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UPDATE 2-Kazakhstan cuts oil price forecast as crisis bites

Mon, Nov 24 2008, 14:03 GMT
http://www.afxnews.com

By Raushan Nurshayeva

ASTANA, Nov 24 (Reuters) - 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. subprime 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.

Addressing officials from the ruling Nur-Otan party later, Masimov said the government had immediate plans to inject $18.3 billion out of the total package to spur the economy.

"This would help us avoid an abrupt deterioration of the situation as happened in certain other nations," he said.

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 growth averaged 10 percent in 2000-2007.

The liquidity crisis has raised concerns about Kazakh banks' ability to refinance debt -- a total of $12 billion for next year -- and has put many projects on hold.

About 40 percent of bank assets were loans related to mortgages or construction, a sector hit most hard by the crisis.

Masimov said the government would launch a separate mortgage market support plan by making top banks cut their mortgage rates to the central bank's refinancing rate of 10.5 percent from the current sector average of more than 18 percent.

Some banks have ceased lending altogether until the market stabilises, according to market players.

"We have held consultations with six key banks that have accepted the rules of the programme and agreed to act in tandem with the state," Masimov said.

He said the programme, part of the broader package, was worth $5 billion, consisting of $3 billion channelled from the national oil fund and the remainder coming from pension funds.

"Like any other plan, this package is not set in stone," Masimov added. "It is also subject to change depending on the situation in the world."

((Writing by Maria Golovnina; editing by Tony Austin) Keywords: KAZAKHSTAN OIL/

(maria.golovnina@reuters.com; +7 727 250 85 00; Reuters Messaging: maria.golovnina.reuters.com@reuters.net)

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