Kazakhstan macro: The tenge gradually weakens on lower oil, but not enough
In recent days, the Kazakh authorities published macroeconomic statistics that shed additional light on the country’s situation (which looks not bad at all) and possible challenges ahead. Despite accelerated economic growth in 1Q25, it looks as though tax collection wasn't sufficient, not only in 1Q25 (an issue we have discussed in the previous reports) but also in April. The Ministry of Finance reported that revenue flow to the National Fund didn’t look impressive because in 4M25, National Fund total revenues amounted to KZT0.855 trln (with tax revenues reaching KZT0.844 trln) while the 2025 target for total revenues was KZT4.883 trln, with tax revenues close to that.
We reiterate that a substantially weaker tenge would enable the government to execute the republican budget smoothly, especially if oil prices stay low. Previously, we referred to USD/KZT 550 as a suitable level for this year—assuming an oil price close to $80/bbl. These days, the Brent price at about $60/bbl brings additional challenges for Kazakhstan. Having a relatively low debt-to-GDP ratio but high inflation and elevated interest rates, the government faces natural budget constraints as the costs of debt service are high and a weaker tenge may only increase these costs (in the case of foreign debt). Hence the government was traditionally not in favor of the tenge’s weakening. We think that the government may once again try this year to inflate non-tax revenues instead of significantly increasing borrowing.
In order to secure greater long-term macroeconomic stability and predictability the emphasis will eventually shift to internal balance, namely the budget. Less generous spending would help to bring inflation down and develop the domestic bond market amid a lower interest rate environment and the tenge moving closer to its (albeit weaker) equilibrium.
Now read on...
Register to sample a report