Kazakh govt pledges action to stabilize economy as tenge nosedives, but says no danger of default
ALMATY. Dec 2 (Interfax) - Kazakhstan's government is pledging to take measures to stabilize the economy amid a record fall in the national currency, the tenge, but the likelihood of default on either sovereign debt or government-related sector debt is not being entertained.
No danger of default
Kazakhstan's National Economy Ministry does not expect any default by the government, the banking sector or the government-related sector.
"No default is expected by the government, the quasi-public sector or banking sector, if we talk about finances, investment, return on investment and so on," National Economy Minister Nurlan Baibazarov said at a Monday government briefing.
He said the financial situation in the country was stable, the necessary reserves were available, and there was no risk of default.
The government does not plan to increase the volume of foreign currency bonds to compensate for the weakening of the tenge, Baibazarov said.
"This year we have already invested $1.5 billion in the Eurobond market, which enabled us to manage our debt. This debt was closed, it turned out to be a profitable financial transaction for us. But there are no such plans yet. We plan to finance our deficit mainly with the tenge, and also to reduce currency risks," Baibazarov said.
In October this year, the Finance Ministry said Kazakhstan had issued $1.5 billion of 10-year dollar Eurobonds with a coupon rate of 4.714%. The Eurobonds were placed on the London Stock Exchange and the Astana International Financial Centre AIX.Citi, JPMorgan and Societe Generale acted as international organizers, joint lead managers and bookrunners of the transaction, while BCC Invest JSC acted as Kazakhstan's organizer.
Same exchange rate
Kazakhstan's government does not plan to recalculate next year's budget at the rate of 600 tenge to the dollar, Baibazarov said.
"We have calculated [the 2025 budget] according to the baseline scenario of 470 tenge per $1 annual average. There are calculations for 500 tenge per $1. We are not yet forecasting such a plan [600 tenge per $1]. In the forecast calculations of indicators, we have considered a 'plan B' - this is 500 tenge per $1. We are not and do not plan to recalculate at 600 tenge," he said.
The government plans to provide foreign currency investments as part of the implemented projects and programs.
"The investments will go through our currency market, be converted and spent in Kazakhstan to implement the projects. In this way, we will facilitate the inflow of foreign currency into the country," the minister said.
Resources sufficient
"The adjustment of the national currency exchange rate has been necessitated exclusively by external factors, including the global strengthening of the dollar index in the past months, the decline in global oil prices, and the weakening of Russian ruble. Considering that Russia is our major trading partner, fluctuations of the ruble may affect the tenge exchange rate. In this situation, it is the government's priority to prevent the social situation from worsening and to reduce possible negative impacts on entrepreneurs. All necessary measures will be taken to stabilize [the economic situation] and to minimize possible negative consequences both for the economy and the population. The government has enough resources and tools to do this," Baibazarov said.
In order to keep staple prices stable, the National Bank and local authorities will continue taking measures to curb inflation, including the supply of goods in the domestic market, protection of competition, regulation of foreign trade and tariffs, the minister said.
These measures have already led to a decrease in annual inflation from 20.3% to 9.8% in 2023 and to 8.4% in the 11months of 2024, he said.
"The government is monitoring the situation and will take measures to curb price growth for essential [goods]. Food reserves from the new harvest will be used to contain prices for socially important food products," the minister said.
Kazakhstan has sufficient food reserves and there are over 826,000 tonnes of 29 types of goods in the stabilization funds, the minister said.
Also, as the New Year holidays approach, additional measures are being taken to curb possible price increases.
"To further stabilize prices in the winter and off-season, we plan to begin releasing vegetables from stabilization stocks as early as early February, which will provide the market with the necessary volumes of products and prevent price fluctuations," Baibazarov said.
An analysis of price rises is underway, ineffective intermediaries are being identified, and cases of where the trade markup is being exceeded are being looked at.
"The activities of these commissions have been strengthened this year by involving control and fiscal and law enforcement agencies. In order to saturate the domestic market with vegetables during the off-season, a green corridor is being organized to supply early vegetables from neighboring countries. Close interaction with businesses in the trade sector is being carried out," Baibazarov said.
Export revenue versus debts
Baibazarov said the cost of obligations in foreign currency could rise, while the effect from exporters' income will offset the risk of increased cost of servicing debts in foreign currency.
"We expect that the effect that we will have from income will offset the risk of increased cost of our obligations," he said.
He said exporters' foreign exchange earnings would be converted on the market at the rate to be determined at the time.
In November, the National Bank said it would reinstate the rule on the compulsory sale of 50% of foreign exchange earnings by quasi-public entities due to a reduction of the "balance between supply and demand in the currency market."
The tenge accelerated its losses against the dollar in early November. According to the Kazakhstan Stock Exchange, if at the end of trading on November 5, the average rate was 489.01 tenge/$1, then on November 18 it fell to 498 tenge/$1, coming close to the psychologically important threshold of 500 tenge/$1. Last week, on November 27, the average rate crossed this mark for the first time since March 2022 and fell to 500.42 tenge/$1. The rate then continued to fall rapidly: on November 28, it reached an all-time low of 513.05 tenge/$1, and on December 2, it fell to 524.79 tenge/$1.
The rule on mandatory sale of foreign exchange earnings was first introduced in Kazakhstan in 2020 due to the deterioration of external conditions. In February 2023, the amount of mandatory sales was reduced from 75% to 50%, and from July 2023 - from 50% to 30%. In August 2023, the government of suspended the rule on mandatory sale of foreign exchange earnings by quasi-public companies until January 1, 2025 "taking into account the balance of the foreign exchange market and in order to provide quasi-public companies with more opportunities to manage foreign exchange flows".