Kazakhstan - A.M. Best

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Sep 24, 2013 ... three categories of risk: Economic, Political and Financial System. Risk. • Kazakhstan, a CRT-4 country, is endowed with natural resources ...

BEST’S COUNTRY RISK REPORT Kazakhstan CRT-4

Country Risk Tier 3 (CRT-3) Moderate Level of Country Risk Country Risk Tier 4 (CRT-4) High Level of Country Risk Country Risk Tier 5 (CRT-5) Very High Level of Country Risk

• Kazakhstan, a CRT-4 country, has moderate levels of economic risk and high levels of political and financial system risk.

Regional Summary: South Central Asia

• Kazakhstan is the world’s leading producer of uranium and holds large fossil fuel reserves. Its economy grew 1.1% in 2016 and forecasts predict it will continue to grow at a modest but stable pace. Concerns about the health of the banking sector and the country’s reliance on exports may be a drag on future growth. Inflation in 2016 was high at 14.6%, but is expected to decline over the short term.

• Economic growth in Central Asia is likely to rise, as improved economic conditions in Russia will have a favorable effect on other Commonwealth of Independent State countries, due to improving trade and growth remittances. • Political power is highly concentrated, and the region suffers from high levels of corruption, a lack of transparency, and regular government interference in the judicial process. A lack of political succession plans in some countries could lead to social unrest and political uncertainty.

Vital Statistics 2016 Nominal GDP Population GDP Per Capita Real GDP Growth Inflation Rate

USD bn mil USD % % United Nations Estimates

Literacy Rate Urbanization Dependency Ratio Life Expectancy Median Age

% % % Years Years Insurance Statistics

Greenland

Finland Sweden Norway Estonia

Isle of Man

Latvia

Denmark

Lithuania

Netherlands

United Kingdom

99.8 53.2 50.3 69.6 Russia 29.3

Belarus Germany

Belgium

Guernsey

Liechtenstein Luxembourg

Jersey

France

Premiums Written (Life) USD mil Premiums Written (Non-Life) USD mil Premiums Growth (2015 - 2016) % Regional Comparison Morocco

Austria

Romania

Croatia

Bulgaria

Montenegro Macedonia Albania

Greece

Portugal

Azores

163 782 Turkey 7.1

Bosnia & Serbia Herzegovina

Italy Monaco

Gibraltar

Canary Islands

Dominican Republic

Cuba

Haiti

Kazakhstan Belarus China India Russia Ukraine

Puerto Rico

St Vincent & the Grenadines St Lucia Barbados Curacao Grenada

Nicaragua

Trinidad & Tobago

Venezuela

Guyana

Colombia

Suriname French Guiana

Ecuador

Mauritania

Antigua & Barbuda Dominica

Costa Rica Panama

(Occupied by Morocco)

British Virgin Islands Anguilla St. Maarten

St Kitts & Nevis

Honduras

Western Sahara

Peru

Malta

Senegal Gambia Guinea-Bissau

Cyprus

Uzbekistan

Syria

Sudan

Pakistan U.A.E.

Yemen

Ethiopia

Somalia

Taiwan Laos

Gabon

Northern Mariana Islands

Hong Kong Macau Vietnam

Thailand

Sri Lanka Malaysia

Wake Island

Philippines

Congo

Brunei

Palau

Federated States of Micronesia Papua New Guinea

Borneo

Kenya

Rwanda Dem. Republic Burundi of Congo

Seychelles

Sumatra

Marshall Islands

Guam

Singapore Uganda

Nauru

New Guinea

Indonesia

Solomon Islands

Angola

Malawi

Source: IMF, UN (2015 figures), Swiss Re, Axco and A.M. Best Namibia

Comoros

Zambia

Bolivia

Zimbabwe

Mozambique

Mauritius Madagascar

Botswana

Australia

Coral Sea Islands

Reunion

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s

nd

la

Is

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ril

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Country Risk Tier Algeria Libya CRT-4 CRT-5 CRT-3 CRT-4 CRT-4 CRT-5

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Russia Georgia Armenia

Lebanon

Tunisia

Niger

Cape Verde

Kazakhstan

Republic of Moldova

Hungary

Slovenia

San Marino

Ukraine

Slovakia

Sakhalin

Russia

Poland

Czech Republic

Switzerland

Andorra

Spain

Jamaica

• Countries have had to adjust to lower commodity prices by drawing on available sovereign wealth buffers, implementing fiscal consolidation measures, and cutting fiscal budgets.

