Road maps and their confusing traffic signs

Numbers in zillions are poured down almost on a daily basis on media audiences in Kazakhstan where it comes to explanations where people’s tax money has gone, is going and is yet to go in terms of the “Road Map” outlined in fall last year to streamline the economy’s recovery from the current financial turmoil. Provisional statistics, though, demonstrate that even if overall macroeconomic stabilisation seems within reach, recovery remains a long way off and for common people, sufferings are just about to start. A recent opinion poll suggests that a majority of Kazakh families seems to have drained their reserves while the upper echelons of the economy imploded. Before the eventuality of a recovery ripples to the people, the latter expect their situation to become worse – not better.

by Charles van der Leeuw, KZW senior contributor

Road maps and their confusing traffic signsIn his latest speech held in Parliament while addressing the nation, the President of Kazakhstan put the amount of public funds meant to support the country’s economy in turmoil at 2 trillion 700 billion Kazakh tenge – around 13 billion euro or 18 billion US dollar according to current exchange rates. Together, the money comes from the country’s savings on hydrocarbon sales’ “surplus” (i.e. on top of budgeted sales prices) exports, accumulated in the National Oil Fund, while the remainder is coming from the Natioanal Bank’s gold and hard currency reserves.

So far, less than one-third of the funds held in reserve for the purpose has actually been allocated, according to a progress report presented to the cabinet of ministers on July 21 by Kairat Kelimbetov, the head of the Samruk Kazyna Fund which is in charge of managing the money the state is pumping into Kazakhstan’s economy. Worse: the breakdown of spendings (see table) to date shows large discrepancies. Mortages and construction projects, support for which is allocated through banks, as of mid-July had received 143.6 billion tenge, an overwhelming majority of which had gone to construction companies in order to finish projects for which new owners, with shares in the project as collateral, had already paid without the real estate having been delivered – at least according to the main breakdown presented by Kelimbetov.

Looking at details as reported by the Kazakhstanskaya Pravda, what looks like another inconsistency appears. Banks have used 4.3 billion tenge to “fund” 15 “objects”, the article reads, with another 23 objects haveing been “approved” without any amount being mentioned. Refinancing stranded mortgages represents another riddle: according to the newspaper’s report, banks have “approved 23,803 applications” worth 112.9 billion tenge and “refinanced 25,424 borrowers” for the amount of 98.5 billion tenge. Whether these posts are additional or included is not clear from the text.

What this is supposed to mean for the overall national economy of Kazakhstan remains highly affirmative. Generally speaking, state officials seldom cease to stress the macroeconomic effects of the public sector’s attempts to stem the waves of economic contraction, and Kazakhstan seems to be no exception to that rule. The country’s GDP increased by a net “more than” 3 per cent from the first quarter of this year to the second one, thereby reducing the first quarter’s net decline of 2.2 per cent year-on-year to the order of 1 per cent, Reuters reported on July 21, quoting government sources.

This, in the words of PM Karim Massimov, should clear the way for a full-year growth as early as the current year, promising that in the third quarter of the year “… we will be able to show positive dynamics”. Nevertheless, sideliners tend to agree that 2009 will result in a net on-year decline in the economy of around 1.5 per cent. Even into the new year, the government would uphold its projection of a full-year growth in GDP for 2009 of 4 to 4.5 per cent.

Government figures on the overall socioeconomic conditions in Kazakhstan (as in most countries all over the world, for all it matters) should be treated with even more caution than sheer macroeconomic ones. Thus, while the state statistics agency insists that the average salary in Kazakhstan stands at 65,000 tenge per month, meaning almost five times the “subsistence level” which it puts at 13,300 tenge. According to the poll, though only 11 per cent of the interrogated people claimed that they have “not enough money for basic needs”, a staggering 64 per cent “… said they could only basic products”. Given the fact that even though in the countryside prices are known to be lower, prices for food and services in Almaty forbid maintenance at an income in the order of 65 euro per month, even for those who do not have to pay rent and get services at discounts.

This can only mean that maintaining the statistics agency’s figures, three-quarters of Kazakhstan’s population is living on or below the poverty line, while the difference between average income and survival levels is divided over no more than 15 per cent, given the estimate that in the order of 10 per cent has income above the average – as suggested by IRI which mentions the fact that “… only 3 per cent [of the families] said they could ‘afford almost whatever we want’.” In previous declarations, state officials have repeatedly claimed that the percentage of people on or below the poverty line in Kazakhstan was less than 20 per cent.

