Kazakhstan

SEB MERCHANT BANKI NG – COUNTRY RI SK ANALYSI S February 16, 2009

important your attention is drawn to the statement on the back cover of this report which affects your rights.
Analyst: Jenny Nordgren. Tel: +46 8 763 96 05. E-mail: jenny.nordgren@seb.se

The sharp fall in oil prices, the ongoing global financial crisis and the exchange rate devaluation put
pressure on Kazakhstan’s external finances and its banking system. The authorities’ response to the
deteriorated situation risk having an adverse impact on the strong public finances.

Country Risk Analysis
`Ü~ääÉåÖáåÖ=íáãÉë=~ÜÉ~Ç. Tle KazaIlslan economy is nov sIoving afler a Iong
period of rapid economic grovll fueIIed by record ligl commodily prices and
exlensive foreign borroving by lle banIing seclor. Tle drying up of exlernaI
financing since mid-2007 las resuIled in a “credil cruncl¨ lriggering a sIovdovn in
non-oiI economic aclivily, a slarp dovnvard correclion of reaI eslale prices and
severe claIIenges for lle banIing seclor.
Going inlo 2009, lle slarp faII in
commodily prices since Iasl summer, lle
conlinued gIobaI economic and financiaI
crisis as veII as lle sleep faII of lle
roubIe las inlensified pressure on lle
economy and ils banIing seclor. As a
resuIl, economic aclivily is expecled lo
sIov lo around 2 ° llis year from
eslimaled 3.8 ° in 2008 and infIalion is
IiIeIy lo ease lo around 7 ° on average in 2009. WeaIer exporl revenues due lo lle
oiI price drop (oiI accounls for more llan 50 ° of lolaI exporls), is expecled lo pul
pressure on lle exlernaI posilion lurning a subslanliaI surpIus of lle currenl accounl
baIance of 7.1 ° of GDI inlo a deficil of around 8 ° llis year. Tle CenlraI BanI's
inlernalionaI reserves amounled lo USD 19.4bn (aboul 4 monll's of imporl coverage)
and lle NalionaI OiI Iund comprised foreign assels of USD 27.3bn in December 2008.
Real GDP
0.0%
5.0%
10.0%
15.0%
2004 2005 2006 2007 2008 2009

bñÅÜ~åÖÉ=ê~íÉ=ÇÉî~äì~íáçåK=In lle aulumn of 2007, lle CenlraI BanI pegged lle
KazaIlslan lenge (KZT) al 120 lo lle US doIIar afler lle exclange rale came under
slrong dovnvard pressure. Hovever, lle exclange rale las come under reneved
pressure llis aulumn due lo faIIing commodily prices and slrong deprecialion of lle
Russian roubIe, despile efforls of lle cenlraI banI lo supporl lle lenge by lle saIes of
USD 6bn foreign reserves. Al lle end, lle CenlraI BanI devaIued lle KZT by around
18 ° on Iebruary 4 and llen aIIoved lle lenge lo fIucluale villin a +/- 3 ° band
around 150 againsl lle USD. Hovever, in viev of lle slarp exclange rale
deprecialion of ils main lrading parlners, incIuding Russia, llis may nol be enougl
lo slem furller dovnvard pressure on lle exclange rale.

SEB Merchant Banking Country Risk Analysis February 19, 2009
^åíáJÅêáëáë=éêçÖê~ã=íç=ëìééçêí=íÜÉ=ÇáëíêÉëëÉÇ=Ä~åâáåÖ=ëÉÅíçê. In November Iasl
year, lle governmenl announced a rescue pIan lo recapilaIise lle banIing seclor and
lo revive economic grovll over 2009-2010. Tle risI of a banIing crisis las
neverlleIess increased and lle governmenl las been forced lo nalionaIise lvo of lle
Iargesl banIs (BTA and AIIiance) as lle exclange rale devaIualion impaired lle
banI's assel quaIily given lleir exlensive foreign currency Iending lo unledged
corporales and louseloIds (44 ° of lolaI Ioans). Tle banIs lave lo refinance around
USD 10bn of exlernaI debl llis year. Hovever, lle sovereign's fiscaI and exlernaI
posilion remains reIaliveIy slrong vill pubIic debl al a Iov 4 ° of GDI and foreign
assels of around USD 46bn.

