Gradually improving, but risks remain elevated amid rising global challenges


HIGH RISK for entreprise

  • Economic risk

  • Business environment risk

  • Political risk

  • Commercial risk

  • Financing risk

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GDP USD159bn (World ranking 55, World Bank 2017)
Population 18mn (World ranking 64, World Bank 2017)
Form of state Republic / authoritarian presidential rule
Head of state Kassym-Zhomart TOKAYEV (President)
Next elections 2020, presidential
  • Abundance of raw materials (e.g. hydrocarbons)
  • The National Fund of the Republic of Kazakhstan (NFRK, the national oil fund) still holds ample assets (USD56bn in September 2018 although down from a peak of USD77bn in August 2014)
  • Strategic location in Central Asia: benefits from China’s Belt and Road Initiative in terms of FDI and infrastructure investment
  • Authoritarian political regime
  • Interventionist and protectionist econo¬mic strategy
  • High dependence on global commodity prices
  • Exchange rate vulnerability to external shocks
  • Vulnerability to Russian business cycle
  • Political instability (i.e. leadership transition)
  • Regional instability in Central Asia
  • High external debt burden

Structural bottlenecks

Kazakhstan has an abundance of raw materials, in particular hydrocarbons. Commodities account for more than 80% of exports. But this lack of economic diversification makes the economy highly vulnerable to the global demand for and the prices of commodities. It is also exposed to the business cycle of Russia, its main trading partner. Moreover, a high dependence on a few large-scale production sites poses risks, as reflected in the shutdown of the offshore Kashagan oilfield in October 2013 due to damage to the pipeline infrastructure which had weighed on the country for several years.

The business environment is about average in our assessment of 187 economies. The World Bank's Doing Business 2018 survey assigns Kazakhstan a fairly good rank of 36 out of 189 countries, up from rank 77 in the 2015 survey. However, the World Bank Institute’s Worldwide Governance Indicators 2017 survey indicates considerable weaknesses with regard to regulatory quality and, in particular, the rule of law and control of corruption.

Growth robust in 2018 but forecast to moderate in line with oil prices thereafter

Following two years of meagre annual growth of just above +1% in 2015-2016 owing to the plunge in global commodity prices, the economy has rebounded since 2017. Real GDP expanded by +4% in 2017 and +4.1% y/y in H1 2018. The recovery was driven by higher oil prices and an increased volume of exports (thanks to the resumption of the Kashagan oil field). Looking ahead, the risks to growth are expected to rise, given that investors are now turning away from emerging markets as global interest rates are increasing while Kazakhstan at the same time is still dealing with structural problems, especially in the vulnerable banking sector. Moreover, world growth has peaked in 2017-2018 and global oil prices are expected to ease somewhat in 2019. Overall, we forecast full-year GDP growth of +4% in Kazakhstan in 2018, followed by a deceleration to around +3.5% in 2019-2020.

Economic policy has improved over the past two years but faces challenges going ahead

After two sizable devaluations in 2009 and 2014, the government decided to float the exchange rate and adopt an inflation-targeting regime in August 2015. This has helped offset the slide in commodity prices due to higher tax revenues from USD exports, while preserving export competitiveness with Russia.

After the peg to the USD was abolished, the KZT lost half of its value within five months until a low in January 2016 and inflation soared to an annual average of 14.6% in 2016. Yet, with stronger exports and investment inflows, the currency stabilized and appreciated slightly until early 2018, though volatility remained high. This helped to bring down imported inflation. Headline consumer price inflation fell to below 8% in 2017 and further to 5.9% y/y in June-July 2018, before it ticked up again to 6.1% in September. As inflation fell, the Central Bank has cut its key policy interest rate successively from 17% in April 2016 to 9% in June 2018. Yet, the monetary policy stance remained tight as disinflation kept real interest rates high.

Tightening international liquidity, contagion from the depreciation of the Russian RUB and the ongoing crisis in Turkey, combined with Kazakhstan's own financial risks, has led to a renewed depreciation of the KZT in 2018. In mid-September it fell to 381 KZT per USD, close to its all-time low of 384 in January 2016. As of end-October, the KZT has lost about -10% of its value against the USD year-to-date. In October 2018, the Central Bank reversed its easing cycle and raised the benchmark interest rate to 9.25%, owing to the increased potential for exchange-rate volatility and weakness and corresponding high and rising inflation expectations. We forecasts headline inflation to rise to an average 7.3% in 2019 and 7.5% in 2020. As this exceeds the Central Bank’s 5%-7% target range, we expect further monetary tightening this year and next.

Fiscal policy has been supportive of economic activity during the slow­down, but consolidation has become the new norm. The annual fiscal deficit should narrow from -6.4% of GDP in 2017 to -3% in 2018 and we forecast -3.5% in 2019-2020. Total Government debt will remain at sustainable levels of slightly over 20% of GDP in the next two years.

High external debt level remains a concern

Thanks to improving terms of trade and rising export volumes, the annual current account deficit narrowed from -6.5% of GDP in 2016 to -3.4% in 2017. In H1 2018, the shortfall decreased by -75% y/y. We forecast the annual deficit to fall further to -1% of GDP or less in 2018-2020.

A major concern remains the sharply increased external debt-to-GDP ratio (128% at end-2017, up from 68% in 2014), stemming from both rising debt and the decline of GDP in USD terms (due to the sharp KZT depreciation). We expect the ratio to decline in the next two years but to remain above 100%.

Foreign exchange (FX) reserves have stagnated at roughly USD20bn from 2014-2017 but fallen to USD17bn in September 2018. They are currently sufficient to cover just around 50% of the estimated external debt payments due in 2019 (estimated at USD33bn), well below an adequate ratio of 100%. Yet, assets from the National Fund of the Republic of Kazakhstan (NFRK, the national oil fund) amounting to USD56bn in September 2018 provide some cushion with respect to the modest level of official FX reserves.

Trade structure by destination/origin

(% of total)

Exports Rank Imports
Italy 20%
34% Russia
China 11%
22% China
Russia 10%
5% Germany
Netherlands 9%
4% United States
Switzerland 7%
3% Italy

Trade structure by product

(% of total)

Exports Rank Imports
Petroleum, petroleum products and related materials 55%
9% Other industrial machinery and parts
Non-ferrous metals 10%
7% Iron and steel
Iron and steel 8%
6% Electrical machinery, apparatus and appliances, n.e.s.
Inorganic chemicals 6%
5% Manufactures of metal, n.e.s.
Gas, natural and manufactured 5%
4% Specialised machinery

The payment culture of Kazakh companies has declined due to local currency devaluation from 2014, with a high risk of further devaluation. There are no DSO statistics available and it highly depends on industry.

  • Low

  • Medium

  • Sensitive

  • High

  • Payments

  • Court proceedings

  • Insolvency proceedings

The courts are reliable and deliver their decisions quickly. However, the requirements to provide supporting documentation for the claim are rather high. Enforcement procedures show moderate results and there is room for improvement.

Insolvency proceedings tend to bring low results for unsecured creditors, while the creditor’s claim must be accompanied by the required set of documentation.

Download the entire collection complexity PDF:

Collection complexity Kazakhstan

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Contact Euler Hermes

Economic Research Team


Contact Manfred Stamer

Senior Economist for Emerging Europe and the Middle East


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