(EnergyAsia, November 23 2011, Wednesday) — Kazakhstan’s hydrocarbon-fired economy is staging a strong recovery on account of high oil prices and rising agricultural output, but its banking system is a “cause for concern” amid “a rapidly deteriorating external environment”, said the International Monetary Fund (IMF).

This was the pronouncement of an IMF mission led by Ana Lucía Coronel who met with senior Kazakh officials in the cities of Almaty and Astana last month to review the country’s economic and financial sectors as part of the fund’s Article IV consultation.

Kazakhstan’s economy is expected to grow by 6.5% this year and 5.6% next year while consumer prices will rise by 8.9% and 7.9% respectively to raise inflationary rates above official forecast.

The value of the country’s foreign assets, which include its international reserves and oil fund resources, now stand at US$72.5 billion, or 40% of GDP, to provide a comfortable buffer for the economy.

While describing Kazakhstan’s economic recovery after the 2007-09 global crisis as encouraging, the IMF said it is taking place against a rapidly deteriorating external environment while the country’s banks are vulnerable to shocks on account of their weak balance sheets.

The IMF said: “Global activity has weakened and become more fragile, confidence is falling, and downside risks are growing. The structural problems facing the crisis-hit advanced economies have proven more intractable than expected, and the process of devising and implementing reforms more uncertain.

“These complications bring clear downside risks to the global expansion related to possible delays in the resolution of the crisis in the euro area and in the recovery of private demand in the US. If these risks materialise, commodity prices, global trade, and capital flows would likely decline, dragging down growth in emerging and developing economies. Kazakhstan is exposed to these shocks, given its dependence on commodity exports and its close links with international markets.”
 
Despite the restructuring of its foreign debt and injection of public funds, the quality of Kazakhstan’s bank assets has continued to deteriorate, with nonperforming loans remaining “extremely high” by international standards.
 
The IMF said a significant deterioration of the global environment along with potential spillovers from large neighbouring countries would negatively impact Kazakhstan’s economy and its banking system.