Kazakhstan has an abnormally high external debt the origin of which cannot be explained just by the economic reasons. The National Bank of Kazakhstan, however, chooses to suppress this fact.
On February 28, 2017, the National Bank of Kazakhstan (NBK) published an extensive, very interesting, and informative research on the current economic situation in Kazakhstan. One part of this research deals with the external debt problem.
Here are some citations from the document.
1.Kazakhstan’s External Debt Estimate
As of September 30, 2016, the external debt in Kazakhstan averaged 164.4 billion USD having increased by 3.0% (4.9 billion USD) over the period of the 3rd quarter.
The NBK analysts say:
“The long-term (over 1 year period) external debt accounts for 95.8% of the external debt structure by due date which, on the one hand, minimizes the liquidity risks and, on the other hand, strengthens the influence on the debt repayment and servicing as well as the possibility of changes in the market conditions.
The non-resident loans and bonds (80.2%) together with the debt securities in the hands of non-residents (11.8) account for a larger part of the external debt structure by types of financial instruments.
Then the research explains:
Here are the main creditors of the residents of Kazakhstan:
— international organizations (total amount of debt is 10.5 billion USD, of which 68.2% accounted for by the state sector);
— foreign banks (total amount of debt is 27.1 billion USD, of which 86.1% accounted for by the non-bank private sector);
— other foreign organizations (total amount of debt is 125.8 billion USD, of which 71.8% accounted for by interfirm residents).
The NBK analysts believe that, apart the “influence on the debt repayment and servicing as well as the possibility of changes in the market conditions”, there is one more risk.
«By interest payments to foreign creditors, the larger portion of the external debt (109.0 billion USD) has a floating rate. Therefore, a change in the market conditions and a rise of the interest rates in the international capital markets may cause an increase of debt servicing costs and, thus, raise the risks of the borrowers’ failure.
To our great disappointment, the NBK research staff and management did not dare to point out the crucial risk, the fact that Kazakhstan has an abnormally high external debt the origin of which cannot be explained just by the economic reasons. To realize that this risk exists, we should simply consider the following citation from the NBK research.
3. The Amount and Debt-To-GDP Ratio
As of September 30, 2016, the external debt-to-GDP ratio including the interfirm debt averaged 121.6% (83.4% at the start of the year). Without the interfirm debt, as of September 30, 2016, the external debt-to-GDP ratio averaged 55.1% (38.9% at the start of the year).
The increase was caused by the debt growth as well as the decrease of the GDP estimates in dollar terms. Specifically, the GDP estimate indicator for the period of the 3rd quarter of 2015 to the 3rd quarter of 2016 had increased by 3.1% in tenge and decreased by 9.4% in USD.
To prove that the external debt of Kazakhstan is abnormally high, let us compare it to the external debt of Russia. Since the two countries were once part of the USSR, have similar economic structures, and are not very different in the quality of the human capital, their debt-to-GDP ratios should be similar as well. This, however, is not the case.
The Central Bank of Russia has recently expressed concern about the external debt problem in the country. Its debt-to-GDP ratio is now worse than in all the years since 2004 when they started collecting the data. Moreover, it has exceeded the critical value. Now consider this. As of the end of 2016, Russia’s debt-to-GDP ratio averaged 42% versus 39% as of the end 2015, 29% as of the end of 2014, and 33% as of the end of 2013. It should be noted that the IMF and the Audit Chamber of Russia regard the 25% ratio as the acceptable norm.
Here are the actual amounts. As of December 2916, Russia’s external debt equaled 518.7 billion USD which amounts to 3538 USD per capita. As of September 30, 2016, Kazakhstan’s external debt equaled 165.4 billion USD. Considering the population size of Kazakhstan, it amounts to about 9900 USD per capita.
Therefore, an average Kazakh citizen must pay 2.8 times more than an average Russian. We wonder why. The NBK publication leaves us with no answer.