OUTLOOK 2019 Kazakhstan

OUTLOOK 2019 Kazakhstan
By bne IntelliNews December 21, 2018

OUTLOOK 2019 Kazakhstan

Kazakh GDP grew by 4.1% y/y in the first 10 months of 2018. The growth rate stood largely unchanged in comparison to the figures reported in the first nine months, first half and first quarter of 2018 - growth uniformly stood at 4%-4.1% throughout those periods.

Kazakh growth rebounded to 4% in 2017, up from 1% in 2016, and the government attributed the steady growth to a weakening of inflationary pressures and high investment activity.

Kazakhstan has slightly cut its 2019 economic growth outlook to 3.8%, down from the previously anticipated 3.9%, Economy Minister Timur Suleimenov said on November 27. The adjustment is due to lower expectations for the average Brent crude price - the Kazakh government originally assumed an average world oil price of $60 per barrel for 2019, but the forecast followed Russia and has been cut to $55.  Per capita GDP is set to amount to $9,400 in 2019, Suleimenov added.

The European Bank for Reconstruction and Development (EBRD) said on November 1 that economic growth in Central Asia is expected to moderate in 2018-2019. It gave its latest assessment in its Regional Economic Prospects report.

The report says that for Kazakhstan there is “foreseen a substantial increase in the minimum wage” underpinning private consumption to a certain extent, while fixed investment in the oil and gas sector is also likely to support economic growth. As such, Kazakh growth is expected to remain at 4% in 2018, unchanged from the previous year, but ease to 3.5% in 2019.

The International Monetary Fund (IMF) revised up its 2018 growth projection for Kazakhstan by 0.5pp to 3.7% in the October 2018 edition of its World Economic Outlook, which expects GDP growth in Kazakhstan to slow to 3.1% in 2019.

Economies in Central Asia and the South Caucasus will average annual growth of 4.2% in the coming years, the International Monetary Fund (IMF) said in a preliminary report noting the highlights of an upcoming Middle East and Central Asia November 2018 outlook.

The rate is less than half the rate of growth seen in the early 2000s. As such, the IMF believes the region needs to strengthen reform efforts to reduce governments’ roles within economies further rather than seeing growth from growing oil prices as an excuse to relax. The Fund also believes growing global trade tensions pose a risk to the region’s growth. Moreover, it noted that it’ll likely take around two decades on average for the region to reach per capita income levels of emerging Europe.

While growth is steady, the Kazakh currency is less so as it remains exposed to both volatility in oil prices and the swings of the Russian ruble.

Kazakhstan’s national currency hit KZT380.93 against the dollar on September 12, falling to a 31-month low. The all-time weakest tenge to the dollar rate of KZT382 occurred in early 2016, thus the currency is on the brink of suffering its weakest ever value versus the USD. The tenge has largely fluctuated around KZT340 throughout most of 2018, but it acquired fresh downward momentum in July which accelerated in August. Some Kazakh analysts argued earlier in 2018 that the tenge was “overvalued” and that its “real value” stood at around KZT420 to the dollar.

Another major effect on the tenge probably comes from the demoralised Kazakh population’s general distrust of the country’s regulator—most of this stems from devaluations of the currency prior to the central bank adopting the free-floating exchange rate in 2016. Kazakhstan has experienced no less than six such devaluations or “devalvatsiyas”—a word that has come to signify the rapid and sudden weakening of the tenge rather than a general term for loss of value over time—since gaining independence in 1991. The adoption of the free-float currency system essentially tied the tenge directly to changes in world oil prices and the rate of the Russian ruble.

Kazakh companies are buying dollars on fears that US sanctions against Russia are set to intensify. Kazakhstan and Russia have close trade ties, where the latter approximately accounts for 35% of the ex-Soviet Central Asian nation’s trade. Russia’s ruble is under threat from new US sanctions that may appear in the New Year and its outlook is uncertain.

Inflation and rates

Annual consumer price inflation in Kazakhstan stood at 5.3% in November, in tune with the central bank’s expectations. Inflation in Kazakhstan was projected by the regulator to stay between 5-7% in 2018. The forecast for 2019 is for inflation to fall to between 5.0-5.5%. The central bank said it planned to aim to achieve a 4% inflation rate by 2020.

The central bank in July cut its policy rate for the fourth time in 2018, reducing it to 9% from 9.25%, but tightened its monetary policy, boosting it 0.25 percentage points up in October. It previously stated that it was aiming to maintain the policy rate at four percentage points above the level of inflation.

