Oil price fluctuations, creditworthiness of the financial system, and SME financing in Kazakhstan

Yergali Dosmagambet, Yessengali Oskenbayev, Farhad Taghi Zadeh Hesary, Moldir Mukan

Research output: Chapter in Book/Report/Conference proceedingChapter

Abstract

Kazakhstan remains a resource-dependent country, and the overall economy experiences external commodity price volatility. Oil export revenue exerts a positive effect on the economic development of oil-producing countries; however, depending only on oil revenue will make the economy vulnerable to oil price shocks, especially in the case of an oil price recession. This is forcing the Kazakhstan government to pursue industrial diversification to accomplish sustainable and balanced economic development, particularly concentrating on the diversification and expansion of the small and medium-size enterprise (SME) sector. Second-tier banks remain SMEs’ main source of financing. Due to the higher risks associated with SMEs, they have to borrow money at high interest rates that endanger their growth. Since the global crisis in 2008 and the adoption of the Basel capital requirement, banks have become more reluctant to lend funds to SMEs. The government’s use of a credit guarantee scheme (CGS) relies on the willingness of second-tier banks to lend to SMEs, because they decide which SMEs to lend to and the effective interest rate. Second-tier banks, on the other hand, are dependent on oil price volatility. This chapter examines the status of the CGS in SME financing in Kazakhstan. In addition, it provides an empirical analysis using the structural VAR method that shows that the creditworthiness of the whole financial system in Kazakhstan is dependent on oil prices. Moreover, there is an effect from oil price volatility on currency value change, which also influences the financial situation of SMEs.

Original languageEnglish
Title of host publicationUnlocking SME Finance in Asia
Subtitle of host publicationRoles of Credit Rating and Credit Guarantee Schemes
PublisherTaylor and Francis
Pages139-162
Number of pages24
ISBN (Electronic)9780429684579
ISBN (Print)9781138353428
DOIs
Publication statusPublished - 2019 Jan 1

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ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)
  • Business, Management and Accounting(all)

Cite this

Dosmagambet, Y., Oskenbayev, Y., Taghi Zadeh Hesary, F., & Mukan, M. (2019). Oil price fluctuations, creditworthiness of the financial system, and SME financing in Kazakhstan. In Unlocking SME Finance in Asia: Roles of Credit Rating and Credit Guarantee Schemes (pp. 139-162). Taylor and Francis. https://doi.org/10.4324/9780429401060-7