mçäáíáÅ~ä=ëí~Äáäáíó. Recenl poIilicaI deveIopmenls lave slrengllened lle aullorilarian
ruIe of Iresidenl Nazarbayev - in pover since 1991. ConslilulionaI amendmenls
aIIov Nazarbayev an unIimiled number of lerms in office. Tle compeling faclion Ied
by RaIlal AIiyev (lle presidenl's former son-in-Iav) is veaIened afler le vas
senlenced lo 20 years of prison on aIIegalions of pIanning a coup in 2007. Tle
presidenl's firm grip on pover couId leIp a resoIule response lo lle ongoing crisis
bul aIso liglIiglls lle medium-lerm risI of succession.

j~àçê=çáä=éêçÇìÅíáçå=ÖêçïíÜ=áë=ÉñéÉÅíÉÇ=áå=íÜÉ=åÉñí=ÇÉÅ~ÇÉ. Tle pelroIeum
induslry accounls for rouglIy 30 percenl of GDI and over laIf of ils exporl revenues.
OiI produclion las increased from 1.34 miIIion barreIs per day (mbpd) in 2005 lo 1.43
mbpd in 2008. Lxisling produclion from lle Tengiz fieId is expecled lo doubIe and
lle Kaslagan fieId (lle Iargesl oiI fieId oulside lle MiddIe Lasl) viII add an
addilionaI 1 mbpd afler 2011 according lo lle LIA (lle US Lnergy Informalion
Adminislralion).
-´-
qÜÉ=h~ò~âÜ=ÉÅçåçãó=Ü~ë=ÄÉÉå=ëÉîÉêÉäó=Üáí=Äó=íÜÉ=ÖäçÄ~ä=ÉÅçåçãáÅ=~åÇ=Ñáå~åÅá~ä=
Åêáëáë=ÉåÇáåÖ=~=äçåÖ=éÉêáçÇ=~=ëíêçåÖ=ÉÅçåçãáÅ=ÖêçïíÜ=ëìééçêíÉÇ=Äó=ÜáÖÜ=ÅçããçÇáíó=
éêáÅÉë=~åÇ=ÜÉ~îó=ÑçêÉáÖå=ÄçêêçïáåÖ=Äó=Ä~åâëK=qÜÉ=ëÜ~êé=Ñ~ää=áå=ÅçããçÇáíó=éêáÅÉë=
ëáåÅÉ=ä~ëí=ëìããÉê=~åÇ=íÜÉ=ëíÉÉé=ÇÉéêÉÅá~íáçå=çÑ=íÜÉ=êçìÄäÉ=Ü~îÉ=áåíÉåëáÑáÉÇ=éêÉëëìêÉ=
çå=íÜÉ=ÉÅçåçãó=~åÇ=áíë=ÇáëíêÉëëÉÇ=Ä~åâáåÖ=ëÉÅíçêK=_ÉëáÇÉëI=íÜÉ=êÉÅÉåí=ÉñÅÜ~åÖÉ=ê~íÉ=
ÇÉî~äì~íáçå=~áãÉÇ=~í=êÉëíçêáåÖ=ÅçãéÉíáíáîÉåÉëë=éìíë=ÑìêíÜÉê=éêÉëëìêÉ=çå=íÜÉ=Ä~åâáåÖ=
ëÉÅíçê=ÇìÉ=íç=áíë=ä~êÖÉ=ÑçêÉáÖå=ÅìêêÉåÅó=äÉåÇáåÖ=íç=ìåÜÉÇÖÉÇ=ÄçêêçïÉêë=~ë=ïÉää=~ë=
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ê~íáåÖ=Å~ãÉ=ìåÇÉê=éêÉëëìêÉ=~åÇ=ÑìêíÜÉê=ÇçïåÖê~ÇÉë=ÅçìäÇ=ÄÉ=ÉñéÉÅíÉÇK==^=åÉï=Äçìí=çÑ=
Å~éáí~ä=ÑäáÖÜí=ÅçìäÇ=éìí=ÑìêíÜÉê=Ççïåï~êÇ=éêÉëëìêÉ=çå=íÜÉ=ÉñÅÜ~åÖÉ=ê~íÉ=êáëâáåÖ=~=
Åçää~éëÉ=çÑ=íÜÉ=Ä~åâáåÖ=ëÉÅíçêK=eçïÉîÉêI=ëíêçåÖ=éìÄäáÅ=Ñáå~åÅÉë=~åÇ=íÜÉ=mêÉëáÇÉåíÛë=
Ñáêã=Öêáé=çÑ=éçïÉê=ëÜçìäÇ=ÜÉäé=~=êÉëçäìíÉ=êÉëéçåëÉ=íç=íÜÉ=çåÖçáåÖ=ÅêáëáëK==
Key ratios 2009
Population (mill.) 15.6
GDP/capita ($) 7959
GDP (change) 2.5%
Inflation 7.5%
Curr.Acc. Balance/GDP -8.0%
Reserves/imports (months) 12.1
Budget balance/GDP -4.0%
Government debt/GDP 6%
Graph: The pentagon shows the creditworthiness of
Kazakhstan as close to average on liquidity, resilience and
macro balance but weaker on event risk and information
compared with the average EM country or one of its peers,
Russia.
bñíÉêå~ä=ê~íáåÖëW=
Iilcl: BBB/neg
Moody's: Baa2
S&I: BBB-/neg
mÉÉêëW
Russia
India
AIgeria
0
2
4
6
8
10
12
Resilience
Liquidity
Information
Absence of event
risk
Macro balance
Kazakhstan Average EM
Russia
How to read the chart?
Moving out from the center
reduces risk.


