Devaluation in Kazakhstan will negatively impact Belarus’ international trade

Kazakhstan’s National Bank has devalued the tenge, Kazakh currency, to pre-empt potential problems in the economy. For Belarus, consequences of this decision will be losses in foreign exchange proceeds and reduced international trade. Belarus will have to devalue its ruble to restore the domestic goods’ competitiveness, which has been lost when Belarusian Customs’ Union partners devalued their national currencies.

On February 11^th, Kazakh’s tenge was devalued by 19%.

Kazakhstan’s National Bank decided to raise the upper margin for the tenge exchange rate against the U.S. Dollar from 150-155 tenge per USD 1 to 185 tenge per USD 1. The decision was made to address the Kazakhstan’s emerging problems with current accounts, i.e. growing imports. Coupled with weakening of the Russian ruble, devaluation expectations started growing in Kazakhstan, requiring the National Bank’s intervention. With this decision, Kahzakhstan anticipates to enhance its industry’s competitiveness on the Customs Union market and increase revenues. The decision came as a surprise, provided that Kazakhstan has accumulated significant international reserves – as of February 1^st, they exceeded USD 95.6 billion.

In 2013, Belarus’ international trade with Kazakhstan was USD 785.9 million, with Belarus mainly supplying tyres, tractors, harvesting machines, and furniture. As of December 1^st, 2013, Kazakh corporate debt to Belarusian enterprises was over USD 200 million. Losses from tenge devaluation are assumed to be negligible, since the bulk of the contracts was in U.S. dollars. Most problems will occur with payment deadlines because of the uncertainty over the stability of the tenge exchange rate. Belarus’ main concern is the loss of Belarusian goods’ competitiveness and reduced exports due to higher prices for imported goods on the Kazakh market. For instance, Belshina plans to offer some discounts to dealers in Kazakhstan to maintain sales. Other Belarusian enterprises exporting to Kazakhstan consider similar measures.

Devaluation in Russia and Kazakhstan on the one hand, and significant international reserves and a more stable economic situation in these countries, on the other, may prompt Belarus to devalue her national currency. Belarusian exporters require weak Belarusian ruble to reduce production costs to revenues ratio. A weak ruble could fix the chronic international trade deficit.

In the past, when the Belarusian government was raising prices on some goods on the domestic market, it argued that it was harmonising prices with its major trading partners. A similar argument could be used regarding devaluation, i.e. linking it with the devaluations in the Customs’ Union partners. The need for devaluation is no longer a question, Belarus only has to choose the way – either to hold a one-time devaluation as in Kazakhstan, or gradual, like in Russia.

For Belarus, maintaining a strong ruble is impractical, given the devaluation in other Customs Union partner states. The optimal solution would be a smooth devaluation, which could solve some problems in the economy and preserve the domestic products’ competitiveness on the foreign markets.