Kazakh economic recovery accelerating – IMF-INTERVIEW
June 3. Reuters
By Robin Paxton
* May raise 2010 GDP growth forecast to 4 pct from 2.5 pct
* Sees annual inflation at 7 pct in next 2 yrs
* Banking system development key
Kazakhstan’s economy could expand by about 4 percent this year, faster than previously forecast but slow enough to avoid inflationary pressure, the International Monetary Fund said on Thursday.
David Owen, IMF deputy director for the Middle East and Central Asia, also urged Central Asia’s largest economy to make its banks less dependent on external borrowing in order to avoid a repeat of the financial crisis that caused four of them to default on their debt last year.
“The lesson for the future is that the country needs to look for a model for developing its banking system that is based on reliable domestic depositors,” Owen told Reuters in an interview. “Slower growth that is sustainable is what the country needs.”
Kazakhstan, hit badly by the global crisis, dipped into recession last year for the first time in a decade.
Higher oil prices have aided recovery and the government forecasts gross domestic product growth of 1.5-2.0 percent in 2010. President Nursultan Nazarbayev said on Thursday that GDP grew by more than 7 percent in the first four months.
Owen said the IMF would probably raise its forecast for 2010 GDP growth from 2.5 percent when its mission to Kazakhstan presents new data soon.
“We think there is significant upside potential to that, because indicators have continued to be strong. I think that the mission will come out with a growth forecast probably in the region of 4 percent.”
“It’s still a fairly modest recovery when you compare it with the growth rates that Kazakhstan was experiencing before the crisis. With the sort of growth we are projecting, we don’t see that generating significant inflationary pressures.”
Kazakhstan expects inflation of between 6 percent and 8 percent this year, and the IMF forecasts consumer prices rising by around 7 percent annually in each of the next two years.
Kazakh banks that defaulted last year, including BTA and Alliance Bank, are looking to bounce back after completing debt restructuring programmes.
Owen said the industry’s biggest challenge was non-performing loans, which account for more than 20 percent of total loans.
“If necessary, some banks may need further recapitalisation,” he said. “Only when that process is worked through will the banks be strong enough to resume the rate of lending that can contribute to overall economic growth.”
Kazakhstan, which had built up large gold and foreign currency reserves, did not request any loans from the IMF during the worst of the financial crisis and Owen said its economy was an “incredibly attractive” prospect in the medium term.
“The fact that a lot of investors made a loss on their investments has been damaging,” he said.
“It will take some time to get over that, but as investors see prospects for new profitability and see that there is a model for development – in particular in the banking sector – that is less vulnerable to shocks, then I think money will flow not just into the commodity sector but elsewhere as well.”
Owen said the economy would also benefit from removing trade barriers with neighbours, which would give investors better access to other markets in Central Asia.
“To be a very attractive centre for investment, enterprises are looking for a bigger market than any one country in the region.”
Energy exporters in Central Asia would be the quickest to recover from the crisis, Owen said, adding that the IMF expected GDP growth this year to hit 8 percent in Uzbekistan and 12 percent in Turkmenistan.
“In the case of Turkmenistan, there’s a very ambitious public investment programme under way which is attracting a lot of foreign investment.”
“They are diversifying their gas export routes, which is allowing them to expand their gas production.”
Owen forecast that lower income countries in Central Asia and the Caucasus – Tajikistan, Kyrgyzstan, Georgia and Armenia – would average GDP growth of around 3 percent this year.