EUROBONDS MAY FINANCE KAZAKHSTAN’S BUDGET DEFICIT.

Revenue from Kazakhstan’s forecast 1998 GDP growth will not be enough to finance the country’s rising deficit and local analysts fear a budget crisis for the government. The IMF, though recently praising Kazakhstan’s macroeconomic reforms (see the Monitor, June 3), also urged the country to solve its deficit problem.

Low state income is attributable to several factors. Kazakhstan has not recovered fully from the effects of the first wave of investor panic that hit Russia following last year’s storms in Asia’s emerging markets. (Delovaya nedelya [Almaty], June 4) It has also has lost a further US$100 million in the collapse in world oil prices. (Focus Central Asia [Almaty], May 29) The government’s tax collection record is poor. Moreover, further World Bank loans have been delayed because, according to Deputy Finance Minister Zhannat Ertlesova, Kazakhstan has not yet honored its promise of streamlining and reorganizing state bureaucracy. Prospects for borrowing on the domestic market, which the government had hoped would raise the necessary finance, are, according to Finance Minister Sauat Minbaev, “no longer favorable.” (Reuters, May 27) Many investors, including Kazakhstani banks, have preferred to purchase Russia’s high-yielding treasury bills, while pension funds have been slow to invest in government debt. The government is therefore looking to foreign capital markets for funding. (Reuters, June 1)

Eurobond issues are one potential foreign source, and the government has planned a third issue for June or July. According to preliminary estimates, their value will range between US$300 and $500 million. But the history of the last two Eurobonds casts doubt on the ability of bond issues to raise sufficient money. Instead, the bonds simply enabled Kazakhstan to gain a higher credit rating in the crowded emerging marketplace. A safer bet is last year’s principal source of state income–privatization. On May 27, the government’s privatization chief Maksutbek Rakhanov confirmed that some 1,400 companies will be offered for privatization. He added that sixty percent of enterprises offered is–drawing on previous experience–likely to be sold. Government officials say they hope to raise US$200-$300 this year from blue chips alone. And, addressing the Almaty Investment summit on June 4 (see the Monitor, June 5), the president said he expected the country to receive around US$40 billion in investments in the next ten to fifteen years.–SC

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