Index trend
Previous Quarterly Editions
Expropriation risk: 58 54 54 53 ► Political violence risk:48 48 48 48 ►Terrorism risk:34 32 32 32 ►Exchange transfer and trade sanction risk: 55 55 55 55 ►Sovereign default risk:56 56 56 56 ►
Overall Risk Temperature: 53 (Medium) TREND ►
Special topic: Relationship with the 'global rules-based order'
Since gaining independence in December 1991, Kazakhstan has pursued a multi-vector foreign policy, maintaining friendly and open relationships with its largest neighbors, Russia and China, the other Central Asian republics in the south and more distant partners such as the U.S., Europe, Turkey, India and Persian Gulf countries. Under presidents Nazarbayev and Tokayev, Kazakhstan has remained committed to the primacy of international law as embedded in the United Nations (U.N.) Charter.
Speaking in June 2022 at the St. Petersburg Economic Forum, alongside Russian President Vladimir Putin, Tokayev emphasized that Kazakhstan would not recognize the so-called Donetsk and Luhansk People’s Republics in the east of Ukraine, which Russia annexed formally in September of that year. He added that such recognition would be a violation of the principle of territorial integrity, refusing on the same grounds recognition to Taiwan, Kosovo, South Ossetia and Abkhazia.
Kazakhstan promotes itself as an open, business-friendly and market-based economy, having joined the World Trade Organization in November 2015. In Central Asia, the country accounts for over 80% of all foreign direct investments, but the government wants to attract more foreign capital into priority areas outside of the strategic oil and gas sector. Furthermore, in August 2023 Tokayev proclaimed a new economic strategy aimed at relaunching the largely stalled diversification and modernization agendas.
Meanwhile, faced with a fragmentation of the world order amid Russia’s ongoing aggression against Ukraine, the Tokayev administration has been repeatedly calling for moderation, the restoration of peace and reconciliation.
Given its long-standing commitment to multilateralism, the country is an active participant in both international and regional organizations. Since 2003, Kazakhstan has taken part in eight U.N. peacekeeping missions, most recently in the Democratic Republic of Congo (since 2023). In 2017 – 2023, Kazakhstan hosted a high-level dialogue on Syria.
While Kazakh authorities are in favor of reform of the U.N. Security Council to ensure better representation of the developing world, they have largely steered clear of criticizing the way the council currently operates.
TREND ►
The unrest of January 2022 saw President Kassym-Jomart Tokayev seize power from predecessor Nursultan Nazarbayev who, in a mostly ceremonial role, continued to control large parts of Kazakhstan’s economy. Following the unrest, the government seized extensive assets from figures linked to the Nazarbayev family and forced members of the elite to contribute large financial sums to an ostensibly charitable fund. More such expropriations from Nazarbayev allies are likely.
The government maintains that foreign investors will not be affected by these internal developments — and the president has made several visits to Europe to court new investors, most recently to Italy in January 2024.
In March 2023, the Kazakh ecology ministry lodged a $5.1 billion environmental lawsuit against North Caspian Operating Company, the foreign-controlled operator of the giant Kashagan oilfield. In June 2023, a local court largely threw the lawsuit out; however, in February 2024 a higher appeals court ruled in the government’s favor. According to Bloomberg, the two sides had started working on a $110 million settlement, in the form of additional social spending.
High inflation and income inequality are having deep adverse impact on socioeconomic stability. The government remains concerned about possible further popular unrest; authorities are providing extensive support to the economy and households.
Security services are pursuing the most outspoken opposition figures. Meanwhile, March 2023 legislative elections saw low turnout, implying widespread popular apathy. The government, however, cannot rely on either of these factors to protect it; as 2022 showed, widespread popular protest remains possible.
Following the January 2022 unrest, the government claimed that “foreign terrorists” were involved in stoking the violence seen in Almaty. While there is a strong chance that foreign nationals were recruited to participate, there is no evidence to suggest that these figures were members of radical extremist groups, such as Islamic State or Al-Qaida, nor that their intervention was motivated by Islamist ideology.
While the security services will remain vigilant to any Islamic extremism, any incidents of radicalization are likely to be rare and isolated. According to official statistics, the National Security Committee (known as KNB) prevented two planned terrorist attacks during 2023.
The Kazakh tenge is ostensibly in free float and typically moves with the price of oil and other key currencies, particularly the U.S. dollar and Russian ruble. Following a long period of weakening lasting despite the price of oil rising on international markets, the tenge began to strengthen in late 2023, restoring some lost confidence in its medium-term stability.
In August 2023, the government suspended the mandatory sale of 30% of foreign currency earnings by exporters through 2024; however, were the tenge to weaken further significantly, this measure could be reinstated ahead of schedule.
With the onset of Russia’s invasion of Ukraine in 2022, Kazakhstan and other Russian neighbors have been subject to greater scrutiny from Western governments seeking evidence of sanctions violations. With Kazakhstan’s deep economic ties and long border with Russia, individual Kazakh companies have been involved in sanctions-busting, and some of them have been sanctioned by the West. The government continues to insist that it will not allow Russia to circumvent sanctions via Kazakh territory or using Kazakh-based intermediaries.
The Kazakh economy has gone through several dislocations recently, including the end of the commodity super cycle (2014 – 2015), a banking crisis (2015 – 2017), the COVID-19 pandemic (2020 – 2021) and the still-ongoing dislocation around the Russia-Ukraine war.
Kazakhstan’s gross international reserves have increased from $33.6 billion in August 2023 to $36.7 billion in January; these comprise gold (53%) and a basket of freely convertible foreign currencies (47%). The gold’s share has been edging increasingly closer to the Kazakh central bank’s target of not more than 50%, following a decline from as much as 68% in early 2022.
Kazakhstan also has access to ample foreign currency reserves accumulated in its National Fund, financed by taxes paid by the oil and gas industry. In January, these reserves stood at nearly $60 billion, unchanged from the middle of 2023. The fund is regularly tapped to cover budget deficits, although a presidential decree has restricted conditions for allocation of monies from it.
Despite continued macroeconomic headwinds, the risk of sovereign default remains low. In October 2023, Moody’s upgraded Kazakhstan’s macroeconomic outlook from “stable” to “positive” while reaffirming its Baa2 rating. The following month, Fitch reaffirmed its stable outlook with a BBB long-term rating. Back in March 2023, Standard & Poor’s upgraded its own outlook for Kazakhstan from “negative” to “stable” while also maintaining its sovereign credit rating at BBB–.
