Kazakhstan Reduces Oil Price Forecast

Kazakhstan slashed its 2009 oil price forecast by a third to $40 on Monday, bracing itself for more economic pain as the global financial crisis continued to take its toll on Central Asia's biggest oil producer.

Kazakhstan has announced a $21 billion rescue package - equivalent to roughly 20 percent of the economy - to help its fledging banking sector survive the crisis but falling crude prices have threatened to erode some of these efforts.

Prime Minister Karim Masimov, addressing a cabinet meeting on Monday, warned that the good times were coming to an end.
"Today we have to forget about a period when oil prices were so high. Today we are entering a new cycle," he said.

"I've ordered the economy ministry to recalculate the 2009-2011 budget setting a price of $40 for 2009, and $50 for 2010-2011," he said. This year's price is set at $60.

Kazakhstan was an early victim of the global liquidity squeeze in 2007 as foreign investors dumped high-risk emerging assets in the aftermath of the U.S. sub-prime mortgage crisis.

With oil accounting for 60 percent of all exports, the government had hoped that high crude prices would offset some of its financial troubles - a picture now changing quickly.

Masimov is due to address the ruling Nur-Otan party later on Monday to lay out the details of the $21 billion package - an announcement that will be closely watched by foreign investors and domestic players.

The prime minister told Reuters in a recent interview that economic growth was likely to fall to 3 percent next year -- a sharp drop after gross domestic product growth averaged 10 percent in 2000-2007.

He said the government had come up with a plan to help Kazakh banks refinance or repay $12 billion in foreign debt due next year but has not given details.

The liquidity crisis has raised concerns about Kazakh banks' ability to refinance debt and put many projects on hold, especially in the once-booming construction sector.

Author: Jo Amey