May 13, 2020 / 8:43 AM / 13 days ago

Kazakhstan could win from weaker tenge - EBRD

ALMATY, May 13 (Reuters) - Kazakhstan could boost the competitiveness of its non-oil sector in a time of low energy prices as a change in relative prices supports diversification, a European Bank for Reconstruction and Development (EBRD) economist said.

The EBRD drastically slashed its economic outlook for the 37 countries in its region on Wednesday as a result of a sharp hit to tourism, remittances and commodity prices from fallout from the novel coronavirus.

Oil-rich Kazakhstan, the biggest economy in Central Asia, is set to post a 3.0% gross domestic product contraction this year, the EBRD said, “followed by a 5.5% rebound in 2021, supported by a partial recovery of oil prices”.

In order to ease its dependence on oil revenue, the nation of 19 million could boost its competitiveness by taking advantage of the opportunities presented by reshoring of global supply chains. Exports in 2020 are expected to drastically fall but weaker currency may help to offset the impact.

The tenge has lost 9.1% of its value against the dollar this year, but its real effective exchange rate against a basket of currencies of Kazakhstan’s main trading partners was flat year to date in March, according to central bank data.

Livny said that in a period of drastically reduced consumption amid the pandemic inflation would be constrained despite the depreciation of the tenge.

“When demand is under such pressure, you don’t see prices go up,” he said. “It’s a buyer’s market.”

Livny said the EBRD forecast Kazakh inflation below 10% this year, which, depending on the scale of nominal depreciation, could imply some depreciation in real terms.


Kazakhstan is the only energy exporter in Central Asia that the EBRD expects to post a contraction this year due to heavy reliance on commodity exports. Growth in gas exporters Uzbekistan and Turkmenistan is set to continue albeit at a much slower pace.

Uzbekistan is a more diversified economy: commodity exports constituted about 50 per cent of Uzbekistan’s total exports in 2019, with gold accounting for more than a half, providing a natural hedge in turbulent times.

Turkmenistan, though almost solely dependent on China for gas exports, has not imposed any lockdown measures constraining economic activity as the Ashgabat government says it has confirmed no COVID-19 cases.

Meanwhile, the economies of Kyrgyzstan and Tajikistan are also set to shrink due to their dependence on remittances from migrant workers employed in Russia.

Both countries have limited foreign exchange reserves, but have already secured emergency aid from the International Monetary Fund and are in talks with other donors and creditors.

Tajikistan has very limited fiscal space and high debt overhang, Livny said, although financial constraints and the terms of IMF emergency assistance aid are likely to force it to delay the construction of the $3.9 billion Rogun hydroelectric power plant.

The $3.9 billion Rogun megaproject, for which Italy’s Salini Impregilo is the main contractor, is set to feature the world’s tallest dam and eventually become a key source of revenue for the mountainous nation.

Kyrgyzstan has suffered additional damage, having relied heavily on re-exporting goods from China. It received a second package of emergency assistance from the IMF this week to cope with the large balance of payments gap. (Reporting by Olzhas Auyezov; Editing by Toby Chopra)

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