Page 6 - FSUOGMWeek 10 2020

FSUOGM COMMENTARY FSUOGM
Oil price shock sparks
rapid revision of budget
in Kazakhstan
Kazakhstan relies heavily on oil exports and non-oil trade with China, and both markets are reeling
KAZAKHSTAN
WHAT:
Kazakhstan’s president has ordered the government to cut budget spending in response to the slump in oil prices.
WHY:
Oil plunged to levels not seen since the 1990s on March 9 after OPEC+ talks on curbing supply broke down.
WHAT NEXT:
Kazakhstan’s oil dependent economy will suffer from the price war.
KAZAKHSTAN’S government was on March 9 ordered by the president to cut budget expend- iture, ensure financial and currency market sta- bility and focus on protecting jobs as Central Asia’s biggest economy came to terms with the shuddering oil price collapse and some anxieties arose that a devaluation of the Kazakh currency might soon be in prospect. Underlining the urgency of the situation, the country’s central bank early on March 10 announced it had hiked its key rate 275bp to 12.0% and said it stood ready to intervene in the foreign exchange mar- ket and take additional measures to protect the cohesion of the market.
The announcement of rapid-response meas- ures from Kassym-Zhomart Tokayev came after Energy Minister Nurlan Nogayev said on March 7 that Kazakhstan was working on cutting costs as the oil price plunged on news that the OPEC+ group had failed to agree on extended and enlarged cuts starting in April.This sent world oil prices plummeting 31% to $31.02 per barrel on March 9, marking the second-biggest oil price drop since the Gulf War in 1991. It was hoped that Saudi Arabia and Russia would agree on lowering oil production amid the new coro- navirus outbreak and its impact on the world economy, but it was not to be, prompting the Saudis and Russians to enter into a price war for markets.
“We have a budgeted oil price at $50-$55 (per barrel). If it falls to $40 and below, the govern- ment has a plan to optimise costs and we are already working on it,” Nogayev was quoted as saying by Reuters. At the same time, the minister appeared to be holding out hopes that the next round of OPEC+ scheduled for later in March could put an end to the disagreements between the two sides.
On March 10, Economy Minister Ruslan Dalenov said Kazakhstan was set to revise its economic growth outlook lower and increase the budget deficit to up to 3.0% of gross domes- tic product from the previously planned 2.4%. Meanwhile, Prime Minister Askar Mamin said
he was barring state-owned companies from buying foreign currency unless it was required to meet their obligations.
“Regarding the fall in oil prices to $32, I would like to note that now the Kazakh government has [sufficient] reserves for fulfilling social obliga- tions, but by the beginning of 2021, when par- liamentary elections are planned, [the reserves] may [cease to] exist,” Kazakh political analyst Gaziz Abishev wrote on his Telegram-chan- nel, claiming that at a price of $35 per barrel, Kazakhstan’s state budget would approximately lose out on $6.7bn. The country’s budget for 2020 assumes an average oil price of $55bn per barrel.
The government can be expected to tap into the rainy-day National Fund replenished by oil export revenues to fill in unprecedented budget- ary gaps. “Our current scenario does not envis- age using the National Fund,” Dalenov said in further remarks to reporters, reported by Reu- ters. “But in an extreme scenario, of course, we have the option to make a small extra transfer from the National Fund.”
Exchange office tensions
Kazakh exchange offices on March 9 sold the national currency, the tenge, at rates as weak as KZT391-KZT395 to the dollar in the capi- tal Nur-Sultan and KZT398 in the commercial capital Almaty. The southern city of Shym- kent recorded the dollar price at KZT397. The exchange office rates can be taken as record lows even though the official central bank-set offi- cial rate of the tenge only depreciated slightly to KZT382 on the day against the greenback after fluctuating mostly between KZT375-380 throughout the first two months of the year. That changed on March 10 as in the wake of the rate hike announcement the tenge shed 2.9% to reach KZT394.
Exchange offices in Almaty closed early on March 9. The premature closing might have been an attempt by the authorities to prevent the pan- ic-buying of dollars.
The national currency of the ex-Soviet state
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w w w . N E W S B A S E . c o m Week 10 11•March•2020