The fact that in the opinion poll a much lesser percentage than those in the range from poor to starving appears to have seen their situation grow worse of late, can only mean that families have been draining on cash reserves through the winter. Gloomy forecasts by the interrogated, according to two-thirds of whom the overall economic situation for people down the line cannot be expected to improve in a tangible manner this year, confirm that assumption. The fact that inflation and skyrocketing consumer prices in Kazakhstan score high among people’s fears further indicates that the devaluation in early spring has not impressed many people, and that there is more reason to fear another one than to hope for one.

Authorities seem to be or the same opinion. A recent outburst of rumours on Almaty’s currency trading floor that another devaluation may be in the air led to furious reactions by the National Bank, whose governor Grigory Marchenko was quoted as exclaiming that people who spread such rumours should be “punished”. Looking at figures, though, one more devaluation is not the main danger hanging over Kazakhstan’s monetary situation. For even though the government claims that inflation is “under control”, figures suggest that while keeping the tenge stable against the dollar, letting it slip against the euro and the rouble directly affects the prices of imported goods, the bulk of which originate from the European Union and the Russian Federation, in a negative manner.

After the devaluation in late February, which brought the Russian rouble up from 3.4 tenge to 4.2 tenge, the euro from 155 to 190 tenge and the greenback from 120 to 150 tenge, the situation has changed significantly. Whereas the rouble has gained in the order of 7 per cent against the European single currency and of 15 per cent against the dollar, the Kazakh national currency has lost considerably more against its European and Russian counterparts ever since (see table), whereas the rouble has posted sutstantial gains against the euro and the US dollar in the same period. Similar trends as in Kazakhstan, for all it matters, are visible in Armenia, Kyrgyzstan, Tajikistan and Uzbekistan – with the difference that national currencies’ losses against the US dollar are higher than in Kazakhstan whereas those against the euro more or less equal them.

The most remarkable observation, however, that can be made from the poll’s results is that socioeconomic deterioration remains far from translating itself into sociopolitical turmoil, as it has done recently in Kyrgyzstan, Georgia and to some extents even in Uzbekistan. Even though overall support for the government and its policy in facing the crisis has dwindled from 92 per cent in a similar poll held in August last year to 87 per cent in May this year, and only 46 per cent of the interrogated cherish the possibility of an economic recovery before the end of the current year, approval of state policies remains overwhelming. But the overall message is nevertheless that state officials should be cautious in their statements and stress the fact that ongoing measures are meant to prevent things from getting worse rather than improve instantly – a kind of interpretation Massimov often voices himself.

Overlooking the figures presented, the rough conclusion could be that the government seems to be in no hurry to allocate too much of the impressive amount it keeps in reserve, and where the state has already jump in, banks keep dragging their feet. With reporting suggesting that markets’ response to state support measures often comes with reservations, there is reason for observers to keep some caution. After all, the public sector’s household book does not leave much room for further major financial injections.

According to news reports from early April, the latest adjustment of Kazakhstan’s state budget for this year is to result in expenditures of 3.411 trillion tenge – against projected income of only 2.8374 trillion. Further budget cuttings could jeopardise the ambitious projects of public works: schools, hospitals, roads, railways, airports, gas, water and power transportation facilities and what else. These are provisions not only vital for the continuation of a minimum level of well-being for the overall population, but also necessary for the development of Kazakhstan’s much-desired industrialisation.

UPDATE OF KAZAKH STATE ECONOMIC SUPPORT MEANS AND ALLOCATIONS AS OF JULY 23, 2009
(in billion Kazakh tenge; 1EUR=KZT215; 1USD=KZT151 as of mid-July 2009)

total overall amount reserved 2,700.0
reserved by the National Fund 1,087.5
allocated by the National Fund: 766.8
– banking and finance support 476.0
– mortgage refinancing 120.0
– construction/real estate partnerships 23.6
– small and medium-size enterprise 120.0
– industrial innovation 27.2

source: Kazakhstanskaya Pravda

EXCHANGE RATES OF THE KAZAKH, RUSSIAN NATIONAL CURRENCIES END FEBRUARY/MAY 2009

  Russian rouble Kazakh tenge
euro 45.35/43.48 190.31/210.93
US dollar 35.72/30.98 150.43/150.44
Russian rouble 4.21/4.85

source: CIS Interstate Statistics Committee

MAIN RESULTS OF IRI’S OPINION POLL OF MAY 2009

item                                 amount in KzT       percentage
household monthly income                   <25,000               30
                                     25,000-60,000               47
                                           >60,000               23
financial situation – worse                                      38 (31)
                    - stable                                     39 (45)
                    - better                                     20 (24)
situation factors   - high prices                                32
                    - unemployment                               25
                    - low income                                 20
                    - corruption                                 <5
                    - housing                                    <5
                    - crime                                      <5
                    - education                                  <5

source: IRI

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