Kazakhstan Plans to Spend Almost 20% of GDP to Bolster Economy

By Nariman Gizitdinov

Nov. 24 (Bloomberg) -- Kazakhstan plans to spend 2.2 trillion tenge ($18.3 billion), almost 20 percent of gross domestic product, to support the $100 billion economy amid the global financial crisis.

Government spending will include $5 billion to make discount-rate mortgages available to homeowners and $4 billion to buy shares and subordinated debt from the country’s largest banks, Prime Minister Karim Masimov said today during a government meeting in the capital Astana.

The former Soviet republic will also spend $1 billion to help small and medium-sized businesses, $1 billion to promote agriculture and $1 billion on infrastructure and industrial projects, according to a statement distributed at the meeting.

Kazakhstan, holder of 3.2 percent of the world’s oil reserves, faces a credit squeeze after a decade-long boom during which the economy expanded by an average of 10 percent a year, helped by a surge in the price of crude. The government will probably cut its economic growth forecast for next year to 3 percent from as much as 7 percent, officials said on Nov. 20.

The government will invest $3 billion from its oil fund to provide new mortgages at 10.5 percent annual interest, while the National Wellbeing Fund Samruk-Kazyna will sell $2 billion in bonds to pension funds to raise money for the program, Masimov said.

Distressed Assets

Kazakhstan’s distressed-assets fund, created to help compensate banks for the depreciation of assets provided as collateral for loans, may sell $4 billion of bonds to pension funds, Yelena Bakhmutova, head of the Financial Supervision Agency, told reporters after the meeting. No legal limit will be set on pension funds’ investments in the distressed-assets fund, she said.

The government moved last month to spend $4 billion to buy stakes in the country’s largest banks to boost capitalization and liquidity amid the global credit turmoil.

Kazakhstan joins Ukraine, the U.K. and the Netherlands in bailing out ailing financial companies as the global financial crisis deepens. Kazakh banks posted a 61 percent drop in profit in the first nine months as they set aside cash to cover bad loans as the economic growth rate slows.

To contact the reporter on this story: Nariman Gizitdinov in Almaty, through the Moscow newsroom at ngizitdinov@bloomberg.net