Q How is the economy performing?
A Very well. We were planning to double the 2000 GDP – that is the year when the economy started growing again – by 2010 and now it looks like we will be two years ahead of schedule.
Q Kazakhstan is one of the very few countries in the world that is looking at a tripling of its oil production within a decade, and therefore a major increase of its export earnings, whatever it does. Has that robbed the government of the incentive to make it more efficient and to diversify the economy, as long as oil and metals prices do not fall dramatically?
A We have to admit that being resource-rich will affect the economic development in the sense that the extractive sector can be one of the locomotives for economic development. That said, we still acknowledge that having all our eggs in one basket is not a wise strategy. High price levels will not last long, that is obvious for everyone, and the government realises that this year or next the situation will probably change. But we have a Strategy for Industrial and Innovative Development until 2015 that clearly states venues and objectives for diversification, and that is keeping us on track.
Q Inflation ranges from 7% (Consumer Price Index) to 20% (Producer Price Index), meaning that the price of food is rising but the price of cement is rising faster. And that is not including real estate prices, which are rising even faster. Inflation would be higher if utilities had not been forced to keep their rates down, which they will not be able to do for much longer. Does that worry you?
A The inflation management issues are of high importance to the government and to the Central Bank of Kazakhstan, but neither the CPI index nor the real estate bubble are risk factors for stable economic development. Last year we expected inflation to be in the 5%-7% range and it came out at 7.6%, largely because we had an expansionist fiscal policy and real growth of household revenues. The rate of growth of real revenues of households (11.4%) and real wages (10.8%) were higher than the rate of economic growth, so productivity is growing slower then wages. I think that to decrease the bubble risks in real estate, someone should find a way to decrease the booming profitability in the construction sector.
Q Some say that the best way to curb this inflation right now is to restrict asset growth in banking, and the easiest way to do that is by restricting foreign borrowing by banks. Do you plan to encourage that?
A The rapid growth of assets and debt of commercial banks is certainly the subject of increased systematic risks in the banking system. That was the key point of the last country report from Fitch Ratings.
The Financial Supervision Agency already took measures to increase the cost of foreign borrowings by increasing reserve requirements. But the question is not only about the external debt of commercial banks; banks also have internal debt to manage prudently. We also have corporates, especially in the oil sector, that are borrowing heavily to transfer the capital abroad and are not being subject to prudential regulation.
The problem is wider and more complex than you mentioned and we have to deal with it. On the other hand, we understand that the growth of banks’ loan portfolios creates new jobs and production. We should not kill the goose [that lays the golden egg].
In the meantime, the development of a local capital market is one of the target reforms in the financial sector that can contribute significantly to the decrease of inflation pressure.
Q When do you think foreign banks will start buying local banks?
A In my opinion, we need to focus more on liberalisation of stock market and non-banking institutions activity as alternative competitors to commercial banks. The international experience shows that liberalisation of banking systems was caused mostly by financial crisis and was not favourable for local banks and their customers. Also, the activity of global bank subsidiaries in Kazakhstan shows that there is still room for development and upgrading of their services. Therefore sales of our domestic banks to foreign banks is not a priority for the time being.
