Kazakhstan economy causing alarm
By David Oakley
Published: May 8 2008 01:24 | Last updated: May 8 2008 01:24
Alarm bells have been sounded about Kazakhstan for the second time in a week, with warnings that the economy is dangerously exposed because of years of rampant borrowing by banks and an unprecedented construction boom.
Standard & Poor’s, the ratings agency, said on Wednesday that the Kazakh banking system has reached a decisive juncture, with the credit crisis creating big problems for the refinancing of $14.8bn of debt that matures this year.
EDITOR’S CHOICE
Kazakh leader’s former son-in-law sentenced - Mar-26Kazakhs warn Mittal over safety - Feb-19Kazakhstan pursues strategy of enrichment - Feb-19Kazakhstan to take back resources - Feb-14Kazakhstan hopes for price fall, not meltdown - Jan-29Lex: Kazakhstan oil - Jan-14It also raised concerns over the property bubble, which could stall the country’s impressive annual growth rate of 10 per cent over the past five years.
Property prices have dropped 30 per cent since their peak last year.
Last week, the agency revised Kazakhstan’s credit outlook to negative from stable because of the increasing risk of deteriorating bank asset quality that could weaken the fiscal position and external balance sheets.
Kazakhstan is rated on the lowest rung of investment grade, so a downgrade would have significant implications because it could put a brake on foreign investment as many funds can only buy investment-grade assets.
Ben Faulks, credit analyst for Kazakhstan at S&P, said: “Kazakh banks are far more vulnerable than their peers because $14.8bn in debt matures this year. The international environment means they are facing higher lending costs to refinance.
“However, the country is on negative outlook rather than facing an immediate downgrade because they have built up their fiscal fund and they have oil in the ground. Even if the oil price falls sharply, it will still remain high relative to a few years ago.”
S&P’s report said: “In the near term, the largest threats to stability and prosperity in central Asia arise from the consequences of irrational exuberance during the resource boom. They are most evident in Kazakhstan, where rampant credit growth and an unprecedented construction bonanza have created serious economic imbalances.”
The report added that construction was 11 per cent of the country’s gross domestic product in 2007 against 4 per cent three years before, which means any downturn in the property sector will have greater consequences.
Copyright The Financial Times Limited 2008
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