The investment activity in the period was supported by Chinese investments as part of the huge One Belt One Road initiative, which seeks to deploy investments in Kazakhstan to enable the creation of transit hubs for Chinese goods heading to Europe and vice versa. Growth was also likely driven by rising oil prices and expansion in oil production - mostly at the giant Kashagan field.

Oil and gas

Kazakhstan’s economy ministry has forecast that the country's oil production will stand at 88mn tonnes in 2019, the Times of Central Asia reported on October 31.

Kazakhstan previously promised to increase its oil output by 0.9% in 2018, with the volume to amount to approximately 87mn tonnes. At the current rate of output the final figure might end up exceeding the government’s forecast. Kazakhstan’s oil output in the first nine months of 2018 grew by 5.3% y/y to 67.3mn tonnes, Energy Minister Kanat Bozumbayev told a government meeting on October 16.

The giant Kashagan oil field, which has been ramping up output since its relaunch in late 2016, will see its output reach 380,000 barrels per day by the end of 2018, Kazakh authorities have previously said.

Kazakhstan's state-run gas transit company KazTransGaz and PetroChina International Company signed a five-year contract on October 15 to double Kazakhstan’s natural gas exports to China to 10bn cubic metres (cm) per year in 2019. KazTransGaz hopes to earn revenues of $2bn a year from the exports.

The Kazakh government estimates the country’s total natural gas exports in 2018 will amount to 15bn cm. Gas production in Kazakhstan rose by 5.9% y/y to 41.45bn cm in the first nine months of 2018, where petroleum gas output grew by 10.3% y/y to 24.4bn cm, according to official data. In 2017, gas output jumped 14% y/y to 52.9bn cm and it was forecast to rise to 53.5bn cm in 2018. Kazakhstan's three giant oil and gas projects, Karachaganak, Tengiz and Kashagan, account for over two-thirds of the country's total gas reserves.

Kazakhstan launched its gas exports to China in October 2017 as part of a one-year deal between KazTransGaz and PetroChina for shipping 5bn cm to China. Gas to China flows via the Beineu-Bozoi-Shymkent pipeline, which, in turn, links to the Kazakhstan-China pipeline, part of the larger 7,500-km Central Asia-China pipeline, which also includes Turkmenistan and Uzbekistan.


In addition to oil, Kazakhstan’s agricultural sector has grown quickly in 2018 and is becoming a new source of foreign exchange earnings.  Kazakh wheat exports in September, as part of the 2018-2019 marketing year, were up 46.3% y/y at 376.8 kilo metric tonnes (KMT), marking the largest volume of wheat exports in the ninth month since the 2013-2014 marketing year, UkrAgroConsult reported on November 11.

The exports appear to be growing despite Kazakhstan’s aim to shift exports toward oilseeds and pulses away from wheat. Kazakhstan’s wheat production is expected to decline 5.4% y/y to 14mn tonnes in 2018 as farmers reduce the planted area to the second-lowest level since 2004. Despite the steady decline in output, Kazakh wheat exports in the 2017-2018 marketing year exceeded the previous marketing year by 43.6% and hit a six-year high.

The Kazakh government has pledged to pump KZT423bn (€1.2bn) into the country's grain industry during 2017-2021 as part of a programme to improve industry profitability by 30%-40%. The Central Asian nation aims to develop its agricultural sector in order diversify itself away from oil exports over-reliance. In the long-term, the ex-Soviet state hopes to increase its grain exports by focusing on the higher margin crops. The biggest Kazakh wheat importers in the 2017-2018 marketing year were Tajikistan, China, the EU, Afghanistan, Turkey, Azerbaijan, and Central Asia's most populous nation, Uzbekistan, which remains the biggest buyer of Kazakh grains.


The Kazakh government is continuing its rescue work in the banking sector that was almost destroyed by the 2008 crisis and the lesser shock from the 2014 collapse of the oil prices.  The government and the central bank have been pushing forward rescue packages for the largest banks. They were launched last year and will continue in 2019.

Lingering difficulties might still be troubling the Kazakh banking sector despite last year’s $7.5bn bailout by the state. The country’s second largest lender, Tsesnabank, received €1.1bn in support from the central bank in the fourth quarter  and also appears to be exposed to bad loans in the agricultural sector.

The International Monetary Fund has criticised the Kazakh sovereign for doing not enough in restructuring local banks. Recent capital injections might prove insufficient for removing systemic risk going forward.

