Economic troubles in Russia spreading to Kazakhstan
Kazakhstan's Currency, the Tenge, Dips Amidst Ongoing Economic Challenges
The value of Kazakhstan's currency, the tenge, has plummeted over the past two weeks, causing apprehension among citizens during the holiday season. Critics point towards Russia, Kazakhstan's leading import source, as a primary factor in the currency's exchange-rate issues.
On December 4, the tenge hit 522 to the US dollar. Over the following week, it slightly recovered only to plummet again, trading at 521 to $1 USD on December 11. The tenge's value decrease by up to 10 percent in just ten days sparked a wave of concerns on Kazakh social media.
"Our currency will soon turn into candy," a concerned poster posted.
The tenge's devaluation is leading to inflationary pressures on food items and consumer goods, much of which Kazakhstan imports from Russia. Prices in shops in Almaty and elsewhere have been revised upward.
Government officials' credibility has taken a hit in the eyes of many citizens. As recently as October, high-ranking officials, including Vice Minister of National Economy Arman Kasenov, were stressing the tenge's strength, citing a better balance of trade.
"Exports this year are much higher than last year. Imports have fallen. We have a healthier trade balance today. Therefore, at the moment we have no grounds for devaluation," Kasenov testified during a Kazakh senate hearing.
Kazakhstan's National Bank blamed the sudden decline of the currency on a variety of external factors, including the struggling Russian economy and the strengthening of the US dollar. The tenge's slide coincides with news that the ruble hit its lowest level in over two years, following the announcement of fresh US sanctions.
Russia still occupies the top spot in terms of Kazakhstan's imports, accounting for almost 30 percent of Kazakh imports during the first eight months of 2024, according to official government statistics.
The bank has taken measures to combat the depreciation, including selling over $1 billion dollars' worth of assets from the National Fund, the state's strategic reserve, in late November. Another $900 million is planned for December. To combat inflation, the bank also increased the base rate by a percentage point to 15.25 percent.
Analysts are concerned about the strain on Kazakhstan's economic resilience over the medium term due to the heavy dependence on the National Fund to support the tenge. In October, the International Monetary Fund called on Astana to establish clearer fiscal policy guidelines to preserve the National Fund's ability to underwrite social and economic infrastructure projects and safeguard against future economic shocks.
The National Bank has raised its forecast range for inflation in 2025 to 6.5-8.5 percent from the previous 5.5-7.5 percent. However, the real increase in prices is reportedly much higher than official inflation indicators.
Even though a major source of government revenue comes from taxes paid by energy companies, the tenge's dip is not expected to create a major hole in the state budget. Nevertheless, observers are worried about the immediate economic outlook.
Economic observers predict that investors are withdrawing money from the country, and increases in the base rate will lead to an increase in prices despite higher interest rates.
The underlying fundamentals of the tenge are under intense pressure, according to Almas Chukin, managing partner at Visor Kazakhstan, an Almaty-based private equity firm.
Meruert Makhmutova, the director of the Public Policy Research Center, warned that the weakening of the ruble against the US dollar and tenge could flood the Kazakh market with Russian foodstuffs and goods, hurting local producers and the overall economy.
In summary, the depreciation of the tenge can be attributed to various factors, but directly attributed data from 2024 is not available. However, we can infer potential influences based on broader economic conditions and the relationship between the Kazakh economy and the Russian economy. The tenge's value is impacted by global economic conditions, including those affecting the Russian ruble, regional economic ties, inflation, fiscal policies, exchange rate dynamics, and independent adjustments to market conditions. The Russian economy and ruble can indirectly impact the tenge, although the tenge's flexible exchange rate provides it some level of independence from the ruble's performance.
- The depreciation of the tenge is leading to inflationary pressures not only on Kazakhstan's imported food items but also on consumer goods, affecting the overall economy.
- The government's finance reserves, such as the National Fund, are being utilized to combat the tenge's depreciation, but analysts are concerned about the medium-term strain on Kazakhstan's economic resilience due to this heavy dependence.
