Research trip to Kazakhstan

Members of the Emerging Markets Fixed Income team travelled to Astana in Kazakhstan in November 2023 to meet with government officials on the ground. The main purpose of their visit was to update officials on the latest macroeconomic developments and the current status of Kazakhstan’s local currency bonds for inclusion in the JP Morgan GBI-EM index family. The team also wanted to clarify the potential impact of the recent change of Governor at the National Bank of Kazakhstan.

From a macroeconomic perspective, Kazakhstan is extremely well positioned and has a solid credit story, with investment grade ratings from the major rating agencies, as well as the recent change of outlook to positive by Moody’s in October 2023. The country’s strong fundamentals are supported by continued progress in the diversification of its economy and a strong commitment to reforms on both the economic and political fronts. Kazakhstan is considered resilient with respect to potential external risks in view of its low level of public debt, increased fiscal discipline and high reserves. Growth is expected to reach almost 6% in 2023 and to remain at approximately 5% per annum in the following years.

The development of the government bond market denominated in Kazakhstan tenge is a high priority for the country, which aims to join the JP Morgan GBI-EM index family and is currently on Index Watch. The near-term focus is on improving settlement processes and platforms and increasing liquidity. The central bank wants to establish a settlement infrastructure in collaboration with Euroclear, in addition to the current settlement bridge with Clear Stream. Improvements on the liquidity side will include the implementation of a primary dealer framework with local and foreign banks in early 2024, as well as measures to enable several local currency sovereign instruments to be traded on multiple trading platforms. Secondary market trading volumes picked up significantly in 2023 compared to previous years. Offshore investors currently hold the equivalent to approximately USD 1.0 billion of tenge-denominated sovereign bonds, and there was a sizable increase in holdings over the first three quarters of 2023.

Timur Suleimenov, previously a member of the Governing Board of the National Bank of Kazakhstan, was appointed as the central bank’s new governor in September 2023. All other members of the Monetary Policy Committee remain in their roles and the monetary policy framework is expected to stay unchanged, with a commitment to price stability, a medium-term inflation target of 5% and currency flexibility. The main short-term risks to meeting the inflation target are the potential fiscal stimulus outlined in the President’s “state of the nation” speech as well as geopolitical impacts on global prices. Transparency and open communication will remain of high importance, with the trend having been very positive in recent years.