bne IntelliNews -

The Kazakh government has admitted that the falling oil price, weak currency and the geopolitical tension in the region are having a significant negative impact on the country's faltering economy. In a bid to minimise the damage Astana is embarking on belt tightening.

At a government meeting on January 15, Kazakh President Nursultan Nazarbayev and ministers discussed the impact of the economic crisis on government policy. The president said that last October low oil prices had already pushed the government to revise the central budget for this year. But the approved budget is still based on $80 per barrel, while the current price is below $50.

The 2007-2009 global crisis has resulted in lower prices of Kazakh export items, especially oil and metals, which are the main sources of budget revenue, Nazarbayev noted. "In addition the influence is also exerted by the situation in Ukraine and sanctions against Russia related to it," the Kazakh leader said. "Due to deep cuts in the budget the government will have to revise some of its parameters. We have once already amended the budget and if need be this will have to be made again."

Nazarbayev noted that over the years of independence Kazakhstan has built over 700 schools and the same number of hospital but called for new construction projects to be postponed and only already launched projects to be finished. "This work will be continued when the crisis is over."

Due to the weak price of oil and the unstable rouble the country's national currency is exposed to pressure to devalue: following the February devaluation last year the value of the tenge is a sensitive political issue in Kazakhstan as the 19% drop in its value led to rare public protests. The country's GDP growth is estimated at 4.3% last year, below an initial target of 6%, and in order to prevent a repeat of the situation Nazarbayev urged the government to have clear plans for all kinds of worst-case scenarios.

The governor of the National Bank, Kairat Kelimbetov, told the meeting that last year's devaluation had made the Kazakh economy resilient. "The National Bank intends to prevent sharp fluctuations of the exchange rate this year," Kelimbetov said, noting that the country's foreign exchange and gold reserves reached $102bn. The chief banker repeatedly denied devaluation rumours last year, saying there cannot be two devaluations in a year.

In October the slowdown in the Russian economy and falling oil prices forced the Kazakh government to reduce a target of GDP growth from 6% to 4.3% for 2014 and to redraft the budget. This, in turn, prompted President Nursultan Nazarbayev to announce a package of economic stimulus measures in November. The president pledged to draw an extra $3bn annually from the country's oil fund to support the ailing economy over the next three years.

The government expects the country's economy to grow by 4.8% in 2015, 0.2 percentage points lower than the earlier forecasts. These estimates are based on the average oil price of $80 per barrel next year. The World Bank, which published its forecasts after oil started trading around $50, predicts the Kazakh economy to grow by a meagre 1.8% in 2015.