Kazakhstan's overall strong performance in financial sector is gaining momentum. In April 2000 Kazakhstan have placed 350M USD Eurobonds first among NIS countries after Russian crises. Private financial analysts estimate that Kazakhstan could issue at least $1 billion in international markets over the next three years. It is expected that the new issues to offer a broader range of duration.
Kazakhstan has strong fiscal position:
-current account outlook more solid due to excellent export prospects in its natural resource sector and a freely floating exchange rate regime; -Kazakhstan's external financing needs are almost entirely covered by official lenders and FDI; -the country have built political stability and established a strong track record of economic reforms; -Kazakhstan has generally lower debt levels, improving fiscal deficits and increasing financing flexibility in the local markets.
County's medium-term credit profile improved significantly following last year's policy adjustments and the re-election of President Nazarbayev to a new seven-year term. Consequently Kazakhstan's vulnerability to external shocks, similar to the one in 1998-99, diminished dramatically due to a stronger and more resilient balance of payments position, improved fiscal flexibility and medium-term political stability and reform continuity.
It is expected that the current account deficit to decline to a more manageable 1.5-2 % of GDP from over 5% of GDP in 1998, and to continue to decrease gradually. Strong and stable capital inflows is anticipated. Volumes of oil exports are on a secular rising trend, due to upgrades and increased access to Russia's pipeline network and the opening of a pipeline from the Tengiz field to the Russian port of Novorossiysk, scheduled for 2001. Oil export volumes are expected to double over the next three years and export revenues to increase by 40-50%, depending on the oil price scenario. Second, the floating foreign exchange regime, adopted in April 1999, is expected to help maintain current account stability even in cases of significant external pressures.
FDI, official and private financing will continue to be sizeable and stable in the upcoming years. Kazakhstan continues to enjoy generous policy lending from the IMF and the World Bank, as well as strong bilateral sponsorship. In December 1999, Kazakhstan secured a new $0.45 billion three-year IMF agreement, and the country still has access to about $0.6 billion of undisbursed World Bank credits.
Fourth, external liquidity has and will continue to improve. Kazakhstan's hard currency reserves have recovered and coverage ratios strengthened. Reflecting this, as of end-December, the National Bank of Kazakhstan was able to remove the remaining surrender requirements on foreign exchange earnings, which had been imposed in 1999. Kazakhstan's liquidity position will continue to improve rapidly and reserves will continue to grow, as oil prices and private capital inflows are very likely to exceed the assumptions made under the IMF program. Even in absence of new other private financing, hard currency reserves will grow significantly.
Kazakhstan's fiscal position will be strengthening due to smaller deficits and more local financing particularly on the revenue and financing side. The government is working on increasing tax revenues and improving collection.
Most important, however, the government's financing flexibility will increase dramatically as pension system reform continues. Between 60-70% of the fiscal gap will continue to be covered by official loans and privatization revenue. Kazakhstan's pension system could finance at least three quarters of the remaining gap, intended to be covered in the local and international markets. In June 1997, Kazakhstan initiated Chilean-style pension system reform based on the fully funded individual accounts departing from the PAYG system inherited from the Soviet past. At present, the pension system's total assets equal roughly $0.4 billion, 95% of which is invested in government securities (both Eurobonds and Tenge-denominated instruments). The system's assets will continue to grow rapidly and should double by 2001. Local funds purchased about $200 million of the $300 million of the Kazakhstan 2004 Eurobond, issued and reopened in September 1999.