The current account deficit widened in 4Q23 as the tenge got excessively strong

KAZAKHSTAN - In Brief 07 Feb 2024 by Evgeny Gavrilenkov

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The National Bank of Kazakhstan published its first estimate of the 2023 balance of payments, and it became clear that in 4Q23, the current account deficit widened to $3.3 bn from $1.6 bn in 3Q23. In 2Q23, the deficit was even wider ($3.4 bn). However, in 1Q23, it was again moderate ($1.6 bn). Apart from the oil price that moderately affected exports, the tenge’s exchange rate appears to be a primary reason for the current account changes, as quarterly exports grew steadily last year – from $19.0 bn in 1Q23 to $20.8 bn in 4Q23. Quarterly imports grew in 2Q23 in q-o-q terms, contracted in 3Q23, and then rose again in 4Q23 (also q-o-q). As a result, imports increased from $13.8 bn in 1Q23 to $16.5 bn in 4Q23. These fluctuations looked fully correlated with KZT fluctuations. The latter strengthened in 2Q23, corrected in 3Q23, and then appreciated in 4Q23. As a result, the tenge appreciated in nominal terms in 2023 as a whole. As usual, trends in the services and income balances followed the evolution of exports. We repeatedly broached these issues in the previous notes and suggested that the UZD/KZT rate is far from equilibrium and, at some point, it has to start its journey closer to its equilibrium. The newly appointed Kazakhstan government will have to deal with this issue as an excessively strong tenge will remain a drag on budgetary revenues.