Page last updated at 09:11 GMT, Thursday, 23 October 2008 10:11 UK

Credit hungry Kazakhstan feels the crunch

By Rayhan Demytrie
BBC News, Almaty, Kazakhstan

Manshuk Akhmedjanova
Ms Akhmedjanova feels let down

Standing on the site where her apartment should be, Manshuk Akhmedjanova, 23, points to an empty space.

"We sold our shabby flat and we wanted to buy a better one," she says.

"We believed in the advertisement, we believed in our country's economy, but right now we are desperate because we have nothing."

Ms Akhmedjanova is one of thousands of Kazakhs who took out a mortgage and bought a home that has yet to be built.

During the recent construction boom, the demand for housing in Kazakhstan was insatiable.

But since Kazakh banks have started to feel the credit crunch, many building companies are struggling to raise funds and are facing bankruptcy.

Kazakhstan was hit when foreign investors pulled out says Mr Timchenko

"Unlike many other economies, the Kazakh economy is substantially reliant on external borrowings and is dependent on construction as one of the industries that spearheaded development," says Andrei Timchenko from Kazkommerzbank, the country's largest private bank.

"Those two are perceived risky. When the first wave of money to be pulled out of emerging markets started we were the first to be hit."

Kazakh banks are now more concerned with paying off foreign debts than lending money to the local businesses.

Going nowhere fast

The driving force behind Kazakhstan's successful economy is in large part down to its natural resources: oil, gas and minerals such as gold and uranium.


Deserted building sites in Kazakhstan

Rising oil prices made Kazakhs feel confident and the country experienced an unprecedented spending spree.

Since oil prices have gone down so has the population's appetite for consumption.

It takes a drive along Almaty's congested roads to understand how much Kazakhs are obsessed with owning expensive cars.

But sales figures in one garage forecourt suggest new models are going nowhere fast.

"This time last year we sold 200 cars, but this year only 100," says Konstantin Bykov, sales consultant at a BMW garage forecourt in Almaty.

Shopkeepers in Baraholka, Almaty's busiest outdoor market, are also worried.

They say they have experienced a significant drop in sales in even the cheapest consumer items, made across the border in neighbouring China.

Oil to the rescue

A government rescue plan announced earlier this week will pump $15bn (9.2bn) into the economy by the end of the year.

BBC dealership in Kazakhstan
Car sales have fallen sharply

Much of that will come from the National Oil Fund, set up by the Kazakh government to guard against falling oil prices back in 2000.

According to the Kazakh central bank it has nearly $50bn in reserves - half of which is from oil revenues.

The government now thinks it is time to dig into the cash set aside.

Far-reaching fallout

Kazakhstan's economic slowdown is being felt by its neighbours.

Hundreds of thousands of migrant workers from Tajikistan, Uzbekistan and Kyrgyzstan are dependent on casual labour in Kazakhstan.

As opportunities for them to work decline, so will remittances being sent to families back home.

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