Default in Kazakhstan: causes of the current situation

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

In February, Kazakhstan faced a problem: many exchange offices closed and stores of building materials, computer and household appliances ceased to function. On the 11th, the National Bank of the country officially announced that the devaluation of the tenge had taken place. The currency of Kazakhstan fell sharply against the dollar.

Not only the most popular categories of consumer goods were attacked, but also the country's automobile market. It suspended its activities until the situation stabilized, with the largest dealers in the industry resorting to this measure, such as Merkur Auto, Bipek Auto and AllurAuto.

Government action

The government in such a critical situation chose not to intervene and stated that it was not going to artificially restrain the rise in prices at the expense of the country's resources. The dollar exchange rate that existed at that time (145-155 tenge per 1 dollar) soared by 30-40 points at once. Later, the growth of the rate did not stop and reached 200 tenge per dollar.

Kairat Kelimbetov - head of the main Kazakh bank -told the media that now measures will be taken and the situation will definitely be resolved, and those who try to speculate on the current state of affairs will face severe punishment. He meant exchangers who are trying to keep the rate at the top position.

Consequences of devaluation

In the process of settling the situation, the national currency was kept at 163 tenge per 1 dollar. This amounted to as much as 20% of inflation instead of the planned 8%. As measures to influence the exchange rate, interventions in national money had to be reduced. Analysts noted that they had to act almost intuitively, not knowing how the Russian ruble, which also has an impact on the national currency of Kazakhstan, will behave in this situation. They noted that, despite some difficulties, there will be no restrictions on foreign exchange transactions in the country.

Stability and more stability

Kazakhstan has a fairly stable position, as it is the only CIS subject that has formed a very long-term economic strategy, up to 2030.

One of the stages in the development of the state is its entry into the WTO. It is also planned to achieve a position in the world ranking of powers not lower than the 50th position. Even Russia looks up to the Kazakh strategy in some respects. This could be observed in the situation with the creation of the Stabilization Fund. Kazakhstan formed this structure 2 years before the Russian government resorted to this initiative. Such measures are quiteable to help stabilize the crisis in difficult economic situations, including influencing the default in Kazakhstan in 2014.

Forecasts

Problems and predicted default in Kazakhstan can be eliminated at the expense of the fund. This is a kind of reserve "for a rainy day", which allows minimizing the risks of tension in the country's economy, including those provoked by the social situation. These factors may include rising prices for real estate and essential products. These measures already helped during the 2008 banking crisis, when US mortgage lending was crippled by large defaults.

Then not only domestic, but also foreign markets of Kazakhstan suffered. The situation seemed global, especially in the context of the loss of interest of world powers in investing in the country's economic programs. But, fortunately, analysts' forecasts are more than reassuring. Kazakhstan is included in the Asian zone, which in the next 10 years should develop rapidly and, as a result, outstrip many Western powers, despite temporary difficulties. Such prospects are possible, since there are plenty of resources for development in the country, and the West has been too conservative in recent years.

Possible problems

The financial system of Kazakhstan foresees several problems, which, however, it is able to solve, according to analysts. Foreign banks require about 11 billion dollars from their Kazakh partners annually, and this will require at leastto refinance part of the loans and borrowings, and a significant one, at least 70% - this is with a total debt of 80 billion dollars for 2008. This situation inevitably affects the position of domestic lending, on which the development of the country's business structures depends. The default in Kazakhstan may well be a consequence of the impact of the external debt situation. State projects for the development of the economy in this situation may be in jeopardy. Banks are definitely trying to increase the inflow of funds at the expense of the population by raising interest rates, including for small businesses, thus increasing prices in Kazakhstan in the service sector.

Who gets hurt?

The default in Kazakhstan had the strongest impact on the building materials market. This situation has been brewing for a long time. The country's banks provoked a crisis in the construction sector, as they stopped supporting mortgage lending to the population. They do not have enough funds to run a cheap housing program on their own, and foreign investment has declined significantly.

Western Europe and the US are ready to issue loans, but mortgage interest will not cover part of the payment on them. The price of foreign loans is too high, so mortgage programs in the country are available only to employees of budgetary organizations (teachers, doctors, officials, etc.). Support is also provided to young families according to a certain list in order to increase the birth rate. Thousands of construction sites across the country have simply stopped, as a result of which there is an increase in unemployment. There was a so-called transformationspheres of influence in the economy. Some politicians are even happy with this state of affairs, when only the largest companies remain on the developer market. The situation was aggravated by the protests of ordinary citizens who acted as equity holders in frozen objects. But every cloud has a silver lining, because banks were forced to offer depositors more income to attract free funds from the population, in order to somehow rectify the situation.

Country ranking

The country is in a tense situation, but domestic analysts give positive forecasts. At the same time, world experts speak of an even worsening of the situation, which is to blame for the default in Kazakhstan. However, according to many politicians, these are temporary difficulties, and the country's global goals have simply receded into the background a little. Back in 2009, the government allocated about $4 billion for stabilization programs. Although this is a small amount for stabilization, a slight increase in the economy after that was noted.

Government promises

The government promises to contain the onslaught as much as it can, at no more than 10% inflation. The part of the population that will be hit the hardest by the crisis is the relatively new stratum of young sales and service professionals, as well as small business workers and entrepreneurs. The national currency of Kazakhstan may stop in its fall, but prices can no longer be fixed at one level. They inevitably grow, driving the population into distress. The government guarantees that the most negative scenario scenarios will succeedto avoid. For banks, this state of affairs could result in a mass closure.

Measures to recover from the crisis

The Parliament of Kazakhstan placed all responsibility on the Government and demanded the adoption of the most non-standard measures. Parliamentarians rightly consider the closure of the mortgage lending program a threat to the stability of the state. They are well aware that the average resident will not be able to afford to buy a house on their salary, which at best reaches the level of 700-750 dollars.

And this, in turn, will lead to new problems not only in the field of housing - the entire economy of Kazakhstan as a whole will suffer. Deputies cannot justify the termination of housing programs in any way and demand the resumption of state support for the population in this important area. The disruption of the construction business and the housing market is also jeopardizing areas of the economy, such as extractive industries, which may face an overproduction crisis at some point. In light of this, foreign supplies of raw materials should be reduced as much as possible, giving priority only to state-owned enterprises. Thus, internal reserves will be directed to solving the most important problems, which, in turn, will provide a chain reaction to get out of the current crisis situation in the country. Kazakhstan hopes to get out of the water only on its own.