In January international reserves were up by $1 billion due to an increase in the National Bank's gold reserves

Elmira ArnabekovaFebruary 13, 2018

Consolidated reserves amounted to $90.1 billion (+1.1% mom, -2.4% yoy): the NBRK's gold and foreign currency assets grew to $31.7 billion (+3.2% mom), NF assets stayed at $58.3 billion (+0.05% mom). The currency part of the regulator's reserves after a 5-month decline reversed to a slight increase, meanwhile, the growth in gold assets continued.

In the past month, the growth of reserves mainly happened due to a growth of assets in gold (+$0.6 billion). According to our estimates, the price factor (+3.2% mom) contributed 70% of the total growth, consequently, less than a third - the growth in the physical volume of monetary gold. The share of assets in gold reached 41.2% of the international reserves of the NBRK (34.1% in January 2016).

A rise of assets in foreign currency in January was about by $0.4 billion. Due to rising prices for raw materials and improvement of the country's external accounts, the growth in reserves was probably possible because of the growth in foreign currency earnings of exporters and deposits denominated in foreign currency on the regulator's accounts.

According to the IMF's data on the currency structure of liabilities available for December last year, there is a reduction in contingent liabilities that we believe include currency deposits of banks in the regulator's accounts, which caused a decline in the level of the foreign currency part of the NBRK's reserves. In December 2017, there was a small increase in the most liquid part of reserves, based on our estimates, but since the beginning of the year it decreased by 39%.


In January, NF tax revenues amounted to a low $0.2 billion (T89 billion), but about $1.2 billion was already used as a guaranteed transfer (T420 billion, 16% of the planned $ 7.8bn). The government budget was financed in the form of a transfer bytenge part of the NF portfolio, apparently, since the excess of spending over revenues did not affect the NF foreign assets.


Our opinion

The growth of consolidated reserves in January, due to the NBRK gold reserves, was accompanied by an improvement in the external environment: the average monthly price for oil grew by 7.4% per month to $69.1, which apparently affected the increase in export earnings. However, the stabilization of the price at this level may not be sustainable, in our opinion, and despite this, the balance of the current account will be in deficit within a current year.

We believe that with a stable funding of the current account, a negative inflow of direct investment and the absence of capital outflows due to errors and omissions, the pressure on the balance of payments will not occur. Thus, the need for financing due to the NBRK reserves will decrease, which in its own way will allow for maintaining reserves at the current level. Therefore, in many ways the determining factor in the dynamics of reserves will be the flow of investment in the country.

In 2017, as the inflow of direct investment in the second half of the year declined sharply (2.2% of GDP in 2017) and the current account deficit exceeded the level of their inflows (about 3% of GDP), around $1.6 billion was used from reserves of the regulator to finance balance of payment operations. At the same time, the increase in the value and physical volume of monetary gold allowed to cover the fall in the currency part of the reserves. According to our calculations, the current account deficit may improve to -2.5% of GDP this year, assuming also that the inflow of direct investments will remain at the current level (2.5% of GDP, while about 4% is the average value of investment inflow over the last 5 years). Therefore, the use of reserves to finance the balance of payments deficit should decrease. We also optimistically view that the growth of tax revenues against the background of rising oil prices and a decrease in the level of transfers by almost half will be the factors, which should restore the growth of NF above $58-59 billion.