KAZAKH ECONOMY SOARS ON HIGH COMMODITY PRICES…

President Nursultan Nazarbaev announced on August 2 that Kazakhstan’s GDP in the first seven months of 2000 grew by over 10 percent, compared to only 1.7 percent in 1999. This rise was boosted by a 16 percent increase in industrial production in the same period (Reuters, August 2). The Kazakh economy continues to benefit from high oil and other commodity prices, which is leading to expanded volumes of production at oil wells and mines. Kazakh oil production was up 13.5 percent in the first half of 2000 (Russian agencies, July 3). Exports, of which over 90 percent are commodities, are leading the way: in the first five months they doubled to US$3.5 billion. Because imports rose only 23 percent, to US$1.8 billion, Kazakhstan reported a significant trade surplus on a customs basis (Interfax, July 24), though these customs figures do not take into account substantial imports from shuttle trade with Russia and other CIS countries. Still, Kazakhstan’s macroeconomic and trade outlook seems much brighter than it did a year ago.

In part due to greater commodity exports, the transport sector was reported up 22 percent in the first half. Fixed investment was up a stunning 29 percent, as foreign investment seems likely to equal or exceed the US$1.3 billion received in 1999. This investment helped boost construction activity 30 percent in the first quarter of 2000. Growing exports and output is feeding demand: The retail sales grew 7 percent in the first quarter. Growth in agriculture, which makes up some 10 percent of GDP, remains uncertain due primarily to an infestation of locusts which took hold last year. Fortunately, Kazakhstan does not appear to be severely affected by the drought hitting other Central Asian countries.

Continued high oil and commodity prices, as well as rapid growth in Kazakhstan’s leading trading partners–especially Russia suggest that Kazakhstan’s export-led growth is likely to continue. But while this turnaround is quite impressive, Kazakhstan’s economy remains highly vulnerable to a downturn in commodity prices and (to a lesser extent) a slowdown in other CIS economies.

…WHILE IMF URGES CAUTION WITH WINDFALLS AND S&P RAISES ITS RATINGS.