Galym Kusainov, a Kazakh economy observer, says that profiteers benefited from the Tenge hardening, while the national economy lost.

In his Telegram-channel, Mr. Kusainov shared his observations regarding the transient hardening of the Kazakh Tenge in the beginning of March, as well as its present falling. Literal translation below:

Source of Hardening

“As was expected, National Bank confirmed sales of USD stored in the National Fund. Those sales influenced the USD-KZT exchange rate. With that respect, one rather logical question appears – should the moneys from the National Fund take part in the establishment of the exchange rates or not?

We need to understand, how we replenish the National Fund. Those replenishments from Minerals Extraction Tax, Income Tax and Oil and Gas Excess Profit Tax.

In other words, taxes paid by TCO, KPO b.v., CNPC, KMG and other oil producers go to the National Fund, not the National Treasury. The initial sense behind that procedure was to save those moneys for future generations, instead of using them in economy. Later, the National Fund became an instrument providing the funding for economic development projects, as well as to fund the national budget deficit. 

At present, there almost are not replenishments of the Fund, which fact means that the taxes are transferred to the National Treasury to fund the national budget. With approval of the national budget in 2022, we, in the beginning of this year, made adjustments to the future budget, increasing transfers by KZT 1.5 trillion.

USD from National Fund Should be Sold Evenly

Now, we are facing a philosophical question. Thinking logically, we might conclude that moneys go to budget and then are directed into economic development, consumption of imports, acquisition of investment tools.  It would appear logical, that after a certain lag, moneys shall be again exchanged to USD, which means that the economy will come to disbalance, again. That is why, moneys sold from the National Fund should take part in the establishment of the market exchange rates, but that procedure should be done in the proper way. Otherwise, our national currency shall come under pressure, even when oil prices are high. 

First of all, USD should be sold out evenly throughout a year, except of tax weeks. We know the amount of the annual transfer, so the error limits should not be that high.

Secondly, we should eliminate all exchange constraints for market players. Such constraints are, for example, the mandatory sale of a part of USD revenues by quasi-state companies or prohibition for legal entities to buy hard currency without appropriate contracts. That will help to get rid of volatility associated with both Tenge falling and hardening, which both factors are bad for economy. 

Thirdly, our currency market is very much convoluted, because banks have limitations on creation of currency deposits. Banks today are depositing USD under 1%, while all over the world, the value of USD is more than 5%. But even, when banks attract USD with 1% interest rate, they are not in the position to redeposit USD, given robust limitations on the mass and for individuals. 

Besides, the banks cannot deposit USD at international markets, due to the presence of the fixed assets coefficients. Currency market needs to be liberalized, but that process must be done in the proper way, in the phased manner and with proper public communications. Tenge volatility with stable oil prices, National Fund injections and tax weeks is not very good for real economy, because when such things happen, businessmen lose, while profiteers benefit.