Kazakhstan macro: Various factors are pushing the tenge off equilibrium again
In our previous reports, we have repeatedly mentioned that an excessively strong tenge was one of the main reasons for the poor flow of the exchange rate-related taxes on various levels of the country’s budgetary system, including the National Fund. As the tenge weakened in December and remained relatively weak in January (although further weakening would have been desirable to bring it to a more equilibrium level because inflation in the country is still high and is likely to remain elevated this year), we had hoped that the tax flow associated with the extraction and export of hydrocarbons could increase meaningfully this year. However, the tenge appreciated back to about USD/KZT500 in February, which looks too strong for the Kazakh currency, and is putting budget revenues at risk (unless the exchange rate weakens again soon).
The recently strengthened tenge raises concerns not only about this year’s budget revenues but also about the balance of payments as a strong tenge may further inflate imports, and the authorities could start “supporting” the currency again by selling FX and preventing/delaying the tenge’s natural weakening trend. What looks particularly unfavorable for the Kazakh economy is that the tenge appeared in December 2024 almost as strong against the dollar in real terms (the latest available figure) as it was in December 2020—despite very high inflation in the country in recent years and the globally appreciated dollar.
It seems that apart from various factors, the ruble’s recent pirouettes have also affected the tenge quite significantly. As Kazakhstan and Russia maintain close trade relations, the ruble and the tenge are interconnected (China and Russia are the two main trade partners for Kazakhstan, and the bulk of Kazakh imports come from Russia). It is hard to foresee the future trends of the ruble at the moment, but most likely, it will remain volatile—at least in the short-term. The recent market sentiment that moved the ruble reflected certain geopolitical developments (or expectations that may not materialize). What deserves additional study is the broader use of national currencies in Russia’s foreign trade. The ruble is part of the payment system emerging in the BRICS+ community. Hence, there is a growing demand for rubles from third parties buying Russia-produced goods. We will continue to watch these developments closely.
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