Page 62 - bne Magazine Apri20

62 I Eurasia bne April 2020
increase the budget deficit to up to
3.0% of gross domestic product from the previously planned 2.4%. Meanwhile, Prime Minister Askar Mamin said he was barring state-owned companies from buying foreign currency unless it was required to meet their obligations.
“Regarding the fall in oil prices to
$32, I would like to note that now the Kazakh government has [sufficient] reserves for fulfilling social obligations, but by the beginning of 2021, when parliamentary elections are planned, [the reserves] may [cease to] exist,” Kazakh political analyst Gaziz Abishev wrote on his Telegram-channel, claiming that at a price of $35 per barrel, Kazakhstan’s state budget would approximately lose out on $6.7bn. The
changed on March 10 as in the wake of the rate hike announcement the tenge shed 2.9% to reach KZT394.
Exchange offices in Almaty closed early on March 9. The premature closing might have been an attempt by the authorities to prevent the panic-buying of dollars.
The national currency of the ex-Soviet state is sensitive to both changes in world oil prices and changes in the value of the Russian ruble. The ruble also began weakening in reaction to tumbling hydrocarbon prices.
With analysts at Goldman Sachs predicting the possibility of oil prices dropping as low as $20 per barrel, the
demand for hard currency caused by the drop in world oil prices seen at the end of February. The interventions were comprised of $94.8mn from the central bank’s own reserves and $462.5mn from the National Fund.
With oil prices crashing further, the NBK can be anticipated to continue ramping up its interventions in the coming months.
Oil-export dependent
The still oil export-dependent Kazakh economy overall can be expected to take a beating from the oil price wars. While some efforts have been undertaken to diversify the Kazakh economy away from oil export-reliance since it took
a hit from very low world oil prices
in 2015-2017, much of the adjusted strategy reoriented the economy towards dependence on Chinese demand. This includes a focus on developing modern trade infrastructure as part of China’s Belt and Road Initiative and expanding agriculture and food production. Since neither China nor oil prices are expected to do well in the near future, the Kazakh economy is highly likely to follow suit.
Nevertheless, Russian investment firm Renaissance Capital analysts Sofya Donets and Andrei Melaschenko in
a recent note maintained a positive outlook on the Kazakh economy even under a scenario where oil prices fall below $30 per barrel, suggesting that growth would remain above 1%.
The economy went through an oil-slump slowdown in 2016, when Kazakhstan recorded growth at 1%. That year
also overlapped with countrywide protests against land reforms that ultimately masked the population’s anger at deteriorating economic conditions. As frequent protesting has become normalised in the past year
in the Central Asian nation under the new president who took over after
three decades of rule by Nursultan Nazarbayev, economic crises do not bode well for Kazakhstan’s political stability.
The government has shown some awareness of growing tensions and the population’s new push to express
“Kazakh population’s poverty is the source of support for the dollar”
country's budget for 2020 assumes an average oil price of $55bn per barrel.
The government can be expected to
tap into the rainy-day National Fund replenished by oil export revenues to fill in unprecedented budgetary gaps. “Our current scenario does not envisage using the National Fund,” Dalenov
said in further remarks to reporters, reported by Reuters. “But in an extreme scenario, of course, we have the option to make a small extra transfer from the National Fund.”
Exchange office tensions
Kazakh exchange offices on March 9 sold the national currency, the tenge, at rates as weak as KZT391-KZT395
to the dollar in the capital Nur-Sultan and KZT398 in the commercial capital Almaty. The southern city of Shymkent recorded the dollar price at KZT397. The exchange office rates can be
taken as record lows even though the official central bank-set official rate of the tenge only depreciated slightly to KZT382 on the day against the greenback after fluctuating mostly between KZT375-380 throughout the first two months of the year. That
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currency might be expected to take a massive hit in upcoming months.
Some Kazakh experts are not convinced that the Kazakh currency is bound to suffer, however.
Kazakhs are “now subject to panic, but everything will calm down in a week, maybe two,” Kazakh economist Almas Chukin told Forbes Kazakhstan. “We probably won’t return to the level of KZT380 [against the dollar] this year, but there shouldn’t be KZT400 either.”
“To a large extent, [the Kazakh population’s] poverty is the source of support for the dollar. The population simply does not have a large available mass of tenge to ‘turn over’ into dollars,” he added. “And state-owned companies that have tenge reserves will not move anywhere, because they are ‘not allowed to’ [due to the nature of Kazakhstan’s autocratic regime].”
The central bank, the National Bank of Kazakhstan (NBK), announced on March 6 that it sold $557.3mn on the domestic market in February alone as it intervened to combat a spike in