USD/KZT analysis for December

KZT/USD Exchange Rate

With all other conditions being equal, according to the Prophet forecasting model of BCC Invest analysts, the average monthly exchange rate in December 2024 will be at the level of 511.3 KZT per 1 USD with a 95% confidence interval.

As part of monthly monitoring and forecasting of Kazakhstan’s macroeconomic indicators, the Analytics and Research Department of JSC BCC Invest (hereinafter BCC Invest) monitors the effect of external and internal factors on the country’s economy.

According to the data of the National Bank of the Republic of Kazakhstan (the NBRK), the average KZT/USD exchange rate was KZT 464.4 for 11 months of 2024. As compared to the same period last year (11 months of 2023), there is a 1.8% or KZT 8.1 increase.

However, currently, we see a significant weakening of the Tenge: as of 11 December 2024, the official exchange rate reached 508.05 KZT per USD.

Chart. Exchange Rate Dynamics from the beginning of 2024 to December 11, 2024

What’s behind it?

1.Pressure On the Exchange Rate Due To Import Growth

  Kazakhstan’s economy is heavily reliant on imports of goods and services. Increased domestic demand in foreign currency associated with increased consumption of imported goods and international payments creates additional pressure on the Tenge.

  According to the foreign trade data of the Bureau of National Statistics and the State Revenue Committee, the country’s trade turnover amounted to USD 104.3 billion for the first 9 months of 2024, an increase of 1.1% or USD 1.1 billion as compared to 9 months of 2023. The below are the leaders in trade turnover :

I.People’s Republic of China - 21% of total trade turnover,

II.Russian Federation  – 18.7%,

III.Italy – 15,4%.

  Exports of goods totaled USD 61.4 billion, while imports amounted to USD 45.1 billion. The main trading partners of Kazakhstan are the EU, the Russian Federation and China, as they made up this year 72.6% of total imports and 76.4% of total exports.

  For 9 months of 2024, the exported goods are represented by raw materials - 65.4% (or USD 40.1 billion), and by semi-finished or intermediate products - 27.6% (or USD 17.0 billion), and by finished goods or final products - 7.0% (or USD 4.3 billion). This suggests that merchandise exports remain highly dependent on primary commodities, with the low share of finished products indicating the need to further develop the non-resource sector and increase the added value of exported products in order to diversify the economy and improve its sustainability.

  The imported goods are represented by finished products - 60.6% (USD 26 billion), by semi-finished products - 34.1% (USD 14.6 billion) and by raw materials - 5.3% (USD 2.3 billion). It means that Kazakhstanis buy goods with high added value.

  Thus, to conclude, Kazakhstan actually exports raw materials, but returns them in the form of finished products, paying for processing and intellectual components. This model boosts demand for foreign currency and increases pressure on the Tenge.

  Falling oil, metal and other commodity prices immediately result in reduced foreign exchange revenue. This lowers the country’s capacity to meet the import demand, which causes KZT exchange rate fluctuations. For example, during periods of falling oil prices, Kazakhstan has to actively use foreign exchange reserves or make interventions to support the exchange rate.

  According to the World Bank, Brent crude oil prices tend to decline since May of this year. Correlation analysis shows a high negative correlation (-72.5%) between the average monthly Brent oil price and the average monthly KZT/USD exchange rate.

Chart. KZT/USD Exchange Rate and Brent Crude Oil Price Dynamics on average per  month

   The high demand for foreign currency to pay for imports of finished goods and the economy’s weak ability to compensate this through exports of finished goods make the KZT exchange rate particularly vulnerable. The analysis demonstrates that fluctuations in foreign markets caused significant devaluation jumps.

Effect of Transfers from the National Fund

According to the Ministry of Finance (the MoF), during 11 months of 2024, the volume of transfers from the National Fund of the Republic of Kazakhstan (hereinafter - NF) to the republican budget amounted to KZT 5.3 trillion, which is 94.5% of total transfers (KZT 5.6 trillion) for 2024.

Chart. Exchange Rate and NF Transfer Dynamics on average per month

The analysis shows a limited impact of transfers on the exchange rate dynamics in the second half of the year. In recent months, with high transfer volumes, the exchange rate continued to weaken against the US dollar. The reason for such weakening was the decline in global oil prices and Donald John Trump’s victory in the 47th US presidential election, which strengthened the US dollar in the world practice.

Correlation analysis shows a correlation coefficient of 31.3%. In other words, there is a positive moderate correlation between the variables. Most likely, record volumes of the NF transfers allowed to slightly mitigate the consequences of significant depreciation of the national currency, but at the same time couldn’t completely eliminate the effect.

Prophet algorithm can be used as one of the tools for short-term time series forecasting. The Prophet algorithm developed by Facebook (now Meta) researchers is designed to deal with seasonal data and abrupt trend changes.

Prophet is an additive time series model that accounts for:

•Long-term trends (growth or decline patterns),

•Seasonality (daily, monthly, yearly),

•Unusual events (holidays, crises, price hikes).

This model was originally developed for analysts who work with business data (e.g., forecasting sales, demand, or exchange rates). Based on this algorithm, BCC Invest analysts predict the average monthly exchange rate for December 2024 at the level of 511.3 KZT per 1 USD, possibly ranging between 504.5 KZT and 518.0 KZT. The forecast takes into account current tendencies of KZT dynamics towards its depreciation or appreciation.

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