…says President Nazarbayev in response to growing signs of an economic slowdown:

“The fact that economic growth rates for sometime will be slowed down will do Kazakhstan good.

The breakneck growth of the last couple of years has come along with heightened inflation, a real estate boom, and unprecedented credit expansion. In some sense thus, Nazarbayev is right. Cooling down the economic motor to allow for some corrections here and there was long overdue.

The politicians blame the international market volatility for the looming slowdown in Kazakhstan:

The president acknowledged that “financial problems happening to the whole world objectively touch Kazakhstan”.

The same is being said by Prime Minister Masimov. Yet it only tells half of the story. If Kazakh banks are beginning to be at the heart of a slowdown, it’s mostly due to the regulators lax stance on their excessive borrowing.

The banking sector’s exposure to foreign capital is huge: The country’s debt service ratio - i.e. debt service as a percentage of the country’s exports - stands at 42%, second only to Brazil (45%).

And analysts are rightly worried, especially because of the social consequences of a marked slowdown. Higher prices for basic food have meant real inflation rates in excess of the publicly stated figures (as poor people’s normal consumption basket usually doesn’t include TV sets or cars):

“My forecast is the activation first of opposition and marginalised groups that suffered worst in the autumn crisis, and then of the rural migrants who have come to the cities in search of work and have now lost their jobs…”

…says political scientist Eduard Poletaev. But analysts close to the government oppose:

[S]he says the government has the strategies and resources to prevent a real social crisis from developing.

“The government is not sitting back doing nothing,” she said. “It is solving these problems today, in all likelihood successfully.”

Rahmatullina continued, “The country has 22 billion dollars in the national fund [where oil revenues are deposited], and there are the budget resources. I believe we can minimise the consequences of the financial crisis quite well with the help of our own national resources.”

It’s exactly the dependence on natural resources which could bite Kazakhstan during an economic slowdown. The whole Dutch Disease discussion all over again - if growth rates are low and capital scarce, investment in manufacturing becomes less profitable, igniting a vicious circle.

It will be interesting to see which instruments the Kazakh government is going to apply in trying to cure the economic ills that have befallen the country since its very own credit crunch started unfolding last autumn.