Why Russian economy still keeps ruble standing

Over the past decade, the Russian ruble to Kazakhstani tenge exchange rate has fluctuated between the minimum 2.62 tenge as of Feb. 3, 2015, and the maximum 8.98 tenge as of July 1, 2022.

Initially, factors such as fluctuations in global oil prices and the COVID-19 pandemic were the main influences. Later, these were compounded by Western sanctions imposed on Russia following the annexation of Crimea and later the full-scale invasion of Ukraine. During this time, the ruble, which had been at 2.62 tenge, increased to 6.17 tenge by the start of the pandemic on Jan. 16, 2020.

After Russia’s invasion of Ukraine, the ruble weakened, dropping to 3.98 tenge by March 10, 2022. However, it rebounded, reaching 8.98 tenge by July 1 of the same year. The upward trend then reversed, and by July 2023, the ruble fell below 5 tenge. In late October, the ruble showed a slight recovery, hovering around the 5-tenge mark but occasionally dipping below it. From February 2024 until early June, it struggled to surpass 5 tenge. By June 20, it peaked at 5.54 tenge, subsequently reaching 5.58 tenge in July, before gradually declining again, though it never dropped below 5 tenge thereafter.

This situation may seem puzzling, as both the Russian and Kazakhstani economies operate in similar ways. Common sense suggests that the currency of a country not under sanctions and not involved in armed conflict should be stronger than that of a sanctioned, war-involved nation.

Nevertheless, the ruble has proven to be relatively solid compared to the tenge, thanks to several factors. First, sanctions have pushed Russia to promote ruble-based trade settlements and transactions with both neighboring countries, including Kazakhstan, and distant states. The ruble has also become the primary currency for trade within the Eurasian Economic Union (EAEU), with over 70% of transactions conducted in Russian currency.

Second, last year, there was a temporary decline in trade with Kazakhstan as China surpassed Russia in terms of commodity turnover. However, the neighboring state is now catching up. From January to August of last year, Kazakhstan’s imports from Russia dropped by 8.2%, but during the same period this year, the figure rose by 2.1%. On the other hand, Kazakhstan’s exports to Russia have also decreased, with volumes dropping by 11.7% this year, compared to a 21.4% increase during the same period last year. Despite this, the balance of foreign trade remains strongly in Russia’s favor, with a surplus of $5 billion this year.

Such dynamics of the bilateral trade lead to increased ruble turnover in the Kazakhstan Stock Exchange (KASE). The trade volume between January and August this year soared by 2.3 times compared to the same period last year, reaching 422 billion.

Finally, the current economic situation does not indicate any significant reasons for the ruble to dip. Official statistics show that Russia’s GDP grew by 4.2% over the first eight months of the year, with an expected growth of 3.9% for the entire year. Meanwhile, Kazakhstan’s economic growth from January to August slowed to 3.7%, down from 4.9% during the same period last year.

Over the first eight months of the year, Russia’s federal budget showed a minimal deficit of 0.2% of GDP. It then returned to a surplus, according to data from January to September. In contrast, Kazakhstan’s budgetary performance has consistently shown a deficit, expected to reach 2.6% of GDP, while the non-oil deficit stands at 6.5%. Over the first six months of the year, the total deficit of the consolidated budget was estimated at 1.9%, with the non-oil deficit at 3.1%, according to the Ministry of Finance of Kazakhstan. Analysts from Halyk Finance, however, estimated these figures at 3.2% and 9.8%, respectively.