Kazakhstan Boosting Gold Reserves in Case of Financial Crisis

Kazakhstan, the second-largest ex-Soviet economy and oil producer after Russia, has enough reserves to weather a new wave of financial crisis and keep its currency stable, the National Bank governor told Reuters Insider TV.

Central Asia's largest economy fared relatively well during the global crisis and resumed rapid growth last year, when gross domestic product expanded 7.3 percent after a 1.2 percent rise in 2009. GDP is forecast to grow 7 percent this year.

Grigory Marchenko, a banking veteran who was once proposed to head the International Monetary Fund, said Kazakhstan was enjoying relatively high commodity prices, enabling the Central Asian state's economy to grow 7 percent in the first six months of 2011.

Even if there was a fall in commodity prices, the cornerstone of Kazakhstan's export-oriented economy, it would use its National Fund of $41 billion, Marchenko said on Tuesday.

The National Fund of Kazakhstan ... that's about 25 percent of our GDP, so it is quite a comfortable cushion. Even if the second wave (of the crisis) materialises, even if it is twice as bad as the previous one, that means we will have to spend only a half of our fund, Marchenko said.

During the crisis of 2008-09, the country spent around $10 billion out of the fund to support the economy, Marchenko said.

He added that the country's tenge currency was likely to fluctuate near the current level. The weighted average of the tenge stood at 147.89 per dollar on Tuesday, appreciating from 148.36 earlier this month, its weakest since early 2011.

Basically, it (the tenge rate) has been extremely stable in the past two and a half years. I think it would be the same, Marchenko said.

He reiterated that the National Bank would buy up domestic gold output from next year, indicating it favours gold over exposure to the ailing dollar.

I think we will buy all the gold produced in Kazakhstan in the next 2-3 years, which means 20 to 25 tonnes a year, Marchenko said.

He did not say how much the central bank was going to spend on this, adding only that it would be as much as necessary.

The gold assets of Kazakhstan's central bank have grown by 29.5 percent since the end of last year to $4.0 billion as of Aug. 31, amounting to 11.1 percent of the country's net gold and foreign currency reserves. International gold prices hit a record $1,920 an ounce in early September.

Kazakhstan's central bank has joined central banks of other emerging economies in stocking up on gold reserves amid concerns fuelled by the ailing dollar and waning confidence in the resilience of the global economy.

The country produced 21.4 tonnes of gold, including 9.7 tonnes of refined gold, in January-July of this year. It plans to boost gold output to 33 tonnes this year from 20 tonnes in 2010.