The Kazakhstani tenge (KZT) has made a recovery since initially weakening against the dollar on economic and political impacts of the Russian invasion of Ukraine. The currency, which historically tracks the Russian ruble, fell substantially after the latter was battered by the economic sanctions response of major powers to Russia's unprovoked waging of war on its neighbour.

Kazakhstan’s economy is heavily intertwined with that of Russia. After falling over 20% versus the dollar since the beginning of 2022 to nearly KZT525 in March, the tenge strengthened in parallel with the ruble in early April and on April 18 stood at KZT457 against the USD. 

Some observers see the strength of the tenge as partly driven by the strengthening of oil prices in late April and early March, but that came partly at the expense of a reduction in oil exports at the CPC pipeline, one of the main routes - accounting for 1.2% of global oil supply - via which hydrocarbons export-dependent Kazakhstan ships its oil to the West. As such, supply disruptions at the CPC due to alleged storm damage claimed by Russia was unlikely to have a net positive effect on the rate of the tenge. 

Bloomberg reported last week quoting Energy Minister Bolat Akchulakov that Kazakhstan expected its main oil-export route via Russia to restore full operations in late April, but remained concerned about the possible impact of Western sanctions and shipping troubles on the flow of crude. It remains unclear whether the restoration of oil shipments via the CPC would indirectly help support the tenge further down the line.

Kazakh political and financial analyst Andrei Chebotarev was recently quoted by the Finance.kz Telegram channel as saying that the local currency currently reacts to the rate of the ruble’s rate against the dollar more so than it does to the cost of oil or any other factors. The Central Bank of Russia has removed a number of restrictions on currency transactions, including the cancellation of a 12% commission for the purchase of foreign currency via brokers. It also said it would lift a temporary ban on selling foreign exchange cash to individuals from April 18.

This policy will inevitably lead to the weakening of the ruble against the greenback, Chebotarev noted.

A survey of the Association of Financiers of Kazakhstan saw many market participants and analysts predicting that the tenge would weaken to KZT473 as of the beginning of May.

Chebotarev was earlier quoted by the Alau.kz news website as saying that "anyone who will currently attempt to predict the [tenge] rate will be wrong”, stressing that geopolitics will ultimately serve as the main deciding factor amid the ongoing military conflict in Ukraine.

The ruble, as of April 18, was trading at approximately RUB80.8 versus the dollar, close to its rate before the beginning of the invasion, when it traded at RUB80. Before tensions started rising in October following a Washington Post story claiming Russia was massing troops on Ukraine’s border, the ruble’s fair value was estimated to be around RUB70 to the dollar.

The main support for the ruble - in the face of the aforementioned measures that are expected to weaken it - has been from the mandatory conversion of 80% of foreign exchange revenues by export-focused companies along with high interest rates, even though Russia’s central bank unexpectedly cut its policy rate from 20% to 17% in early April.

Kazakhstan has itself relied on tapping its rainy day National Fund in order to keep the tenge more or less afloat as the tenge exchange rate remains a highly politically sensitive issue in the country.

When the invasion of Ukraine began, the Kazakh government initially forced banks and exchange offices around the country to suspend foreign exchange operations in order to prevent panic and speculation among the population. The restrictions have been lifted since then.

The Kazakh central bank has said it sold $510mn worth of US dollars from the National Fund in February to finance the transfer of funds in tenge to the state budget - the measure serves as a method for supporting the rate of the tenge.

Kazakh Deputy Minister of Finance Tatyana Savelyeva was quoted as saying by Trend news agency on April 18 that "the guaranteed transfer from the National Fund will amount to KZT4tn ($8.7bn) this year and at the same time, the balance of receipts and expenditures of the National Fund will be positive at the end of the year."

Kazakhstan has also announced that it is revising its budget, which had originally predicted the dollar rate of the tenge at KZT460 by end-2022.

Despite forecasts that see Kazakhstan’s economy slowing down this year, including the World Bank’s spring economic update that anticipates GDP growth shrinking to 1.5% in 2022 following a recovery to 4% in 2021, the government remains optimistic about state revenues.

"State budget revenues will increase from KZT9.2tn ($20bn) to KZT10.2tn ($22.2bn) in 2022 taking into account the expected external conditions for the development of the economy, according to the revised forecast for socio-economic development, also the measures taken to improve customs and tax administration," Savelyeva said at the presentation of bills amending the law entitled "On the Republican Budget for 2022-2024" and on a guaranteed transfer from the National Fund for the period.

The government has cut its own 2022 forecast for GDP growth to 2.1% from 3.9%, taking into account effects caused by Russia’s invasion of Ukraine, economy minister Alibek Kuantyrov said on April 5.

The post-Soviet Central Asian nation plans to tap its rainy-day National Fund for a further $3.5bn this year to finance additional spending, Kuantyrov told a government meeting.

The assets of the rainy day fund are set to make up 32% of Kazakh GDP as of the end of this year, Kuantorov was cited as saying by Kapital.kz.