Kazakhstan's balance of payment rose 5%, monetary reserves down to 11%

In the year of anomalous high prices for oil, Kazakhstan’s balance of payment rose 5% and monetary reserves went down to 11%

Ilse Yaunalksne, Riga, Latvia,
Delfi newspaper. February 14th, 2008.

In December 2007, the National Bank’s reserves went down to US$2 billion only in one month. The World Bank’s financial analysts predicted in February that there was a possibility for dramatic devaluation of tenge until the fall 2009, to 150-160 tenge for US$1. Since August 2007 the financial crisis has affected almost all levels of the population and economy of Kazakhstan. National resources’ sell-out is still on. Thousands of people lost their jobs already in the second half of 2007, inflation increased to an unprecedented level, and the country’s image is enduring serious changes. The last year’s crisis has just revealed current problems and accelerated the worsening of economic crisis.

In accordance with the official information, the financial year’s results, as expected, refuted all optimistic promises made by the Kazakh authorities. Inflation increased up to 19% (the highest since 1995), sometimes reaching 25% in particular regions of the country. The international reserves fell 11%, net wealth in hard currency –12.5%. There was a time when tenge lost its value for 34% at once and the authorities were able to manage the situation with huge difficulties.

In Kazakhstan, producing 70 million tons of oil, of which 60 million tons are exported annually, the deficit of balance of payment constituted 5% in 2007 with respect to GDP – as twice more than in the year before.

All these problems are results of the situation, when no industrial and services’ sectors of the economy have been developed since the independence. Accordingly to Latvian economists, 79% of Kazakhstan’s GDP is formed of an extractive industry.
There is a critical shortage of new technologies and high-qualified personnel. Prices for bread, food, communal services and gas grow steadily. Spring and the sowing campaign are approaching and, for sure, the prices will respond to the “spring thaw”! With this approach to economy management, the Kazakhstan’s money would hardly be saved, even if one barrel of oil were 200 dollars.

Despite the authorities’ positive reports regarding the stability of economy, before August crisis the major areas of economy, where almost all money was invested to, were extracting hydrocarbons, construction and banking. What concerns other sectors, they were whether totally fell into decay or have left without respective attention.
Only about 8% of light and textile industries sold in Kazakhstan had been made in the country. There is even worse situation with shoe production – its share in sales is less than 1%.

This economic policy and the banking liquidity crisis in the United States were enough to down two of three leading sectors of Kazakh economy for the count and put the country on the verge of default. It is well known that owing to the global liquidity crisis and reduction of scale of financing at foreign markets, the Kazakh banks’ credit activities have fallen. As a result, a number of international agencies like Fitch and Moody’s reduced the rating of Kazakhstan's liabilities in foreign and local currencies.

In one of his statements in autumn last year the head of Kazakhstan praised the model of economy created by him, repeating over and over again that it stood firmly on its legs and there was no sign of a crisis. However, already after the president’s statement in October, the world agencies reduced Kazakhstan’s rating to “negative” for the second time and predicted the seven Kazakh banks’ default. The crisis took a new turn. The National Bank’s reserves went down to US$2 billion since November. The World Bank’s financial analysts predicted in February that there was a possibility for dramatic devaluation of tenge till the fall 2009, to 150-160 tenge for US$1.

In this very situation, it became difficult, if not possible, for construction companies, which used banking credits as primary sources of financing, to get credits. House prices dropped 30-50%, and banks raised credit interest, both for ordinary people and enterprises. As s result, construction companies went bankrupt one after another. Along with the banking, the construction sector was “frozen”.
It is worth to mention that all this happened in the year of record-breaking high prices for oil. An average price for black gold was US$73 at the world market last year, and in December reached unprecedented US$100.

Given the situation worsening, the Kazakh authorities had tried and even today intent to dissolve some of agreements, related to use of resources, signed with foreign investors, including with strategic ones. However, as insiders inform, the authorities are afraid of both seizure of national property abroad and accounts and arrest of assets of high-ranking officials from Kazakh president’s circle.
In fact, the Kazakh government’s total surrender in negotiations on revision of shares in Kashagan Production Sharing Agreement was a “litmus paper” of the authorities’ determination in this issue. Negotiations with foreign companies, continued half a year, resulted in the government’s agreement to increase twice the expenses for the project (from US$57 million to US$136 million), i.e., Kashagan will bring profits only after the consortium covers expenses, but this would happen only after 2020-2025.

Kashagan is a huge oil store, the largest oilfield found in the last 30 years. Its explored oil reserves’ estimates are 4 billion tons and mineable reserves – 1 billion tons. The Russian Kommersant noted: “Despite of decrease of foreign investors’ stakes, they managed not only to secure the participation in the project, but also increase their status in it”.

Initially, the largest participants of the consortium, exploiting Kashagan - Eni (an operator of the project), Agip, Exxon Mobil, Shell and Total possessed 18.52% stakes. In accordance with the new agreement, KazMunayGaz increased its stake in the project from 8.33% to 16.81% at the expense of other stakeholders, matching with above-said companies. The date of oil production, postponed by Eni three times from 2008 to 2010, was, likely, the only main argument to revise the agreement. Now, according to a new agreement, the first oil will be produced in fall 2011, i.e. one year later. The Kazakh company also must put up 16.81% of investments to the project before it would collect revenues in the future, comparing to US$22.8 billion additional costs.

As the Kazakh government informed early in February, the country’s authorities are going to cancel license of one third of foreign companies, dealing with resources. Perhaps, authorities’ success in this action will hardly differ from that it gained in the “Kashagan deal”.