...

Recovery of oil prices has positive impact on Kazakhstan’s external balances - IHS Markit

Oil&Gas Materials 26 November 2020 23:58 (UTC +04:00)

BAKU, Azerbaijan, Nov. 26

By Nargiz Sadikhova - Trend:

The recent recovery of oil prices has had a positive impact on Kazakhstan’s commodity-dependent economy, including its external balances, Venla Sipila-Rosen, country economist for Kazakhstan at IHS Markit told Trend.

"This is expected, but this is particularly true now when the outlook for oil output and export volumes is suppressed by 1) continued weakness of external demand, with the resurgent COVID-19 pandemic keeping uncertainty high, and 2) the fact that Kazakhstan this year is showing more compliance than it has done in the past regarding its commitments to cut oil output in the framework of the OPEC+ deal," she said.

"However, the current account is likely to remain in deficit this year in any case," Sipila-Rosen said.

In her words, the oil price recovery is also crucially supporting the tenge exchange rate, which has, unsurprisingly, experienced periodic major downward pressures this year.

"This lessens the need of the National Bank of Kazakhstan (NBK) to smooth out the tenge’s fluctuations. (Officially, the NBK is running a flexible exchange rate regime, but in practice, it seems to be managing the rate by other means than outright currency market interventions using its own direct reserves. For example, it can do this by planning the scheduling of payments from the National Fund.)," she explained.

In addition, Sipila-Rosen said, the higher oil price has allowed the government to revise its budget assumptions; it recently lifted the underlying oil price assumption used as basis for the 2020 budget to $40 per barrel (pb) from $20 pb.

"Higher revenues were combined with higher spending, due to the need to support the economy in conditions of the re-intensified pandemic, and the targeted budget deficit remained unchanged at 3.5 percent of GDP, however. The positive impact of higher oil prices on the budget is dampened via the direct exchange rate impact; a stronger tenge means less revenue in tenge terms for the budget from oil exports. (Then again, exchange rate effect on foreign currency debt is naturally the opposite.)," Sipila-Rosen said.

---

Follow the author on Twitter: @nargiz_sadikh

Tags:
Latest

Latest