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SEB Merchant Banking Country Risk Analysis February 19, 2009
Key data: 2004 2005 2006 2007 2008 2009 2010 2011
GDP (bill.US$) 43.2 57.1 81.0 103.4 140.8 124.5 139.8 158.6
GDP/capita (US$) 2856 3755 5290 6707 9063 7959 8874 9993
GDP (change) 9.4% 9.8% 10.6% 9.5% 3.8% 2.5% 4.0% 7.0%
Investments/GDP 29% 38% 50% 58% 68% 79% 88% 94%
Budget balance/GDP 1.9% 5.1% 7.4% 5.0% -3.0% -4.0% -3.0% -3.5%
Govt debt/GDP 10% 7% 6% 5% 4% 6% 8% 8
CPI inflation (%) 6.8% 7.5% 8.6% 10.8% 17.1% 7.5% 8.0% 6.0%
Money demand (%) 34% 68% 26% 78% 26%
Stock prices (%change)
Interest rates 5.9% 3.3% 3.3% 3.3% 7.0% 7.0% 7.0% 7.0%
Exch. Rate ($) 136.04 132.88 126.09 122.55 120.40 150.00 150.00 150.00
Trade/GDP (%) 96% 98% 92% 93% 85% 80% 82% 84%
Oil price (Brent) $38 $54 $65 $73 $98 $45 $60 $74
Billions US $
Export of goods 22.7 30.5 41.5 51.9 70.3 48.6 60.3 74.4
Imports of goods 18.9 25.5 32.9 44.8 49.5 51.4 54.9 59.3
Other: -3.4 -6.1 -10.6 -14.4 -9.9 -16.6 -17.2 -17.8
Current account 0.3 -1.1 -2.0 -7.3 10.9 -19.4 -11.8 -2.7
(% of GDP) 0.8% -1.8% -2.5% -7.1% 7.8% -8.0% -8.4% -1.7%
FDI 2.1 4.2 2.0 6.3 10.2 7.8 5.0 5.4
Loan repayments -2.7 -4.6 -7.8 -11.6 -11.6 -13.6 -16.0 -14.0
Net other capital flows 4.5 -0.9 19.5 10.7 -6.1 26.2 23.8 12.6
Balance of payments 4.2 -2.4 11.7 -2.0 3.4 1.0 1.1 1.2
Reserves 8.5 6.1 17.7 15.8 19.2 20.2 21.2 22.5
Total debt 32.7 43.4 74.0 96.7 88.0 103.5 113.0 115.1
o/w short term debt 2.8 3.9 8.1 12.4 11.7 19.8 20.2 20.4
Source: OEF (Oxford Economic Forecasting) and SEB estimates.
Rating histor
%
y
Fitch (eoy) BBB- BBB BBB BBB BBB-
S&P (eoy) BBB- BBB- BBB BBB- BBB-
Type of government: Parliamentary democracy in form, but autocracy in practice
Next elections 2012
Other:
Latest PC deal
Recent IMF programs EFF 1999-2002 (allocated amount not utilized)
Dom estic bank lending
Clai ms to Households Clai ms to Pri vate Nonfinancial Insti tutions
Source: R euters EcoWi n
2002 2003 2004 2005 2006 2007 2008
K
Z
T

