Until 2015, the Kazakh national currency Tenge (KZT) has been stable over the past 10 years, except for the two devaluations of 2008 and 2014. According to Xe.com, the Tenge to US Dollar rate fluctuated around 180–190 until August of 2015, when it suddenly fell by 40 percent to 255 KZT/USD. This was when the government announced that it will make Tenge a “floating currency”, meaning that the currency will not be set by the Central Bank and will be determined by the market instead. The Tenge then continued to fall until the KZT/USD rate reached 390 on January 21st, 2016. The currency now depends on the strength of the country’s economy, which is based mostly on oil, the price of which has been suffering over the few years.

After the free-float, the Tenge fluctuations followed oil price movements. The Tenge continued dropping until late-January 2016 and began to strengthen afterthe crude oil price had similar movements. The Tenge depreciated during the week of July 26th, 2016, by 3 percent. According to Dailyfx.com, both Crude Oil Brent and Light Crude Oil prices have dropped by 9-11 percent between July 22nd and August 2nd. Furthermore, the Russian Ruble has also depreciated with a similar percentage drop in late July. Our neighbor Russia’s economy is also dependent on oil, and as of August 2012, oil and gas represented 42 percent of the total exports of Russia. Kazakhstan’s economy is influenced significantly by the Russian economy given that it is the country’s largest economic partner and both countries are in the Eurasian trade union. Therefore, the value of the Russian Rubble against the US Dollar can affect the value of the Tenge against the US Dollar, but not vice versa given the relative size differences of the two economies.

Affected more than the neighbors

Kazakhstan’s neighbor country Kyrgyzstan, which has a far weaker economy, actually had a “milder” crisis, especially if comparing the strength of its national currency Som (KGS) value against the Tenge. Kyrgyzstan is also in the Eurasian trade union and Russia is its largest trade partner. However, Kyrgyzstan’s Som dropped by only about 23 percent during the two years starting from August 2014, while the Tenge lost about 88 percent of its value against the US dollar during the same period. Similarly, the Som strengthened against the Russian Ruble too.

Furthermore, before the crisis, the RUB/KZT exchange rate stayed stable around 5. During the crisis in mid-March 2016, I noticed that the Tenge weakened by 3 percent against the Ruble. Since then, the KZT/RUB rate mostly stayed over 5. Given the stable rate of the ten years pre-crisis, the KZT/RUB rate of 5 was considered as the “normal exchange rate.” Since the recent relative rate has gotten to be more than 5 KZT per RUB, then Kazakhstan’s economy likely has gotten more worse than Russia’s, compared to the previous 10 years.

The relative worsening of the Tenge against the Ruble was unusual, and I assumed that Russia’s economy is less dependent on oil commodity than Kazakhstan’s, and decided to back it up by data. I obtained the 2014 export data charts from the statistical source: http://atlas.cid.harvard.edu. The chart for Kazakhstan states that 62 of the total export was petroleum oils and gases related (57%+5% from the chart below).

Kazakhstan’s export composition in 2014

A similar data chart for Russia shows that petroleum oils and crude exports represented 42 percent of the total Russian export in 2014 (34%+8% from the chart below). Therefore, Russia’s total export is less dependent on oil and gas commodities than that of Kazakhstan’s.

Russia’s export composition in 2014

Kyrgyzstan does not export any meaningful amount of energy commodities – below is the chart. As a result, Kyrgyzstan’s economy and its currency are not meaningfully dependent on oil price changes. The depreciation of the Kyrgyz Som may have been caused either by the demand and price drop for their other export commodities, or more likely by the demand drop for Kyrgyzstan’s products due to currency depreciations in Kazakhstan and Russia, since the two countries are the main trade partners for the Kyrgyz Republic.

Kyrgyzstan’s export composition in 2014

Kazakhstan in 2016: Life post the currency free-float

Post-crises, a lot has changed in Kazakhstan, including the way people live and spend money. People started to stock up with food earlier, because when the Tenge was falling, no one knew how far the rate will keep dropping. When the currency falls, the prices for food and necessities usually go up, because many products, such as food, get imported to Kazakhstan from other countries.

People now also travel abroad far less and seek for cheaper options. The demand for international flights has dropped, because for the Tenge-holders it became almost twice as expensive as before to travel overseas. The passenger traffic for international flights at Astana Airport in January-June 2016 has dropped by 6 percent compared to the same period in 2015. Clearly, that drop is alleviated by large share of foreign passenger traffic. Furthermore, international airlines flying to Kazakhstan did not decrease the number of flights during the crisis period due to cheaper fuel and higher volume of foreigners visiting or transiting via Kazakhstan, as I discovered. The transit traffic via Kazakhstan has grown significantly in 2016 due to it being a cheaper transit country.

After currency depreciation, most foreign visitors, expats and Kazakhs who earn in US Dollars found it cheaper to visit and live in Kazakhstan, because the prices for products (partially regulated by government), hotels, and flights have dropped in US Dollar value. Those who had bank loans in the Tenge and whose salaries were tied to US Dollars, as well as those who had investments in the US Dollars, have also benefited from the currency crash. However, most Kazakhs, whose salaries and pensions in the Tenge have not been raised, suffered in the aftermath. People and businesses, who had bank loans or debts in a currency other than Tenge, have also suffered significantly.