After the turmoil of the last few years since 2007, it would be comforting to believe that the global economy is due a period of stability. But we continue to face strong headwinds and be buffeted by violent forces.
China’s remarkable economic growth, which has been the powerful global motor in recent decades, is slowing, further undermining already weak global confidence and accelerating the fall in energy and commodity prices.
After a long period of low interest rates in the United States, the next move is expected to be upwards, fuelling anxiety about what a strengthening dollar will mean.
Europe’s economy is still in the doldrums. Japan’s growth remains weak. The tit-for-tat sanctions between Russia and the West have badly hit trade and countries with no involvement in the dispute.
No country can remain immune to the power of such forces. Globalisation has brought many benefits, but the downside, as we saw in the most recent financial crisis, is that problems now spill instantly across national borders.
And for reasons of geography, history and economics, Kazakhstan finds itself right in the firing line. As a major producer of energy and minerals, the country has felt an immediate impact from the fall in demand and prices. Kazakhstan must prepare, as President Nursultan Nazarbayev pointed out, for an era when oil prices may be below $50 rather than above $100 a barrel.
China and Russia are not only close neighbours but major trading partners for Kazakhstan. Any weakening in their economies or their currencies was always bound to affect Kazakhstan, reducing demand for our goods, making our exports more expensive and their imports cheaper.
This is the difficult global environment through which Kazakhstan is being forced to plot its course. The country is fortunately not starting from a standing start. It is the task of governments always to look for the risks and opportunities that lie ahead and prepare the country for them.
This is basically what Kazakhstan has done by saving a share of oil revenues to invest in the long-term modernisation of the country and well-being of its population. It is to provide resilience and flexibility at times of uncertainty. This preparation was also seen in the Nurly Zhol economic stimulus programmes and the 100 Concrete Steps Plan of the Nation put in place before the present global instability worsened.
These economic policies match long-term ambitions with short-term support. Investment in transport and energy infrastructure, for example, provides not only an anti-cyclical boost to the economy in terms of employment but will deliver long-term benefits. Reforms to step up the diversification of Kazakhstan’s industry, accelerate the move to a green economy and increase the role of the private sector will also deliver rich and long-lasting rewards.
But when the global landscape is changing so rapidly and dangerously, it is vital to constantly test policies to see if they remain fit for their intended purpose and be ready to change them. Kazakhstan’s decision to allow its currency to float shows the country is ready to take tough decisions to protect its achievements and guide progress.
The move brings Kazakhstan into line with the policies of mature economies and the realities of the modern global economy. It has increased the competitiveness of Kazakh goods and services at home and abroad, which will help sustain employment and incomes. It also provides an automatic balancing mechanism for the economy as circumstances change.
Kazakhstan’s National Bank Governor Kairat Kelimbetov has reserved the right to intervene again if the country’s economic stability is, in any way, threatened. The alternative course would have been to spend increasingly large amounts of Kazakhstan’s foreign currency reserves defending the value of the tenge with, as other countries have found, no certainty of success.
There are, of course, risks in letting the currency float. But by using inflation targets to guide monetary policy, the government has put in place new levers to manage the economy. Structural reforms which often go hand-in-hand with such a move are already in train.
Allowing the tenge to float was inevitable as Kazakhstan’s economy became ever more integrated into global financial markets. The ranks of the most developed countries, which Kazakhstan is determined to join, abandoned fixed exchange rates half a century ago. The move may have come earlier than expected but it seems to be the right decision for Kazakhstan’s future.