Risk drivers and outlook

In 2015, the Kazakh economy was hit hard by a triple external shock: the sharp drop in oil prices (the country’s main source of current-account receipts and public revenues), the economic crisis in Russia (and the sharp depreciation of the rouble), and the slowdown in China, its main trading partner. As a result, Kazakh current-account receipts collapsed and the current-account balance turned into a deficit in 2015. Besides, the currency depreciated sharply. Also, external debt and debt-service ratios deteriorated, pushing up the financial risk – partly mitigated by Kazakhstan’s external assets and the large share of the intercompany loans in its external debt – to high levels. Looking ahead, the current-account deficit is expected to narrow as of this year. However, the damage done to the banking sector continues to cloud the outlook. Indeed, lending conditions remain tough. Moreover, the public sector still has to support the banking sector, and this weighs further on the public finances which were already hit by the sharp drop in oil prices. In this context, public finances have worsened but the general government-debt ratio remains at a favourable level.

Weak real GDP growth performances, extremely poor lending conditions, a weak currency and the difficult business environment explain why the systemic commercial risk is in the worst category (C on a scale from A to C). On the positive side, the decision to let the currency float in 2015 decreased pressures on foreign-exchange reserves. It bodes well for the short-term political risk which reflects a country’s liquidity. Credendo’s short-term political risk is currently in category 3/7 partly as the short-term debt – which is still considered as moderate – is on an upward trend. In a relatively stable political environment, the high level of external indebtedness, pressure on current-account and fiscal balances, and high reliance on natural resources are the main factors for classifying the country in category 6/7 for the MLT political risk.

Facts & figures


  • Vast natural resources
  • Flexible exchange rate
  • Low general government debt


  • High reliance on natural resources
  • Weak banking sector
  • High external indebtedness

Head of State

  • President Nursultan Nazarbayev

Head of government

  • Prime Minister Bakytzhan Sagintayev

Description of electoral system

  • Presidential elections: 5-year term; most recent in April 2015
  • Legislative elections : 5-year term; most recent in March 2016


  • 17.5 m

Per capita income

  • USD 11,390

Income group

  • Upper middle income

Main export products

  • Oil and gas condensate (48.8% of current-account receipts), manufactured goods (10.1%), ores and metals (7.7%), transport services (6.6%), food (2.9%), and tourism (2.8%)

Country risk assessment

Uncertainty about the president’s succession in a context of mounting social discontent

President Nursultan Nazarbayev – in power since Kazakhstan became independent in 1991 – was re-elected for a 5-year term in April 2015. Early parliamentary elections took place in March 2016 in order to reaffirm the ruling party’s control over the legislature. In March 2017, parliament passed constitutional amendments aiming to transfer powers from the president to parliament and government. As a result, presidential responsibilities focus on foreign policy and national security. The government has a large say on social and economic programmes whereas parliament has a greater role in formation and oversight of the cabinet.

The political scene has been very stable so far. The main question relates to the succession of the ageing president, who is a key figure for political stability in the country. Indeed, the president is popular, winning credit for political stability, raising the standard of living and the emergence of a middle class. He has built a system based on patronage network.

Amid deterioration of the economic environment and the sharp depreciation of the tenge in 2015, the first signs of social discontent appeared. Inter-elite dynamics are also likely to be impacted as the regime has fewer resources to divide among powerful elites and clans. What is more, like in other countries in the region, growing Islamism is also a source of concern for the authorities. That being said, it might also be used as an excuse to tighten state control over civil society.

Kazakhstan – a close ally of Russia and member of the Eurasian Union – tries to maintain good relationships with Russia, the West and China. However, Russia’s intervention in Ukraine unnerved Kazakhstan, where about one fifth of the population is of ethnic Russian origin. Relations with China – a key trade partner and investor – are rather good. Kazakhstan took part in China’s One Belt, One Road project.  However, the population is often sceptical. For instance, last year, protests – which are uncommon in Kazakhstan – erupted following the authorities’ attempts to modify the land code. Indeed, it was feared that these modifications would lead to large privatisations of farmlands and would open the door to land ownership by Chinese investors.

Improving growth prospect but major challenges remain

Following years of strong growth (on average slightly more than 7% between 2000 and 2014), the Kazakh economy has been hit hard by a triple external shock: the sharp drop in oil prices (the country’s main source of current-account receipts and public revenues), the economic crisis in Russia (and the sharp depreciation of the rouble), and the slowdown in China, its main trading partner. In 2014, the stimulus package ‘Nurly Zhol’, aimed at addressing infrastructure bottlenecks and generating jobs, went into effect and helped to offset the first impact of the external shocks. However, as headwinds worsened further, GDP growth slowed down to 1.2% in 2015 and 1.1% in 2016. This year, real GDP growth is expected to pick up to 2.5% as oil production increases thanks to positive development in Kashagan field.

In the forthcoming years, growth prospects are likely to improve given development in the oil sector and the ongoing ambitious structural reforms. However, major challenges remain. The economy is heavily reliant on China and natural resources, and thus vulnerable to swings in commodity prices. The weak banking sector is unable to support the economy and could weigh on public finances.

Ambitious structural reforms 

The transition from a heavily centralised economy to a market economy is ongoing. The business environment is improving albeit from a low base. Corruption remains high, the country ranks 131st in the 2016 Corruption Perception Index of Transparency International (the same rank as Russia and Ukraine). On the positive side, it ranks 35th in the World Bank Ease of Doing Business Index 2017, a strong improvement compared to its 51st rank in 2016. Kazakhstan joined the WTO in November 2015.

