Most people will have heard of Kazakhstan by way of the spoof documentary Borat. This time the central Asian nation is in the spotlight for something real, as a victim of global selloff in emerging-market assets. After the country abandoned control of the tenge, the currency lost a quarter of its value.
Here’s what you need to know about this vast land-locked country, literally caught between a rock and a hard place.
1. Kazakhstan isn’t poor and has only ever had one ruler. Despite being almost the size of Argentina, only 17.5 million people live here. That’s less than the population of New York state. Before the currency blow, Kazakhstan’s gross domestic product per capita was set to overtake Russia and was already higher than Brazil’s. Nursultan Nazarbayev, 75, who has been in power since 1989 and has immunity from prosecution for life, is the only president the country has had in its 24 years of independence after the Soviet Union collapsed.
2. Oil is not your friend. We are now in a $40-dollar-a-barrel world. That is bad news for countries like Kazakhstan that rely on natural resources and oil reserves for their wealth. With about 90 percent of its exports coming from commodities, Kazakhstan is a textbook case on why economies must diversify.
3. Russia and China are too close for comfort. Wedged between Russia and China, Kazakhstan is economically dependent on both. Most of its imports come from Russia. Moreover, Russians make up a quarter of its population. The ruble’s tumble made imports from Russia extremely cheap, pushing out less-competitive local manufacturers.
Enter China, the region’s other dominant force and potential counterweight to Russia. It took over as the nation’s biggest trading partner and has been Kazakhstan’s top export destination since 2007. But it was China that killed the peg when it weakened its exchange rate earlier this month, forcing a domino reaction by other nations scrambling to stay competitive too. In the long run, an economic slowdown in China may hurt Kazakhstan, as the world’s second-largest economy might need less of the commodities that Kazakhstan produces.
4. This is not the first time Kazakhstan has been in this situation. The last time Nazarbayev dropped the pegged currency’s value, with a 19 percent weakening in February 2014, he had to raise salaries and pensions to restore the Kazakhs’ purchasing power. Several times earlier this year, Nazarbayev promised to avoid a sharp tenge depreciation, saying the move to a free float will take at least five years. The International Monetary Fund said in May that Kazakhstan has enough cash to support the tenge for several years.
5. Fortunately, its debt is low. Kazakhstan’s debt as a percentage to GDP stands at 12 percent, one of the lowest in the world. Phew.
6. Something is rotten in the state of Kazakhstan. Powered by natural resources ranging from oil to uranium to copper, including the world’s largest proven zinc deposits, the economy has remained hamstrung by corruption and political controls. Kazakhstan ranked 126th out of the 177 countries in the Transparency International Corruption Perceptions Index, along with Nepal and Pakistan. It fares worse than many of its emerging-market peers but not as badly as its immediate neighbors.