Marginal improvement of balance of payments in 1H2017

Assan KurmanbekovAugust 03, 2017

As a result of increased oil prices, the continued investment inflows and reduction of external assets of the National Fund, the balance of payments has improved moderately in the first half of this year. 

The exports from Kazakhstan grew by 1.6% qoq in the 2-nd quarter of 2017, while exports more than doubled relative to similar quarter of 2016. For the first half of the year, exports totaled $23.4 billion, which corresponds to 63% of the total exports for the whole 2016.

The imports increased by 21.2% qoq and by 18.3% in annual terms in the 2-nd quarter of 2017, it is of note that import growth in annual terms is progressing since the 4-th quarter of 2016. Imports in the second quarter exceeded $8 billion, which is about a quarter below the levels before the 2015. In turn, exports still 40% lower than those that occurred prior to the fall in oil prices.    

The trade surplus in the second quarter has changed only slightly, but for the first half of the year nearly doubled to $8.6 billion as compared to 1-st half of 2016. The services deficit has changed insignificantly and amounted to $1.1 billion.

The breakdown by countries shows that the share of imports from Russia increased by 5pp to almost 39% (in 5 months of 2017), whilst imports from the EU countries fell by a similar amount. The negative trade balance with Russia worsened by 37% yoy. The deficit in trade with Russia reached $2.4 billion, that is a few times higher the deficit in trade with the following after Russia countries, with Germany the deficit is only $408 million, $318 million with the United States. Thus, strengthening of economic relations between Kazakhstan and Russia is accompanied by a deepening imbalance in trade, to which is also apparently contributes the tenge peg to the ruble due to greater predictability and less volatility in the exchange rate of tenge to the latter.

The balance of income from direct investments decreased by 8% qoq in the 2-nd quarter of 2017, but deteriorated by almost 30% yoy. The main reason is the launch of oil production at Kashagan, according to the PSA of this project at an early stages, the lion's share of revenue will be distributed mainly in favor of the consortium members.

The current account deficit decreased moderately in absolute terms to $1.2 billion in the second quarter of this year, against $1.4 billion in the first quarter of this year and is below the number in every single quarter of 2016, reflecting a slight improvement in the external accounts. Relative to GDP, the current account deficit in the first half of the year fell to 1.8% from 2.6% in the six months of 2016.

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The inflow of foreign direct investments for the first half of the year fell to $4.9 billion, from $8.2 billion in the corresponding period last year. On the contrary, portfolio investment inflows increased to $2 billion against outflow in the 1-st half of 2016. Also in the second quarter of this year, there have apparently been drawdowns from the National fund of $1.4 billion that slightly eased the pressure on the balance of payments. The banking sector in the first half of the year has reduced its external obligations by $1.3 billion. The NBK reserves since the second half of last year are almost unchanged and amounted to $30 billion at the end of the second quarter.   

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Our opinion

As a result of increased oil prices, the continued investment inflows and reduction of external assets of the National Fund, the balance of payments has improved moderately in the first half of this year. In our opinion, probability of significant improvement in the balance of payments in the second half of the year is quite low, which will have a moderate negative impact on the national currency and can slow down the restoration of import growth. The current account deficit, according to our estimates, would equal to 3.9% of GDP in the current year vs 6.4% of GDP in 2016.