Previous Quarterly Editions
Expropriation Risk: 58 60 60 62 Political Violence Risk: 40 38 40 43 Terrorism Risk: 34 34 32 32 Exchange Transfer and Trade Sanction Risk: 65 65 67 68 Sovereign Default Risk: 36 37 40 40
TREND ▲ OUTLOOK ►
In June 2020, President Kassym-Zhomart Tokayev marked the first anniversary of his election as the country’s second president since independence in 1991. When COVID-19 reached Kazakhstan in March 2020, Tokayev was quick to introduce an early lockdown and deploy an economic support package. However, the government then pushed to lift the lockdown in order to revive the economy, causing case numbers to rise rapidly so that by early July 2020 the country had 56,000 confirmed cases and many of the restrictions lifted in May 2020 were being re-imposed. By June 2020, a number of senior officials had been infected including Nursultan Nazarbayev, Tokayev’s predecessor as president, creating a sense that the crisis was slipping out of the government’s control. With hospitals reaching capacity levels and people beginning to hear of COVID-19 cases within their direct family and social circles, there is every chance that the popular mood could move from supportive to critical over the coming months. While maintaining the strategic direction set out by Nazarbayev, who remains extremely powerful, Tokayev has sought to portray himself as a reformer and moderniser. In May and June 2020, he signed into law a series of limited political and administrative reforms designed to make the government apparatus more effective and responsive to the needs of the economy. Tokayev also appeared to score something of a political victory in May 2020 with the unexpected dismissal of Dariga Nazarbayeva as speaker of the Senate. Nazarbayeva, the eldest and most ambitious daughter of Nazarbayev, had been seen as a source of opposition to Tokayev and appeared to be positioning herself as a potential presidential candidate. As a major oil exporter, Kazakhstan has also had to contend with the collapse in global oil prices. It is taking part in the OPEC+ production cutting agreement reached in May 2020, cutting output from 1.71 to 1.32 million barrels per day (bpd) in May and June 2020, and then capping production at 1.40 million bpd for the remainder of 2020. The economy is set to contract by 3% in 2020, a deeper decline than those seen during the crises of 2008 and 2014, with only a modest rebound expected in 2021. This collapse in growth is also taking place amid a wider crisis in living standards. Real wages have consistently fallen since 2014 as inflation rose rapidly, particularly in the last two years. Worsening living conditions were the cause of consistent protests throughout 2019 and into early 2020. While the lockdown has prevented most protests since then, Kazakhstan’s crisis is set to be long and deep, allowing plenty of opportunity for further unrest. An amendment to the country’s state of emergency rules gives Tokayev powers to create temporary legislation unilaterally, effectively instituting rule by decree, but this also means that he will be personally held responsible for any perceived failings. The parliamentary elections that are due before the end of 2021 will provide a focal point for various protest movements.
TREND ▲ OUTLOOK ▼
Before the pandemic, the Kazakh government was having some success with its privatisation programme and had managed to list state uranium company Kazatomprom on both the London Stock Exchange and Astana International Exchange. However, the state of the oil market means that state energy firm KazMunayGaz will not have an IPO later this year as planned. Astana had also been attempting to improve the wider business environment through its 100 Concrete Steps programme. However, COVID-19 is having a significant impact on the economy, with more than four million people now receiving pandemic-related hardship payments. Given the depth of the crisis, investors will come under greater pressure to maintain employment, procure locally, and push ahead with projects that may have lost some of their economic rationale in the new economic conditions.
TREND ▲ OUTLOOK ▲
Since Nursultan Nazarbayev stepped down from the presidency in early 2019, there have been sporadic protests across the country highlighting both political and economic grievances. While the pandemic has forced a break in such demonstrations, with an estimated 1.5 million workers now on unpaid leave or having lost their job, the damage to employment and living standards means that a resumption of protests is likely once infection numbers fall. The complicated political environment will be further worsened by the need to hold parliamentary elections by 2021, which are set to be a lightning rod for protest. Under President Tokayev, the government has liberalised the legislation covering demonstrations and the registration of political parties, but it remains highly selective in the kinds of activity that it is prepared to tolerate. Significant protests in various Kazakh cities on June 6 2020 resulted in tough police intervention and more than 100 detentions.
TREND ► OUTLOOK ►
While the difficult economic conditions could increase the attractiveness of extremist ideology over the longer term, the overall threat of terrorist violence remains relatively low. In the past, the government has also shown a tendency to exaggerate the extent of the threat in order to justify its repressive law enforcement practices against political opponents. It is making efforts to halt the spread of extremist ideology through extensive public awareness campaigns and monitoring, and by demonstrating compassion towards women and children repatriated from among Islamic State forces in Syria and Iraq.
The volatility in the global oil price early in the pandemic saw the tenge drop by 15% and briefly fall below 10 to the US dollar in mid-April 2020 before making up some of the lost ground in May 2020, following the conclusion of a new OPEC+ agreement. To prevent a more severe collapse, the government made several interventions, including ordering state-owned enterprises and the National Fund to sell foreign currency reserves. It has also restricted the operations of currency exchange points, using the coronavirus pandemic as a pretext. Having raised its interest rate from 9.5% to 12% earlier this year as inflation surged, the central bank reversed course in April 2020 in an attempt to stimulate economic activity. As a result, inflation has continued to rise and the bank’s assertion that it will remain within its 4-6% target range this year looks increasingly optimistic.
TREND ► OUTLOOK ▼
In recent years, the national budget has grown increasingly dependent on the National Fund, which is fed by oil revenues. In April 2020, a revised budget for the current year showed the government receiving 13 billion USD from the National Fund, which currently has a balance of 58.5 billion USD, while the non-oil fiscal deficit will move into double figures. However, the government debt-to-GDP ratio remains below 25% and if oil prices continue at around the 40 USD per barrel level seen in July 2020, this will help stabilise the National Fund.
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