Kazakh National Bank Publishes The Preliminary Results Of Balance Of Payments For The 4th Quarter And For The Entire 2016

Kazakh National Bank Publishes The Preliminary Results Of Balance Of Payments For The 4th Quarter And For The Entire 2016

The National Bank of Kazakhstan has published the preliminary results of the balance of payments for the 4th quarter and for the entire 2016. According to the data, there was a deficit of the current account at the amount of $2.6 billion (which is worse by $837 million qoq and by $1.3 billion yoy). For the whole year, the negative balance of current account amounted to $8.2 billion, which is also worse than last year’s $5.5 billion.

The National Bank of Kazakhstan has published the preliminary results of the balance of payments for the 4th quarter and for the entire 2016. According to the data, there was a deficit of the current account at the amount of $2.6 billion (which is worse by $837 million qoq and by $1.3 billion yoy). For the whole year, the negative balance of current account amounted to $8.2 billion (6% of GDP), which is also worse than last year’s $5.5 billion (3% of GDP).

The main factor in the deterioration of the current account in 2016 was the trade balance, which fell to $9.4 billion in 2016 (-$3.2 billion, -26% yoy).

Under the influence of global commodity prices, there has been a significant decline in export earnings by 20% yoy (with a decrease in the price of Brent crude oil by 17% yoy to $43/barrel). At the same time, imports declined by only 18% yoy, the rate of decline slowed, as compared to 2015: -23% yoy. The import of non-food consumer and capital goods decreased significantly (machinery and equipment (-26% yoy), metals and metal products (-25% yoy), footwear and textile products (-26% yoy).

Thus, the decrease in the trade balance to a minimum $9.4 billion in 2016 led to the deepening of the current account deficit to a very low figure of $8.2 billion. In this regard, an improvement in the balance of secondary income and the balance of services slightly supported the current account: net payments for these types of operations have decreased from $6.7 billion to $5.1 billion in 2016.

In 2016, there was a net inflow in financial account, which amounted to $9.3 billion and compensated a significant current account deficit. The net inflow mainly occurred due to the balance of direct investments: there was a record $14.3 billion of net inflow, for comparison, $3.4 billion in 2015. The largest inflow of FDI was observed in the 3rd quarter in the amount of $7 billion.

The balance of portfolio investments was characterized in the first half of the year by the acquisition of foreign assets by the National Fund, as well as, by the repayment of liabilities (i.e. an outflow of funds) for the whole year at $1.9 billion (mainly banks and public sector). So that the net outflow of portfolio investment amounted to $692 million (in 2015 – a significant inflow of $ 5.9 billion due to the use of foreign assets of the National Fund and the growth of the non-banking sector loans).

Banks repaid eurobonds and foreign liabilities in the amount of $813 million in 2016, which is two times less than in 2015, and also acquired foreign assets (especially, we note the sharp rise of $1.6 billion in 3 quarter 2016). As a result, there was a net outflow of capital from the banks in 2016 of $2.6 billion (in 2015, the inflow of $ 0.8 billion).

The total balance of payments, taking into account the errors and omissions, was in deficit of $256 million, which was financed from the international reserves of the NBK.

Under the conditions of tenge free-float and tenge devaluation in 2015, we note a mild reaction of the trade balance to the changes the national currency rate.

According to our expectations, the rise in price of imports and, consequently, its’ more significant reduction would have supported the trade balance, and in effect, improved the current account deficit. However, by the results of 2016, the current account deficit increased. According to NBK, this was the result of increase in the volume of investments in oil and gas projects. Apparently, the increased investment in the country contributed to a smaller reduction in the import of goods, due to the acquisition of capital goods for projects. With the expansion of production capacity in the oil sector by foreign investors, this situation will continue in the coming years.

The influx of foreign investment in general is a beneficial effect, but its narrow focus in the mining sector will contribute in the current situation to a higher dependence of the balance of payments on commodity prices. Therefore, the volatility of the national currency will be a negative side effect.

Note that the recovery in oil prices supported earnings of exporters in Q3 and Q4 of 2016 (which resulted in the growth of exports by an average of 10% qoq).

However, for the whole year, due to the general decline of exports, high volume of investments in oil and gas projects, increased payments of dividends (income of foreign investors from direct investments increased by $1.6 billion yoy) and a high cost of imports led to a deterioration of the current account in comparison to the past year.

Thus, the balance of payments in 2016 closed with a deficit of $256 million, which is less than the deficit in 2015 of $763 million. This indicates a slight improvement in the country’s external accounts, but this improvement was not due to the growth of export earnings and improvement of trade balance, but as a result of a strong inflow of direct investments and a significant decrease in the item of “errors and omissions” from $5.4 billion to $1.7 billion. This decrease is probably associated with a reduction in the outflow of capital in 2016 by transactions, which are not classified in the balance of payments (a large value in 2015 may be associated with the outflow of capital at the time of fixing the exchange rate of tenge and devaluation of the ruble to the dollar).

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