Page 7 - FSUOGMWeek 10 2020

FSUOGM COMMENTARY FSUOGM
is sensitive to both changes in world oil prices and changes in the value of the Russian ruble. The ruble also began weakening in reaction to tumbling hydrocarbon prices.
With analysts at Goldman Sachs predicting the possibility of oil prices dropping as low as $20 per barrel, the currency might be expected to take a massive hit in upcoming months.
Some Kazakh experts are not convinced that the Kazakh currency is bound to suffer, however. Kazakhs are “now subject to panic, but everything will calm down in a week, maybe two,” Kazakh economist Almas Chukin told Forbes Kazakhstan. “We probably won’t return to the level of KZT380 [against the dollar] this
year, but there shouldn’t be KZT400 either.”
“To a large extent, [the Kazakh population’s] poverty is the source of support for the dollar. The population simply does not have a large available mass of tenge to ‘turn over’ into dol- lars,” he added. “And state-owned companies that have tenge reserves will not move any- where, because they are ‘not allowed to’ [due to
the nature of Kazakhstan’s autocratic regime].” The central bank, the National Bank of Kazakhstan (NBK), announced on March 6 that it sold $557.3mn on the domestic market in Feb- ruary alone as it intervened to combat a spike in demand for hard currency caused by the drop in world oil prices seen at the end of February. The interventions were comprised of $94.8mn from the central bank’s own reserves and $462.5mn
from the National Fund.
With oil prices crashing further, the NBK can
be anticipated to continue ramping up its inter- ventions in the coming months.
Oil dependence
The still oil export-dependent Kazakh economy overall can be expected to take a beating from the oil price wars. While some efforts have been undertaken to diversify the Kazakh economy away from oil export-reliance since it took a hit from very low world oil prices in 2015-2017, much of the adjusted strategy reoriented the economy towards dependence on Chinese demand. This includes a focus on developing modern trade infrastructure as part of China’s Belt and Road Initiative and expanding agricul- ture and food production. Since neither China nor oil prices are expected to do well in the near
future, the Kazakh economy is highly likely to follow suit.
Nevertheless, Russian investment firm Renaissance Capital analysts Sofya Donets and Andrei Melaschenko in a recent note maintained a positive outlook on the Kazakh economy even under a scenario where oil prices fall below $30 per barrel, suggesting that growth would remain above 1%.
The economy went through an oil-slump slowdown in 2016, when Kazakhstan recorded growth at 1%. That year also overlapped with countrywide protests against land reforms that ultimately masked the population’s anger at dete- riorating economic conditions. As frequent pro- testing has become normalised in the past year in the Central Asian nation under the new presi- dent who took over after three decades of rule by Nursultan Nazarbayev, economic crises do not bode well for Kazakhstan’s political stability.
The government has shown some aware- ness of growing tensions and the population’s new push to express dissatisfaction. It has been attempting to carry out social spending policies to quell some of the angst. These social initiatives may be harmed by the government’s need to cut spending under collapsing oil prices, though Tokayev’s announcements so far suggest the authorities have a willingness to commit to these efforts at all cost.
Renaissance Capital’s analysis also sees credit growth as a potentially important growth driver for Kazakhstan as a prolonged deleveraging, set for completion this year, has significantly reduced the corporate sector’s debt burden. But once again, further credit growth in the economy would be undermined by a new economic crisis and could, in turn, affect the still ailing Kazakh banking sector.
The firm’s analysts view present risks in the banking sector as moderate, since the regula- tor’s recent banking asset quality review (AQR), completed at the end of December 2019, did not find a capital shortage “on a consolidated basis”. Complications may arise from results for indi- vidual banks—these results have not yet been presented. Reuters, in December, citing anon- ymous sources, reported that Kazakh author- ities planned to provide over $1bn in aid to at least four local banks after holes in their balance sheets were revealed by the AQR. ™
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