In a bid to stabilise its economy, on August 20 the Kazakh government abandoned control of its exchange rate in favour of a free float system that will be determined by supply and demand. Although the shift has caused a drastic 23 percent decline – the largest ever drop for the tenge – it is expected that the currency will stabilise somewhat in the coming weeks.
Kazakhstan, together with Vietnam, was the latest emerging market to ditch efforts to control
its currency
Kazakhstan, together with Vietnam, was the latest emerging market to ditch efforts to control its currency and relinquish a fixed exchange-rate regime in anticipation of the increase in US interest rates.
The decision in Astana was supported further by the present fiscal landscape, in which the crude-driven economy is struggling to contend with low oil prices and the escalating difficulties facing its two biggest trade partners – China and Russia.
The Central Asian state hopes that the devaluation of the tenge will boost exports, create jobs and encourage investment. Furthermore, according to an announcement by Prime Minister Karim Massimov that was reported by Bloomberg, the shift is also expected to facilitate the pursuit of an inflation target of three to four percent in the medium term.
Despite the bold move, given the country’s intractable links with Russia and China, particularly those with the former, Kazakhstan’s own economic future is increasingly precarious. Although positive steps are being taken to prevent further decline in the arduous wait for rebounding oil prices, including a 10 percent slash to the government budget in February, it simply may not be enough when the Fed’s increase ultimately ensues. While corruption maintains its stronghold and the limited access to capital drastically continues to reduce fiscal activities, the development of the economy is severely restricted, particularly amid the current tumultuous climate of the region.