National Bank of Kazakhstan

Insurance Regulator

Bahamas

• Given the economic challenges of the last two years, financial sector risks are a concern. The banking sector has been weakened by currency depreciation, an unresolved stock of non-performing legacy loans, and an increasingly dollarized balance sheet. The supervisory and regulatory environment needs to improve.

133.76 17.9 7,453 1.1 14.6

Iceland

Ireland

Cayman Islands

Financial System Risk

Country Risk Tier 2 (CRT-2) Low Level of Country Risk

• The countries pictured hold a great deal of the world’s economic potential.

Belize

Political Risk

Country Risk Tier 1 (CRT-1) Very Low Level of Country Risk

• The Country Risk Tier (CRT) reflects A.M. Best’s assessment of three categories of risk: Economic, Political and Financial System Risk.

es

Guatemala El Salvador

Economic Risk

August 22, 2017 Region: Asia Country Risk Criteria Procedures Guide to Best’s Country Risk Tiers

New Zealand

Kazakhstan BEST’S COUNTRY RISK REPORT

Economic Risk: Moderate

Economic Growth (%) 20 Real GDP

18

• The country is heavily dependent on the oil sector, which accounts for approximately 15% of GDP, 50% of exports, and 35% of fiscal revenue. The dependence on commodities exposes the country to significant levels of volatility.

CPI Inflation

16 14 12

• In an effort to diversify the economy, the government is targeting improvements in the telecommunications, pharmaceuticals, and food processing industries for investment and further development.

10 8 6

• Economic growth has been supported by fiscal spending through the “Nurly Zhol” initiative, which has allocated resources (estimated at 7% of GDP) to housing, small and medium-sized enterprises, and infrastructure projects.

4 2 0

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Source: IMF World Economic Outlook and A.M. Best

• The government is undertaking an “economic modernization” program aimed at increasing privatization. An estimated 60% of firms are still under state control.

Political Risk: High

Political Risk Summary Score 1 (best) to 5 (worst) World Average Kazakhstan

• The centralized political system is stable, but there are increasing concerns over succession. The current president has been in office since 1991. Recent legislation shifted executive powers from the president to the cabinet and parliament, but some critics consider these changes superficial.

International Transactions Policy

5 4

Legal System

Monetary Policy

3 2 1

Regional Stability

• The power of the government is tightly controlled by the president and his allies, which can limit institutional effectiveness and governance. The president is the supreme arbiter disputes among the various institutions of government.

Fiscal Policy

0

Social Stability

Business Environment

Government Stability

• The prolonged low oil price environment has exacerbated social and economic disparities, and could increase antigovernment protests.

Labor Flexibility

• To attract foreign investment, the government is trying to improve the operating environment, but significant progress will be needed. The country suffers from a lack of transparency, high levels of corruption, and an increase in terrorism.

Source: A.M. Best

GDP Per Capita and Population GDP Per Capita

10,000

Population

Financial System Risk: High

1600

9,000

• The insurance industry is regulated by the Committee for the Control and Supervision of the Financial Market and Financial Obligations, part of the National Bank of Kazakhstan.

1400

8,000 1200 7,000 1000 800

5,000 4,000

600

3,000 400 2,000 200

1,000 0

Kazakhstan

Belarus

China

India

Russia

Ukraine

0

Millions

USD

6,000

• Bad legacy loans remain a drag on the country’s economic growth and potential. The government had to revise its 2017 budget, to recapitalize its distressed asset fund at a cost of approximately 4% of GDP. It is widely believed the government will likely have to provide more financial assistance in the future. • The currency devaluation in late 2015-early 2016 triggered an increase in prices, but recent inflation levels are in line with the National Bank’s targeted range of 6%-8%.

Source: IMF and A.M. Best



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