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FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT OCTOBER 2006 KAZAKHSTAN STOCK EXCHANGE ECONOMIC AND POLITICAL DEVELOPMENTS Politic and Economic Environment Mr. Nazarbayev has weathered criticism of his December 2005 re-election, which was widely perceived as flawed by international observers. However, evidence of persistent conflicts within the elite supports the widespread perception that his current seven-year term will be his last. The issue of the eventual succession will therefore dominate Kazakh politics for the foreseeable future, with some risk that Mr. Nazarbayev might not see out his full term. Kazakhstan seeks to chair the Organization for Security and Co-operation in Europe (OSCE), and has passed a few political reforms to appease international critics of its bid. The organisation's monitors delivered an unfavorable report on the conduct of the 2005 presidential election, and recent highprofile murders of opposition leaders have deepened concerns over the political situation in Kazakhstan. These factors are, however, offset by improving relations with the US–in turn driven by the latter's loss of a base in Uzbekistan and consequent need to strengthen ties with the remaining Central Asian states. Cordial relations with the US should ensure the success of Kazakhstan's chairmanship bid. Mr. Nazarbayev opened his new term in office with a pledge to put Kazakhstan among the 50 "most competitive" countries in the world, through economic modernization, diversification and a "modern" social policy. The president instructed the government to work out the details for achieving these aims, but he also criticized various failings at ministerial level, most of which were related to the need to streamline the state administration. He also named as policy priorities the fight against inflation, a closer monitoring of rising external debt and stronger anti-monopoly supervision. Economic Performance Preliminary estimates put real GDP growth at 7.7% year on year in the first quarter of 2006, compared with 9.1% year on year in January- March 2005. Growth will accelerate over the remainder of the year on the back of high oil prices, as these will continue to support the expansion in domestic consumption. Growth forecast for private consumption have been revised upwards on the basis that nominal wages have continued to rise at over 20% year on year for longer than expected. Consumer prices in Kazakhstan are subject to inflationary pressure from various sources. An insufficiently tight fiscal stance– particularly its impact on public-sector wages–and massive foreign exchange inflows are the two most salient drivers of inflation, but high oil prices have also exerted considerable upward pressure on producer prices. It is therefore very unlikely that inflation will end the year within the government's desired target range of 5.7-7.6%. The lagged effects of tighter monetary and credit policies, together with a strengthening nominal exchange rate, should nonetheless help to bring consumer price inflation down in 2007, and easing oil and metals prices that year will also bring producer price disinflation. The NBK's shift in 2004 to prioritizing price stability rather than exchange-rate policy resulted in an immediate and significant appreciation of the tenge in real effective terms, indirectly confirming that the NBK had been making a considerable effort to keep the currency on a trend of depreciation. This has become especially evident in 2006, as international oil prices have surpassed US$70/b. The tenge appreciated against the US dollar by nearly 13% in nominal terms from the start of 2006 to end-June, a trend expected to continue over the remainder of the year and into 2007. Nominal appreciation, together with persistently high inflation, will ensure steady real effective appreciation.* * Economic Intelligence Unit Ltd., July 2006 Key Information Contacts Financial Institutions' Association of Kazakhstan www.afk.kz/eng/ National Bank of Kazakhstan www.nationalbank.kz Ministry of Finance of the Republic of Kazakhstan www.minfin.kz Central Securities Depository www.csd.kz/ru Kazakhstan Agency for Financial Market and Financial Organizations Regulation And Supervision www.afn.kz 2005-ORIGINS OF GROSS DOMESTIC PRODUCT (%) Industry Trade Transport & communications Construction Agriculture Other 2004-COMPONENTS OF GROSS DOMESTIC PRODUCT (%) Private consumption Public consumption Gross fixed investment Change in stocks Net exports 30.9 12.8 12.1 7.7 60 50 40 53.5 6.7 30 25.1 29.8 20 10 11.6 8.7 0 1.0 PAGE 90
FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT OCTOBER 2006 KAZAKHSTAN STOCK EXCHANGE KAZAKHSTAN ECONOMIC CHARTS AND TABLES 2001 (a) 2002 (a) 2003 (a) 2004 (a) 2005 (a) GDP at market prices (Tenge billions) 3,251 3,776 4,612 5,870 7,453 GDP (US$ billions) 22.2 24.6 30.8 43.2 56.1 Real GDP growth (%) 13.8 9.7 8.9 9.4 9.4 Consumer price inflation (av; %) 8.6 6.0 6.5 6.9 7.6 Population (millions) 14.9 14.9 15.0 15.1 15.2 Exports of goods FOB (US$ millions) 8,928 10,027 13,233 20,603 28,301 Imports of goods FOB (US$ millions) -7,945 -8,040 -9,554 -13,818 -17,979 Current-account balance (US$ millions) -1,390 -1,024 -273 455 -486 Foreign-exchange reserves excl gold (US$ millions) 1,997 2,555 4,236 8,473 6,084 Total external debt (US$ billions) 14.9 17.2 22.9 31.9 (b) 41.5 (b) Debt-service ratio, paid (%) 31.7 34.2 34.5 25.5 (b) 26.4 (b) Exchange rate (av) Tenge:US$ 146.7 153.3 149.6 136.0 132.9 (a) Actual. (b) Economist Intelligence Unit estimates. ECONOMIC FORECAST SUMMARY Key indicators 2005 2006 2007 2008 2009 2010 Real GDP growth (%) 9.4 8.2 8.5 9.7 8.7 8.3 Consumer price inflation (av; %) 7.6 8.0 7.2 8.3 6.8 6.9 Budget balance (% of GDP) 0.6 0.7 0.5 1.6 1.6 0.6 Current account balance (% of GDP) -0.9 1.9 0.7 -0.1 -0.1 -0.4 Short-term T-bill rate (year-end; %) 2.2 3.0 2.8 2.6 2.5 2.5 Exchange rate Tenge:US$ (av) 132.88 125.42 123.66 120.59 116.17 115.76 Exchange rate Tenge:[euro] (av) 165.40 160.31 171.89 160.39 149.27 144.99 2005-PRINCIPAL EXPORTS (FOB) (%) 2004-PRINCIPAL IMPORTS (%) Mineral products Food products Metals Chemicals Machinery & equipment Other Machinery & equipment Metals Mineral products Chemicals Food products Other 73.8 15.9 14.7 13.4 3.3 2.4 1.3 3.3 43.8 11.5 7.3 9.3 2005-MAIN DESTINATIONS OF EXPORTS (%) 2005-MAIN ORIGINS OF IMPORTS (%) Switzerland Italy France China Russia Other Russia USA Germany China Ukraine Other 15.0 10.5 9.6 38.0 7.5 7.2 6.9 19.8 8.7 4.9 36.4 35.5 Source: Economist Intelligence Unit ViewsWire PAGE 91
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