The government and National Bank of Kazakhstan (NBK – central bank) have begun working on an action plan to deal with possible negative impacts on the Kazakh economy from the latest round of US sanctions against Russia. US sanctions have been made on a number of Russian oligarchs and their companies, including Viktor Vekselberg and Oleg Deripaska — whose En+ Group controls RusAl, the world’s second largest producer of primary aluminium. Subsequently, the Russian stock market suffered heavy losses, and the rouble lost value against both the US dollar and euro. Kazakhstan’s financial and economic institutions began working out possible scenarios regarding the potential impact on the economy.
The Ministry of National Economy projects that a deterioration in Russia’s economy can affect Kazakhstan in three main areas: trade, investment and exchange rates. The Russian companies under US sanctions have, with a few exceptions, relatively little connection with Kazakhstan. The company most severely affected is RusAl. It owns Bogatyr Komir, which is developing the Ekibastuz coal mine in north-east Kazakhstan in partnership with the Samruk-Kazyna sovereign wealth fund. Russian banking capital, also affected by sanctions, has a strong presence in Kazakhstan.
A more serious concern is the potential devaluation of the Kazakh tenge because of its strong link to the Russian rouble. A similar situation unfolded in late 2014 and early 2015. At that time, the Kazakh economy experienced a serious shock after a double devaluation of the rouble, and a stream of sharply depreciating Russian goods poured into Kazakhstan. The authorities stabilised the tenge for a while but this necessitated the use of significant foreign currency reserves and seriously affected local producers because of the open border with Russia. Kazakhstan’s membership of the Eurasian Economic Union (EEU) means that goods, services and capital flow freely between Russia and Kazakhstan.
This month the tenge again rapidly depreciated against the US dollar, as it did in February, and the rouble rate also went down swiftly. The central bank did not see this as a cause for concern and described the trend as normal volatility.
Significant currency devaluations can accelerate inflation — already significant in Kazakhstan — affecting living standards and possibly contributing to social tensions. It is likely, however, that the regime will stay on top of the situation and fend off serious economic troubles if there is no further serious escalation between Russia and the West and further US sanctions.
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