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Jan 09Jul 09Jan 10Jul 10Jan 11Jul 11Aug 09Feb 10Aug 10Feb 11Aug 11COUNTRY REPORT: KazakhstanOutlook: NeutralS&P Moody's Rates Policy 3m 5y 10y[30-Sep-2011]Rating (LC) BBB+ Stable Baa2 Negative7.50% 1.75% N/a N/aEconomy and Market OutlookOn the back of strong industrial and agricultural output, persistently high and rising commodity pricesand rising mining production, the Kazak's GDP has recorded a respectable 7% expansion in the firstpart of the year. Going forward, the growth in the second half of the year is expected to moderate dueto a recent slowdown in private consumption, downturn in external demand globally and stagnant oilprices. Robust growth to date, elevated retail sales stemming from strong wage growth coupled withhigher global soft commodity prices have all fuelled inflationary pressures in the economy, whichprinted in July 12.8% on the annualised basis. The favourable weather conditions, and in turngreater harvests, coupled with softer domestic demand are expected to mitigate some of theinflationary pressures felt in the economy earlier this year, bringing the year-end CPI to around 7-7.5%. With respect to the balance of payment, a windfall of oil related revenues and a strong growthin mining production significantly improved terms of trade, with the current account surplus printingUSD4.8bn in Q1 and year-end forecasts currently at 6% of GDP. Lead by the FDIs into the miningsector, the net capital inflows are expected to continue in the second part of the year, nonetheless asrepeatedly voiced by Governor of the Central Bank, the tenge will not be allowed to appreciaterapidly. Despite a strong revival of economic activity in the country thus far, the banking systemremains burdened by a high volume of non-performing loans, 32.9% of total loans in the system as ofend-July. This is further exacerbated by a virtually non-existent private credit growth, which in turnadversely effects investment activity in the country. Notably, private investments in Kazakhstan grewon year average only 0.3% in the first half of 2011.250.0230.0EUR/KZTJPY/KZT2.001.8010.09.0CPI y/y %210.01.608.0190.01.407.0170.01.206.0150.01.005.02010 2011 (f) 2012 (f)Real Growth (%) 7.0 6.5 5.9CPI (%)* 7.8 8.4 7.2Current account (% GDP) 4.3 6.8 5.4Fiscal balance (% GDP) 1.5 1.8 1.7Government Debt (% GDP) 10.7 12.9 13.0Daily volumesFX Reserves*End of YearSpot FXUSD200 - 300 mn35bnSource: IMF, S&P, Bloomberg, BarclaysPoliticsPresident: Nursultan NazarbayevKazakh‟s foreign policy has made concertedefforts at further closing ties with neighbouringcountries in a bid to encourage economicdevelopment and improve terms of trade.Economic and security links with Russia andBelarus remain strong, especially now, sincethe initiation of the custom union between thecountries in 2010. Importantly, the abundanceof hydrocarbons in the country, has led toimproved links with China, as the latterattempts to secure the access to variousnatural resources in order to fuel its economicexpansion in the future.35Confidential – not for redistribution. This material must be read in in conjunction with the “Important Information” statement provided on the last herein. page.