(
t
h
o
u
s
a
n
d

b
i
l
l
i
o
n
s
)
0
1
2
3
4
5
6
Corpor ates
Households
Inflation
a r 12 months
So ur ce : Re uters EcoWi n
2002 2003 2004 2005 2006 2007 2008
P
e
r
c
e
n
t
2. 5
5. 0
7. 5
10.0
12.5
15.0
17.5
20.0
22.5
Housing Almaty, KZT/m2
So urce: R euters Eco Wi n
Dec Apr Aug Jan May Sep Jan May Sep
2005 2006 2007 2008
K
Z
T
/
s
q
u
a
r
e
m
e
t
r
e
0
100000
200000
300000
400000
External Debt
Total, short-term Total, long-term
Source: R euters EcoWi n
02 03 04 05 06 07 08
U
S
D

(
b
i
l
l
i
o
n
s
)
0
10
20
30
40
50
60
70
80
90
100
110




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SEB Merchant Banking Country Risk Analysis February 19, 2009

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`çåÑáÇÉåíá~äáíó=kçíáÅÉ=

Tle informalion in llis documenl las been compiIed by SLB Merclanl BanIing, a
division villin SIandinavisIa LnsIiIda BanIen AB (pubI) (“SLB¨).

Opinions conlained in llis reporl represenl lle banI's presenl opinion onIy and are
subjecl lo clange villoul nolice. AII informalion conlained in llis reporl las been
compiIed in good faill from sources beIieved lo be reIiabIe. Hovever, no
represenlalion or varranly, expressed or impIied, is made vill respecl lo lle
compIeleness or accuracy of ils conlenls and lle informalion is nol lo be reIied upon
as aullorilalive. Anyone considering laIing aclions based upon lle conlenl of llis
documenl is urged lo base lis or ler inveslmenl decisions upon sucl invesligalions
as le or sle deems necessary. Tlis documenl is being provided as informalion onIy,
and no specific aclions are being soIiciled as a resuIl of il: lo lle exlenl permilled by
Iav, no IiabiIily vlalsoever is accepled for any direcl or consequenliaI Ioss arising
from use of llis documenl or ils conlenls.

SLB is a pubIic company incorporaled in SlocIloIm, Sveden, vill Iimiled IiabiIily. Il
is a parlicipanl al major Nordic and oller Luropean ReguIaled MarIels and
MuIliIaleraI Trading IaciIilies (as veII as some non-Luropean equivaIenl marIels)
for lrading in financiaI inslrumenls, sucl as marIels operaled by NASDAO OMX,
NYSL Luronexl, Iondon SlocI Lxclange, Deulscle B∏rse, Sviss Lxclanges,
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Aullorily for lle conducl of designaled inveslmenl business in lle UK, and is
subjecl lo lle provisions of reIevanl reguIalors in aII oller jurisdiclions vlere SLB
conducls operalions.

SLB Merclanl BanIing. AII riglls reserved.

4