Kazakhstan will inject a total of $15 billion this year into its slowing economy, hit hard by the global credit crunch, the government said on Monday.
Earlier in the day, rating agency Moody’s said its outlook for the Kazakh banking system was negative due to problems with asset quality and funding as well as falling commodity prices. Prime Minister Karim Masimov told a government meeting the money would consist of $10 billion from the Kazakh national wealth fund, a move announced last week. And a further $5 billion would be injected by the central bank and the government separately to boost liquidity in the banking sector, he said. “So overall a total of $15 billion will be poured into the economy before the end of this year,” Masimov said.
Central Asia’s biggest economy and oil producer has suffered badly from the global liquidity squeeze after years of rapid growth fuelled by aggressive foreign borrowing by local banks. Speaking on the sidelines of the same meeting, Finance Minister Bolat Zhamishev said the central bank would contribute to the scheme by relaxing minimum reserve requirements, thus unfreezing cash stored in reserve accounts. “This will free up an estimated $4 billion,” he said. The government will invest a further $1 billion into a distressed asset fund it plans to set up this year to buy out bad loans.
Overall worries about the economy persist. The government expects gross domestic product growth to slow to 5.3-5.5% this year after averaging about 10% since 2000. The International Monetary Fund sees growth at 4.5%.
The credit crunch has raised concerns about Kazakh banks’ ability to refinance debt, and has stalled broader economic growth. Banks have so far been able to refinance the bulk of a total of about $12 billion in debt scheduled for this year.
Moody’s said it was too early to judge how additional stabilization funds would affect bank rankings in the country. In its report, Moody’s said pressure on asset quality was building with borrowers, both corporate and retail, struggling to repay their debts. But strong bank profits were seen providing a cushion against potential losses.
Roman Solodchenko, head of Kazakhstan’s No 1 bank, BTA, expressed confidence in the state rescue package, telling reporters on Monday it was enough to cushion the economy. The broader market appears to share less confidence. Last week, when the original $10 billion package was announced, the price of insuring Kazakh debt against default continued to rise with credit default swaps (CDS) for some banks quoted between 3,000 and 5,000 basis points last Friday. Solodchenko said the Kazakh banking sector had stabilized and CDS prices were driven by sentiment and not fundamentals. He said: “If we were to believe CDS spreads, then there should be no banks left in Kazakhstan already.” (Reuters)