving slow to recover from the global financial crisis.
Non-performing loans are still 30% of total loans and
banks continue to deleverage and are subject to tighter
regulation, not least on foreign borrowing.

Medium-term risks on the downside

Commodity risks these relate to a possible slide in
commodity prices or a failure to raise oil and gas
output as expected, thereby undermining exports.
Political risks notably the succession after
President Nazarbayev, with elections due in 2016.
But large assets provide a buffer against external
shocks, while a smaller, less dollarised and less
externally-indebted banking system poses fewer risks
to the economy than previously.

Kazakhstan: GDP per capita

$ PPP
14000

Kazakhstan

12000

Commonwealth of
Independent States
Emergers

10000
8000
6000
4000
2000
0
Source: Oxford Economics / IMF

2012

Country Economic Forecast: 17 December 2013

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Kazakhstan
Background

President Nursultan Nazarbayev has dominated politics in Kazakhstan since 1989, with family members and close
relatives occupying top posts in business and public administration; daughter Dariga Nazarbayevais is a prominent
member of parliament and non-governmental organisation figurehead with past links to major media groups, and
son-in-law Timur Kulibayev is chair of state oil company KazMunaiGaz. Although he led the country to
independence from the Soviet Union in 1991, Nazarbayev has maintained close links with Russia, recognising that
the economy is heavily geared towards it and that ethnic Russians still comprise up to 40% of the population
despite an initial exodus. Maintaining a policy of equidistance, Nazarbayevs regime has also developed close
relations with the US, the EU and, more recently, China. Retention of diplomatic support from these countries has
been made easier by their need to be future buyers of Kazakhstans large oil, gas and mineral reserves, and a
desire to secure involvement for their own oil and mining companies in Kazakhstans new exploration projects.

Official opposition has so far been kept strictly within the family: the only serious challenge to the presidents Otan
(Fatherland) party at the 2004 parliamentary election came from the Asar (Together) movement run by his
daughter Dariga. Asar was subsequently absorbed into Otan, confirming suspicion that it had only been formed to
prevent a protest vote from gathering behind more distinct opposition parties. None of these attained the 7%
minimum share required for lower-house representation in the parliamentary elections brought forward to August
2007. The deaths shortly before the December 2005 presidential election of Zamanbek Nurkadilov, and shortly
after it of former information minister Altynbek Sarsenbaiuly, removed two of the presidents more experienced
opponents. A controversial proposal to hold a referendum aimed at extending Nazarbayevs 20-year rule for a third
decade to 2020, and avoid an election due in 2012, was scrapped in January 2011 in an attempt to pre-empt any
parallels with Arab authoritarian leaders and a snap presidential election was held in April 2011, which
Nazarbayev won with an overwhelming 96% of the vote as the opposition decided to boycott the elections given
the lack of time to prepare. Parliamentary elections in January 2012 reinforced Nazarbayevs grip on power.

By offering favourable terms to companies willing to invest in its large but geologically difficult Caspian fields,
Kazakhstan took an early lead in attracting FDI. Its FDI inflow per capita was above that of Russia for much of the
1990s, helped by an avoidance of political instability and positive signals sent by an early deregulation of the
banks and partial privatisation of pensions. FDI and the stable business environment moved the capital account
into surplus, in sharp contrast to the capital flight that kept Russias capital account in regular deficit until early
2006, enabling Kazakhstan to finance a current account deficit and significantly outpace Russias growth rate.
GDP has grown strongly since the post-Soviet dislocation, averaging some 10% pa in 2000-07, making this the
strongest growing Central Asian economy prior to the onset of global recession in late 2008. GDP growth fell to
just 1.2% in 2009 as a result of much-reduced international capital flows (which hit heavily borrowed banks),
sharply lower oil revenues and the impact of deep recession in Russia on trade and remittances, before recovering
strongly in 2010-11 on the back of high oil and metal prices, substantial fiscal easing and bank restructuring.

Kazakhstans ability to attract inward investment, and to stop its own high income earners diverting their savings
and investments abroad, owes much to the relative political and social stability since independence in 1991. The
retention of internal ethnic and regional balance has been assisted by redistributive policies. With its per capita
income both substantially higher than other Central Asian countries and more evenly spread, Kazakhstan is more
socially stable and politically robust than neighbouring Kyrgyzstan, which experienced political turmoil in 2005 and
2010, and also Uzbekistan, where serious unrest has resulted in international isolation.

Inflation and exchange rate appreciation are symptomatic of a general absorption problem, as current and capital
account surpluses generate more inflow of funds than Kazakhstans still largely rural economy can readily absorb.
With oil and gas prices staying strong, the trade surplus widened in 2007 and 2008 despite an upturn in consumer
spending, before falling back in 2009 as oil revenues declined. Surging oil and other commodity prices saw the
external surplus rising strongly again from 2010. Kazakhstan has managed its oil wealth prudently. Some of its oil
proceeds have contributed to financing development and diversification needs and the rest has been saved for
future generations and to insulate the economy from oil price fluctuations. The oil stabilisation fund was valued at
almost US$70bn in October 2013, while net international reserves are around US$25bn.

Country Economic Forecast: 17 December 2013

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Kazakhstan
Key Facts
Politics
Head of state: President Nursultan A. NAZARBAYEV
Head of government: Prime Minister Serik AKHMETOV
Political system: Republic
Date of next presidential election: 2016
Date of next legislative election: 2017
Currency: Tenge (KZT)

Long-term economic & social development

1980 1990
GDP per capita (US$)
1647
Inflation (%)
Population (mn)
14.52 16.17
Urban population (% of total)
54.1
56.3
Life expectancy (years)
66.6
68.3
Source : Oxford Economics & World Bank

Structure of GDP by output

2011*
11304
8.3
16.20
53.5
68.9

* 2011 or latest
available year

2011
Agriculture
Industry
Services
Source : World Bank

2000
1229
13.4
14.96
55.7
65.5

5.5%
40.2%
54.3%

Source : CIA Factbook

Central Asia, northwest of China; a small portion west of the
Ural river (CIA Factbook)

Long-term sovereign credit ratings & outlook

Fitch
Moody's
S&P

Foreign currency
BBB+ (Stable)
Baa2 (Positive)
BBB+ (Stable)

Corruption perceptions index 2012

Local currency
A- (Stable)
Baa2 (Positive)
BBB+ (Stable)

Developed economies (average)

Emerging economies (average)
Kazakhstan
Emerging Europe

Source: Transparency International

Scoring system 100 = highly clean, 0 = highly corrupt

Structural economic indicators

1990
-

1995
-213
114
964

2000
366
2168
1283

2011*
10207
44844
13227

Debt service (US$ million)

Debt service (% of exports)
External debt (% of GDP)

235
3.9
18.4

3392
32.4
70.5

32862
34.6
66.7

Oil production (000 bpd)

Oil consumption (000 bpd)

414
269

718
195

1553
216

Current account (US$ million)

Trade balance (US$ million)
FDI (US$ million)

Composition of goods & services exports,

2012
Manufactures
11.9%

Other goods
exports
0.9%
Transportation
2.6%

Source : Oxford Economics / World Bank / EIA

Travel
1.4%

Fuels and
mining
products
79.1%

Destination of goods' exports (2012)

European Union (27)
China
Russian Federation
Switzerland
Turkey
Source : WTO

Score
74.8
38.0
28.0
45.0

50.2%
17.9%
7.3%
5.4%
3.5%

Agricultural
products
3.3%

Other
commercial
services
0.7%

Source : WTO

Country Economic Forecast: 17 December 2013

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