Kazakhstan's sovereign debt rating upgraded
By Robert M Cutler
MONTREAL - President Nursultan Nazarbaev's decision on Wednesday to dissolve
Khazakhstan's Majilis (lower house of parliament) and hold elections early next
year comes after an excellent harvest has boosted an economy already growing
strongly following the 2007-08 global financial crisis - and before any impact
is felt from the global downturn widely forecast for the first half of next
The Standard & Poor's (S&P) rating agency last week upgraded
Kazakhstan's sovereign debt from BBB to BBB+ on the prospect of increased
future oil exports, which at present represent three-fifths of total exports
and over two-fifths of state revenue.
The agency foresees average economic growth of about 6% for the next two years,
supported by current account surpluses as
well as high foreign direct investment (FDI) expected to represent 4% of gross
domestic product (GDP).
The S&P upgrade puts Kazakhstan one step above Russia for the first time in
over six years. It came just days after publication of preliminary conclusions
by a mission from the International Monetary Fund (IMF) to Kazakhstan following
its most recent consultations in Almaty and Astana in the second half of
October. The IMF projects GDP growth in Kazakhstan of 6.5% in 2011 over 2010.
The IMF preliminary conclusions noted that that inflation at the end of
September was 8.75%, exceeding the authorities' 6% to 8% target range, but that
was before publication of the figures for October, which showed it slowing to
8% in that month (calculated from October 2010) after peaking at 9% in August
and falling in September. Inflation from September to October was very low at
A good grain harvest has exerted downward pressure on consumer prices, as food
prices constitute 40% of household spending. Most recent figures from early
November project the grain harvest more than doubling over 2010 to 29.5 million
tonnes, exceeding the last estimate of 25 million tonnes.
The World Bank and its International Finance Corp ranked Kazakhstan 47th out of
183 countries (up from 73rd as recently as two years ago) in its "Doing
Business 2012" report, which surveys and evaluates 10 areas of business
regulation. In this context, it is significant that Kazakh banks' asset
positions have improved throughout 2011 after the national Samruk-Kazyna fund
took US$10 billion from its oil fund and took major positions in a number of
financial institutions including Alliance Bank, BTA, Halyk Savings Bank,
Kazkommertsbank, and Temirbank.
Credit began to improve by the end of 2010 as knock-on effects of generalized
economic growth improved their situation. Foreign debt holdings by Kazakhstan's
banks nevertheless remain high at 24% of total liabilities following some
defaults and restructuring following the 2008 global financial crisis, and they
also still have high levels of nonperforming loans (NPLs), concentrated in
construction and real estate sectors. The total of all NPLs is estimated to be
as much as $25 billion, or roughly one-fifth of annual GDP.
However, the sluggishness of reforms and structural problems in advanced
capitalist economies threaten the country's recovery from the 2007-2008 global
financial crisis. Kazakhstan's economy is still under the threat of external
shocks from a variety of sources including a fall in commodity prices on which
the country's foreign trade inordinately depends, declines in global trade in
general, and a drop in capital flows for foreign direct investment as well.
Those factors may have encouraged President Nazarbaev (who called and won a
snap presidential election in April) to hold elections for the Majilis,
originally scheduled for next August, on January 15. In the meantime the senate
(upper house) will assume the Majilis' responsibilities.
According to a new law, a minimum of two parties must be represented, even if
only one party surmounts the rather high 7% barrier to representation. At
present, Nazarbaev's ruling Nur Otan party technically controls 98 of the 107
deputies in the lower house. The remaining nine are selected by a
presidentially appointed consultative body, the People's Assembly of
Kazakhstan had "multi-party" parliaments the 1990s and even early in the 21st
century, but various combinations of inter-elite (and inter-familial, that is,
Nazarbaev's family) political conflicts, new restrictive laws (for example,
prohibiting independent candidacies), and mergers among once-existing factions
have produced the one-party parliament now just dissolved.
The likeliest second party to enter the lower house is Ak Zhol (Bright Path), a
party with origins in an intra-regime constituency of younger, technocratic
managers and now having evolved to the point where it is often said to
represent big business. It also has a strong component of ethnic Kazakh
Another party that could enter parliament is Adilet (Justice), a pro-regime
party created in 2006 on the historical basis of earlier existing
anti-corruption and anti-Nazarbaev political formations following leadership
changes in the latter.
Ak Zhol split from the Democratic Choice of Kazakhstan (DCK) formation after
two of the latter's leaders were sentenced to prison seven years ago, and then
itself split in 2006 when four of its leaders broke away to form Naghyz Ak Zhol
(True Ak Zhol), which subsequently renamed itself Azat (Freedom) and is a
"hard" opposition party questioning the legitimacy of Nazarbaev's regime.
Adilet and the new Ak Zhol worked together during the 2007 parliamentary
Dr Robert M Cutler (http://www.robertcutler.org),
educated at the Massachusetts Institute of Technology and The University of
Michigan, has researched and taught at universities in the United States,
Canada, France, Switzerland, and Russia. Now senior research fellow in the
Institute of European, Russian and Eurasian Studies, Carleton University,
Canada, he also consults privately in a variety of fields.
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