Index Trend Previous Quarterly Editions
Expropriation Risk: 58 ▲ Political Violence Risk: 48 ► Terrorism Risk: 34 ► Exchange Transfer and Trade Sanction Risk: 55 ► Sovereign Default Risk: 55 ►
Overall Risk Temperature TREND ►
Special topic: Protest intensity in 2022 and Q1 2023* 2022 Q1 2023Medium Medium Low Low
Cost-of-living protest risk in 2023* Medium Medium
*Note: Protest intensity is calculated based on ACLED. Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of calculations, see the introductory essay.
Kazakhstan entered 2023 with record levels of inflation more reminiscent of the turbulent period of the 1990s than at any period this century. Official figures suggest inflation levels have breached 20% year-on-year, although anecdotal reporting suggests that consumers are experiencing far steeper rates. The rising cost of staple goods is particularly concerning. The government’s own figures suggest the average household now spends more than half of its income on foodstuffs – an unprecedented level of spending.
The issue of inflation has been a longstanding concern for the Kazakh government, which is ever fearful of popular unrest. The government is haunted by the events of January 2022, when local protests over fuel prices exploded into a nationwide uprising that presented an existential threat to the administration of President Kassym-Jomart Tokayev. The uprising, which turned violent, was eventually quelled by the security services, whose resolve was strengthened by the support of troops from the Russia-led Collective Security Treaty Organisation.
The inflation challenge in Kazakhstan is caused by several factors that are not easily resolved. Over the last eight years, the value of national currency the tenge has been in steady decline which, combined with Kazakhstan’s heavy dependence on imports, has been a key driver of inflation. Structural weaknesses in the economy such as long and inefficient supply chains, monopolies, price controls, and excessive bureaucratic hurdles have also driven inflation. All these factors have been heavily exacerbated by the global uptick in inflation and government spending, not least also due to the policy responses to the COVID-19 pandemic, including socioeconomic lockdowns that caused supply chain disruption globally.
The government has set out a sensible programme of measures to curtail inflation, such as price liberalisation and administrative reform. However, for fear of popular unrest, the government has not considered any kind of austerity policy and has continued to increase spending, hoping to placate the population. For this reason, central bank rate action has had little impact on the inflationary dynamic. While some of the spending, such as that on infrastructure, is commendable, other spending, such as extensive subsidies on commodities and subsidised lending, is counterproductive. The collective impact, however, has been dramatically to drive up inflation.
The government is now in the unenviable position of having to decide between placating the population through ongoing spending or attempting to curtail inflation with austerity measures. Having completed an electoral cycle which saw President Tokayev and his political party, the Amanat party, returned in recent presidential and legislative elections, it is possible the government may begin to take more serious action to deal with inflation. However, with the January unrest such a recent memory, there is every chance the government will continue to put off difficult decisions.
Expropriation Risk 58 (Significant) TREND ▲
The unrest of January 2022 saw Tokayev seize the reins of power from his predecessor, Nursultan Nazarbayev, who, in an ostensibly ceremonial role, continued to control much of the Kazakh political economy. In the aftermath of the unrest, the government seized several assets from figures linked to the Nazarbayev family and forced members of the elite to contribute large sums of money to an ostensibly charitable fund. There is every likelihood that this campaign will continue into 2023.
Throughout this period, the government has maintained that foreign investors will not be affected by these internal recriminations, with the President making several visits to Europe to court new investors. However, the emergence of a USD5.1 billion environmental lawsuit against largely-foreign-owned operator of the giant Kashagan oil field North Caspian Operating Company may undermine these pledges if the government’s claim is seen to be frivolous or excessive by [insert party].
Political Violence Risk 48 (Medium) TREND ►
With inflation having a serious impact on socioeconomic conditions, the government remains extremely concerned about the possibility of popular unrest.
To prevent unrest, the government is providing extensive support to the economy and households and the security services are actively pursuing opposition figures. While the suppression of civil society may mitigate some risk of unrest, it also makes the incidence and nature of popular unrest far more unpredictable and chaotic. As a result, any local grievance or political scandal has the potential to trigger mass protest.
The low turnout in March’s legislative elections suggested the overwhelming mood among the population was one of apathy. However, given the events of January 2022, the government cannot depend on apathy to protect it from unrest.
Terrorism Risk 34 (Low) TREND ►
Following January 2022, the government claimed that ‘foreign terrorists’ were involved in stoking the violence seen in Almaty. While there is a strong chance foreign nationals were recruited to participate in the unrest, there is no evidence to suggest these figures were members of radical extremist groups, such as Islamic State or Al-Qaeda, nor that their intervention in January was motivated by Islamist ideology.
While the Kazakh security services will remain vigilant to any threat of Islamic extremism, any incidents of radicalisation are likely to be rare and isolated.
Exchange Transfer and Trade Sanctions Risk 55 (Significant) TREND ►
The tenge is ostensibly in free-float, and typically moves with the price of oil and other key currencies, particularly the Russian rouble. A recent strengthening of the tenge led to claims the government was manipulating the currency’s value to appease the population ahead of recent legislative elections, a common occurrence ahead of key political events.
With the onset of the Russian/Ukraine crisis in February 2022, Kazakhstan and other neighbours of Russia have been the subject of greater scrutiny from Western governments seeking evidence of sanctions violations. With Kazakhstan’s deep economic ties and large land border with Russia, it is possible individual Kazakh legal entities could be involved in sanctions-busting activity, creating the risk of limited sanctions against Kazakh nationals and entities.
In June, the U.S. government included Kazakhstan on a list of countries that could be used as transhipment points to bypass sanctions against Russia. However, the Kazakh government has demonstrated its willingness to comply with sanctions.
Sovereign Default Risk 55 (Significant) TREND ►
The Kazakh economy has gone through several dislocations in recent years, including the end of the commodity super cycle (2014-15), a banking crisis (2015-17), the COVID-19 pandemic (2020-21), and the dislocation around the ongoing Russian/Ukraine crisis.
All these events have led to a consistent decline in Kazakhstan’s macroeconomic standing. National debt continues to rise and has now reached 6.8% of GDP, while the non-oil fiscal deficit has reached nearly 30% of GDP.
Nevertheless, the risk of default is low, given the low debt levels. Moreover, Kazakhstan has a large national oil fund, the balance of which has remained consistently between USD50-60 billion, nearly one-third of GDP.
