May 23 (Bloomberg) -- Kazakhstan is providing 500 billion tenge ($2.7 billion) tapped from its oil fund to attract co-financing from international lenders for an economic overhaul.
The European Bank for Reconstruction and Development today joined the Asian Development Bank and the World Bank in signing an agreement in the capital, Astana, with the Kazakh government allowing them access to state funds to co-finance projects that promote industry, diversification and competitiveness, according to a statement issued today.
Kazakhstan, the largest energy producer in the former Soviet Union after Russia, devalued it currency by 19 percent in February, a move that President Nursultan Nazarbayev called an instrument for economic growth. Nazarbayev, who has ruled the country of 17 million people since 1989, later ordered the oil fund to lend 1 trillion tenge to businesses through 2015.
“The government has come to realize that channeling its own funds only through state institutions may not be the only delivery mechanism to promote industrialization,” Olivier Descamps, a managing director at the London-based EBRD, said by phone from Astana. Kazakhstan found a “very clever, unique way” to work with international banks to have “an enhanced chance to increase the pace of industrialization.”
The approach marks a shift for Kazakhstan, which drained $10 billion from the oil fund during the 2008-2009 crisis and used sovereign wealth fund Samruk-Kazyna to boost the economy’s competitiveness and shield it from external shocks.
Kazakhstan is allocating 500 billion tenge from the National Oil Fund this year, including 150 billion tenge investment in industrial projects and 100 billion tenge for small and medium-sized businesses. Another 500 billion tenge will be allocated by the government next year, according to the economy and budget planning ministry.
“The world, which barely survived the worst economic crisis, can again dive into recession,” Nazarbayev told an economic conference in Astana today. “We must be ready that economic growth will be significantly weaken in the medium term.”
Kazakhstan will sign an agreement with Russia and Belarus on May 29 to expand their customs union into an economic bloc, Nazarbayev said. “The important element of the agreement is the task to form a common market for financial services,” he said.
Nazarbayev picked his chief of staff, Karim Massimov, as premier on April 2 after Serik Akhmetov resigned weeks after the president warned the cabinet that it should resign or work harder on attracting foreign investors.
“The new prime minister, Karim Massimov, has decided to move quickly,” Descamps said. “It will be an opportunity for all of us to leverage our own funds with government funds, which will be co-financing our projects.”
The partnership will allow the EBRD to “significantly” increase its investments in the country from $550 million last year, he said. Kazakhstan’s central bank agreed on May 21 to provide $1 billion of funds to the EBRD through a currency swap and repurchase deal through 2016 for lending in tenge to businesses.
The ADB will lend $1.6 billion, while the World Bank plans to extend $2.5 billion in credit under the agreements, the economy and budget planning ministry said, without providing a timeframe.
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