BAKU, Azerbaijan, Nov. 10
By Nargiz Sadikhova - Trend:
The outbreak of the coronavirus crisis and the subsequent collapse of commodity prices has put Kazakhstan’s economy under pressure, Transition Report 2020-2021 of European Bank for Reconstruction and Development (EBRD) said, Trend reports.
On the external side, the report said, Kazakhstan faces lower commodity prices and lower demand for its exports. In line with its OPEC+ commitments, Kazakhstan agreed to reduce domestic oil production by around 6 percent year-on-year in 2020.
At the same time, domestic containment measures undertaken by the authorities to reduce the spread of the coronavirus are negatively weighing on private consumption and investment. Nevertheless, the economy is reasonably resilient to external shocks, thanks to significant fiscal buffers.
Real GDP contracted by 2.8 percent year-on-year in the first three quarters of 2020. With the state of emergency declared on March 16 until June 1, and mild quarantine re-introduced from July 1 until mid-August, the retail trade, transport and hospitality industries were strongly affected by the lockdown. Trade and transportation declined by 9.5 percent and 17.1 percent year-on-year, respectively, in the first three quarters of 2020, the report said.
“Construction, however, continued to grow during the same period (up by 10.5 percent year-on-year). Fixed investment declined by 4.9 percent year-on-year in the first three quarters of 2020, mostly due to investment into the Tengiz oilfield being put on hold due to COVID-19. This has led to a contraction in imports, primarily of capital goods, generating a current account surplus in the first half of 2020 of around $2.1 billion (3 percent of GDP) versus a deficit of $1.9 billion a year earlier,” the report said.
The exchange rate depreciated in response to lower oil prices. A depreciation of 15 percent in the first three months of 2020 prompted the central bank to raise the policy rate from 9.25 percent to 12 percent in March 2020 and intervene in the foreign exchange market.
In addition, the government instructed state-owned enterprises to sell their export earnings in the domestic foreign exchange market. After exchange rate pressures subsided, the policy rate was lowered to 9.5 per cent in April and 9 percent in July 2020.
As of October 2020, the Kazakh tenge/US dollar rate is down 11 percent since the start of the year. A moderate recession in 2020 is expected to be followed by a rebound in 2021.
Real GDP is expected to contract by 4 percent in 2020 before growing by 3 percent in 2021. The upturn next year will be supported by recovery of private consumption and higher oil prices, but significant downside risks remain, notably a possible resurgence of the pandemic which would likely keep oil prices depressed in the short term.
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