Kazakhstan Macro: Weaker Tenge Required
The Bureau of National Statistics reported that the Kazakh economy continued to grow in 7M23, albeit unevenly across sectors. This growth was accompanied by decelerating inflation, which monthly rate varied from 0.5% to 0.6% since May and a similar m-o-m rate is expected in August. Hence the y-o-y inflation may move closer to 13%. Still, inflation looks quite high, and generous budget spending is one of the key reasons for this. High inflation causes unnecessary real appreciation of the national currency, as well as some other problems, which may be tackled only via some currency weakening.
One such problem is associated with some deceleration of economic growth seen in recent months. Another problem stems from the fact that a too strong tenge limits budgetary revenue flow associated with taxation of the export-oriented sectors of the economy. As exporters (energy, metal companies) remain an essential part of the Kazakh economy and important tax payers, it looks as though a too strong tenge suppresses their profits in local currency. Hence corporate tax collection looks rather poor so far. The republican budget (the core element of the budgetary system) turned more dependent on transfers – mainly from the National Fund.
The country’s exports are mostly denominated in dollars, while the bulk of its imports come mainly from its neighbors (Russia and China including). As a result, combined with generous budgetary policy, Kazakhstan’s imports soared as exports remained relatively unchanged. So far, capital inflows help to keep the currency stable and, in principle, the authorities have enough resources in the National Fund to support the tenge. The question, however, is very simple – what for? Some correction of the tenge’s rate seems absolutely necessary as a strongly negative current account makes the country excessively sensitive to external shocks.
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