The public sector continues to play a large role in the economy, notably in natural resources and mining as highlighted by the large size of the state investment holding company Samruk Kazyna. In 2015 the government launched a wide-ranging reform programme (‘100 concrete steps’) aimed at improving efficiency of public administration and the rule of law, diversifying the economy and addressing governance challenges.

The authorities also announced a large privatisation plan aimed at reducing the role of the state in the economy. Stakes in oil and gas company KazMunayGas, uranium company Kazatomprom, railway company Kazakhstan Temir Zholy, airline company Air Astana and mining firm Tau-Ken Samruk will be included in the privatisation process. This represents the most ambitious privatisation programme since the country gained independence in 1991. The decision to sell stakes in some large state-owned enterprises is likely to attract foreign investors. However, it is likely to be a difficult task given the current depressed context and as the authorities have amended contracts and legislation to their own benefit in the past. Moreover, the retention of a government majority (or ‘golden share’) may dampen investor interest.

Deterioration of the external sector

The oil sector, which accounts for nearly 50% of the current-account receipts in 2016 (down from 60% in 2014) and for around 30% of general government revenues in 2017 (down from nearly 50% in 2014), is of course under severe pressure as oil prices are expected to remain low for an extended period. Current oil production is dominated by two giant fields, Tengiz and Karachaganak, which produce about half of Kazakhstan's total oil output. The oil production in Kashagan restarted in October 2016 following an interruption just after production went on stream in 2013. The increase in oil production put pressure on Kazakhstan’s commitment under the OPEC and non-OPEC agreement aimed at reducing oil output.

As a result of the sharp drop in oil prices as of mid-2014, the current account turned into a deficit in 2015 and widened further in 2016. More worryingly, current-account receipts halved between 2013 and 2016, which led to a sharp deterioration of the external balance. Imports, especially of consumer durables and investment goods also dropped sharply. On the positive side, FDI in the oil and gas sector increased significantly in 2016 and is likely to remain relatively high over the coming years partly thanks to the expansion of the Tengiz oil field and the privatisation plan.

As of this year, the current-account receipts are expected to rebound after three consecutive years of decline and the current-account deficit is expected to narrow. This positive trend is expected to continue over the coming year if commodity prices remain relatively stable.

Foreign-exchange reserves have slightly decreased in absolute figures and are adequate as they cover more than three months of imports and almost two times the relatively low but sharply rising short-term debt. In this regard, the Central Bank’s decision to let the tenge float freely in August 2015 rather than to defend a trading band to the USD, is a positive step as it safeguards the foreign-exchange reserves. However, this decision led to a sharp depreciation of the exchange rate in 2015 (cf. graph). Since 2016, the tenge has showed a positive trend again as it has been slowly appreciating. After a surge to 13.6% at the end of 2015, inflation pressures have declined along with the appreciation of the exchange rate. Inflation rate is likely to reach around 7.5% by the end of 2017.

Weak banking sector 

While it was still recovering from the banking crisis of 2008, the banking sector was again badly hit in 2015. Indeed, the sharp depreciation of the domestic currency (more than 45% against the USD in 2015) and difficult economic condition led to a deterioration of the quality of the assets, profitability and lending conditions. The sector has long been clouded in poor lending practices, opacity of ownership, and reliance on state support. A major difference compared with 2008 is that the banking sector was no longer reliant on external funding as it had a positive net foreign-assets position compared to a very large negative assets position (of more than 20% of GDP) at the end of 2007.

In December 2016, the National Bank of Kazakhstan (NBK) intervened in two small banks, closing one. This led to a deposit flow to banks perceived as safe. The largest bank, Kazkommertzbank (KKB) was also in a difficult position and is likely to be purchased by Halyk, the second largest bank. The new entity will account for nearly 40% of the assets of the banking sector. In order to support the operation, the state took over about USD 8 bn of bad loans to clean the KKB’s balance sheet. The bad assets were put in the Problem Loan Fund for resolution. Other mergers are considered. For instance, the third largest bank, Tsesnabank, is considering acquiring Bank Centrecredit.

The banking sector difficulties are not without consequences for households and enterprises. Access to credit is very limited. Large interest rates make loans too expensive for many households and enterprises. Private credit to GDP ratio dropped from 63% in 2014 to 54% in 2016. This weighs heavily on the systemic commercial risk.

The weak banking sector is unable to support the economy in the short term and represents a risk for the public finances. The authorities provided support via deposit placement and a subsidised lending programme. This year, the state support to the banking sector is likely to reach around 4% of GDP. This is likely to be financed by the National Fund for the Republic of Kazakhstan and to increase public-sector domestic debt.

Despite the sharp increase in fiscal deficit to 6.3% in 2017, general government finances are solid. Indeed, the level of general government debt is low and expected to remain relatively stable (slightly above 20% of GDP in 2016) even if public debt has sharply increased recently. The size of the state-owned enterprises’ debt is difficult to assess given the lack of transparency, and represents a contingent liability for the government given the large size of their activities.

Risks related to sizeable gross external debt are partially mitigated

The gross external debt ratios have increased sharply since 2013, and in 2016 they reached a very high level of respectively more than 300% of current-account receipts and 120% of GDP. As the current-account balance is expected to improve in 2017 with higher oil production and non-oil exports, the gross external-debt ratios are expected to decrease gradually in the coming years but to remain at a relatively high level.

Along with the increase in external debt, the debt-service ratio has increased dramatically in relative terms (also because the current-account receipts decreased sharply) and is expected to remain above 30% of current-account receipts in the coming years. The financial risk is thus rather high. That being said, Kazakhstan disposes of external assets in its sovereign wealth fund (the National Fund for the Republic of Kazakhstan) worth 45% of GDP in 2016. This mitigates somewhat the financial risk along with the fact that around the half of gross external debt consists of intercompany loans.