The value of the Kazakh currency, the tenge, has dipped over the past two weeks, shaking the confidence of citizens during the holiday season. Russia, Kazakhstan’s leading source of imports, appears to be a major cause of the exchange rate woes.

The tenge hit 522 to the US dollar on December 4. Over the past week, it recovered slightly only to take another dip. It was again trading at 522 on the morning of December 13. The decline of the tenge’s value by up to 10 percent in just 10 days set social media in Kazakhstan ablaze.

“Soon our currency will turn into candy,” one poster worried.

The currency’s loss of value is already exerting inflationary pressure on food items and consumer goods, much of which Kazakhstan imports from Russia. Shops in Almaty and elsewhere have increased prices. 

Officials’ credibility has taken a hit in the eyes of many citizens. As recently as October, top government officials, such as Vice Minister of National Economy, Arman Kasenov, were touting the strength of the tenge, citing an improving balance of trade.

“Exports this year are much higher than last year. Imports have fallen. We have a healthier trade balance today. Therefore, at the moment we have no grounds for devaluation,” Kasenov testified during a Kazakh senate hearing. 

Kazakhstan’s National Bank, in a November 28 statement, attributed the sudden slide of the currency to “a number of external fundamental factors.” Specifically, the statement indicated that Kazakhstan’s exchange-rate woes are linked to the deeply troubled Russian economy, which is itself straining to grapple with the steep decline of the ruble. The tenge’s plunge has coincided with news that the ruble hit its lowest level in over two years, following the announcement of a fresh round of US sanctions.

Although China has recently eclipsed Russia as Kazakhstan’s top trade partner in overall turnover, Russia still occupied the top spot during the first eight months of 2024, in terms of imports by Kazakhstan, with an almost 30% share, according to official government statistics. 

The central bank also cited the strengthening of the US dollar as a reason for the tenge’s decline, noting that a “strong dollar is traditionally a negative factor for raw materials.” Other factors exerting influence on forex markets were “the worsening geopolitical situation” and price volatility in energy markets. Kazakhstan’s main exports are raw materials, including oil and gas.

Current conditions have the potential to exert “speculative pressure” causing further currency volatility, the National Bank noted. “For the prevention of destabilizing fluctuations, smoothing out excessive volatility of the tenge exchange rate, and for the purpose of ensuring the supply of foreign currency, the National Bank conducts currency interventions,” the statement reads.

During late November, the National Bank sold more than $1bn of assets from the National Fund, the state’s strategic “piggy bank”. Another $900mn is under plans to be spent on maintaining the tenge in December. To combat inflation, the bank also increased the base rate by a percentage point to 15.25%.

Analysts are worried that the present, heavy dependence on the National Fund to support the tenge will undermine the country’s economic resilience over the medium term. In October, the International Monetary Fund called on Astana to establish clearer fiscal policy guidelines with the aim of preserving the National Fund’s ability to underwrite social and economic infrastructure projects, as well as protect against future, unexpected economic shocks.

At the end of November, the National Bank raised the forecast range for inflation in 2025 to 6.5-8.5% from the previous 5.5-7.5%. However, the real increase in prices is much higher than official inflation indicators, which is confirmed by comparisons of prices in stores and markets, which are often conducted by bloggers.

A major source of government revenue is taxes paid by energy companies. Such entities in Kazakhstan pay taxes in dollars. Accordingly, the tenge’s dip, for now, is not expected to create a major hole in the state budget.

Even so, economic observers are worried about the near term. Almas Chukin, managing partner at Visor Kazakhstan, an Almaty-based private equity firm, told Eurasianet that investors have started to withdraw money from the country. In addition, even with an increase in the base rate and cost of credit, people continue to use loans, which inevitably leads to an increase in prices.

The underlying fundamentals of the tenge are “under strong pressure,” said Chukin.

Meruert Makhmutova, the director of the Public Policy Research Center, told Eurasianet that the weakening ruble against the dollar and tenge could cause the Kazakh market to become flooded with Russian foodstuffs and goods, hurting the competitiveness of local producers and sapping the strength of the local economy.

Almaz Kumenov is an Almaty-based journalist.

This article first appeared on Eurasianet here.