Kazakhstan Likely To Avoid Worst Of Russian Economic Slowdown

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Kazakhstan looks like a safe haven following Russian political fallout

Kazakhstan, a member of the Eurasian Economic Union (EAEU) together with Russia, is expected to be able to ride through the worst of the economic slowdown Russia is and will experience during 2022/23, according to Sophia Donets and Andrei Melashchenko, economic analysts for Russia and the CIS at Renaissance Capital Investment.

According to Donets and Melashchenko, Tajikistan, Uzbekistan and Georgia are much more sensitive to the slowdown in Russia.

“Exports, remittances and direct investment from Russia account for nearly 4% of Kazakhstan’s GDP. Nevertheless, the economies of the countries which are in the EAEU are traditionally connected,” they noted. The EAEU also includes Armenia, Belarus and Kyrgyzstan and appears more resilient than the CIS nations, which include Azerbaijan, Georgia, Moldova, Tajikistan, Turkmenistan, and Uzbekistan in addition to the EAEU states. The difference between the two blocs is that the EAEU is a free trade area and has Free Trade Agreements in place with countries such as Vietnam. The CIS is not a multilateral Free Trade bloc as such, members having different bilateral agreements with each other instead.

Donets and Melashchenko stated “We expect Kazakhstan’s GDP growth to slow to 3-4% (down from the previously projected 5.3%) during 2022, despite the favorable situation in the oil market and the projected growth in production.”

Renaissance also noted that any separate sanctions are unlikely to be imposed on Kazakhstan (including on energy resources transported through Russia). “According to Kazakhstan’s presidential administration, the country will comply with the sanctions imposed by the international community against Russia. Kazakhstan may benefit from the measures of capital control in Russia and the ban on investment in this country by a number of developed economies in the long term.”

The analysts also said that the government and the National Bank of Kazakhstan have already taken a number of measures aimed at minimizing the negative consequences of the recession in Russia, stating that “The Kazakh government has significantly increased state budget spending for this year to support household incomes and ensure food security, maintaining the deficit at nearly the previously expected level due to a growth in transfers from the National Fund and in export duties.”

The National Bank of Kazakhstan is tightening its monetary policy and conducting interventions in the foreign exchange market (about US$1.3 billion since the end of February) to support the national currency and reduce the negative impact on inflation from the weakening of the Kazakh tenge and the Russian ruble. The country has been able to retain its position as a transit hub for freight between China and the EU by shipping goods from its Aqtau (Aktau) port across the Caspian to Azerbaijan, where rail and Black Sea connectivity give access to the southern European Union ports in Bulgaria and Romania.

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Russia Briefing is written by Dezan Shira & Associates. The firm has 28 offices throughout Eurasia, including China, Russia, India, and the ASEAN nations, assisting foreign investors into the Eurasian region. Please contact Maria Kotova at russia@dezshira.com for Russian investment advisory or assistance with market intelligence, legal, tax and compliance issues throughout Asia.

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