The country’s banking sector—still not fully recovered from the 2008-09 financial crisis—has been hit by a rise in bad loans since the slump in world crude oil prices and the tenge free-float in 2015, which depressed the entire Kazakh economy for two years until it switched trajectory and headed for recovery in 2017. The bailing out of Kazakhstan's largest banks has included a merger deal between KKB and Halyk, turning Halyk into the biggest Kazakh lender.

Funding and finance

In 2018 Kazakhstan got its first every euro-denominated Eurobond away and may tap the markets again in 2019. Kazakhstan sold a dual tranche transaction consisting of €525mn of a 1.55% Eurobond due in November 2023 and €525mn of a 2.375% bond due in November 2028. The combined order books exceeded €3.3bn compared to the €1.05bn allocation. The move marked the first time ever that a euro-denominated transaction came from the Kazakh sovereign.

The Central Asian country is among many emerging market nations that have switched to euros due to the growing gap between US and European interest rates. Kazakhstan has prioritised dollar sales for the past 20 years with its dollar debt in July 2015 peaking at $4bn in 10-year and 30-year notes.

Kazakhstan’s foreign currency debt ratings are BBB with a stable outlook from Fitch, BBB- (stable) from S&P and Baa3 (stable) from Moody’s. Kazakhstan last sold dollar debt in July 2015, when it raised a record $4bn in 10-year and 30-year notes. Astana is more and more looking at expanding the geography of its borrowing, with plans also including yuan-denominated securities.

RBI International analysts said last week that their “current recommendation on Kazakh eurobonds is ‘Hold’ taking into account the latest macro improvements while the medium-term outlook is positive due to a stronger likelihood of a positive re-rating of Kazakhstan by the leading rating agencies in 2019”.

Kazakhstan may attempt to list its oil and gas company KazMunayGaz (KMG) state oil company in London in 2019 and has already invited investment banks to bid on organising the tender, it was reported in September. KMG accounts for 28% of the total crude oil and gas condensate output in the Central Asian nation.  

The news indicates progress in the Kazakh government’s plans for initial public offerings (IPOs) of the largest state-run companies, which are set to be floated in 2018-2020 with the goal of selling stakes of at least 25% in each company.

Other names on the privatisation list are the world’s biggest uranium miner Kazatomprom, national carrier Air Astana and soon-to-be near monopolist of the local telecoms market Kazakhtelecom.

At least five more IPOs of large state-owned companies are expected to take place within the next two years, culminating in national oil producer KazMunaiGas’ (KMG’s) listing that is expected to bring the privatisation phase to an end in 2020.

In hope of drawing in liquidity to the newly launched Astana stock exchange, the government wishes to also partially list the firms domestically. The exchange, however, is apparently not in a position to list KMG until the second half of 2019. This would be in line with the previously announced plans. The government hopes to provide a boost to its Astana International Financial Centre (AIFC) which was officially launched in December 2018. It is designed to become a banking and trading hub for all of Central Asia.

Kazakhstan’s capital market may go through major change in 2019 having been hooked up to the Clearstream international settlements system in July 2018. Russia made a similar reform in 2012 and saw foreign investors flood into its bond and stock markets.

Kazakhstan’s central bank announced on June 15 that it planned to start clearing Kazakh government bonds and central bank notes via Clearstream. German stock market operator Deutsche Boerse-owned Clearstream was making final tests in Kazakhstan in the summer. The tie-up is part of an overall ongoing drive in Kazakhstan to shift its focus in favour of foreign investment. Clearstream will provide easier access to Kazakh government and central bank securities and thus make them more attractive to foreign investors. At the same time, this will allow the ex-Soviet country to borrow at more competitive rates.

In January 2018, Kazakhstan’s finance ministry and Astana International Exchange (AIX) stock exchange signed an agreement to enable the clearing of Kazakh securities via Euroclear. Settlements via Euroclear are expected to launch in 2019.

Foreign investors held KZT444bn (€1.14bn) or 10.2% of the central bank’s outstanding short-term notes as of May 1, according to the regulator's data, but if Kazakhstan follows Russia’s experience this could double in 2019.


Kazakh president Nursultan Nazarbayev remains in complete control of the country but has yet to name a successor. He dominates the political scene and no major changes are expected in 2019. However, Nazarbayev's rule is marked by the fact that he is willing to delegate responsibility to ministers and give them their head in making market-orientated reforms.

Kazakhstan and Kyrgyzstan were the only Central Asia improvers in the World Bank’s Doing Business 2019 ranking. Kazakhstan saw its position improve to 28th from 36th among the 190 ranked economies. Kyrgyzstan rose seven places to 70th.