In Kazakhstan salaries depend on labor productivity, not on dollar exchange rate: Minister of Finance

In the past month, tenge per dollar exchange rate has become the hottest topic for Kazakhstanis. From real concerns over the depreciation of the tenge after the initiation of the tenge free float policy on August 20, to bitter-sweet jokes on social network, Kazakhstanis have long ago changed their orient or datum from their national currency to the US dollar.

In 2014, after the February 11 devaluation (19%) Kazakhstanis were not eager to open deposits in tenge as many lost up to 8.1% of their tenge deposits value. Yet, after the government's reassurance many turned their deposits in tenge tempted by high interest rates (10% on tenge deposits vs 2.5% on dollar deposits).

The 2015 devaluation of tenge, a result of the free float policy, has once again contributed to Kazakhstanis' on and off relation with the national currency in favor of the US dollar.

The recent or rather ongoing devaluation of the tenge placed a number of concerns high in the minds of Kazakhstanis. Import and export are the biggest two of these concerns.

A great deal of food, home appliances and other necessity products are imported to Kazakhstan. After the devaluation in August, Kazakhstanis rushed to stores and markets to stock up on sugar, flour and other goods.

The Central Asian country is also one of the major oil producers in the world that sells oil in US dollars. Yet, the decreasing prices of oil on the international market hit local oil companies hard resulting in budget cuts and no prospects of salary raise.

Moreover, despite being the oil producing country, Kazakhstan produces only one third of its consumed petrol locally, importing the remaining two thirds from abroad. This, too, raises concerns, as petrol is paid for in US dollars. After letting tenge float, local officials decided to send petrol in free float as well, allowing the market to dictate the prices instead of keeping a price cap. This means that with the unstable currency rate, AI-92/93 petrol, too, has become unstable in terms of pricing.

From deposits in banks, food on the tables to petrol in tanks, Kazakhstanis see their purchasing power decreasing with the drop of the national currency.

However, Minister of Finance Bakhyt Sultanov believes that salaries of Kazakhstanis and their purchasing power should not depend on the currency rate. At the sidelines of the Majilis, the lower chamber of the Kazakh Parliament, Minister Sultanov talked to journalists about the concerns raised by the citizens. He explained that it took time to adapt to the new policy.

"We have transfered to the new principles, adaptation takes time," he said.

According to the adopted principles, the market should dictate the prices, Sultanov told Tengrinews. In August, the financial regulators of the country explained that they would not intervene with currency rates allowing the market influence the float of tenge. This resulted in drastic changes in the currency rate, which according to the Minister of Finance require time to settle down.

Back at the start of the devaluation saga, in August many joked about the exchange rate spiking up to 300 tenge per $1. Once a joke, it turned into reality on September 16, proving that everything is possible, joke or not.

When asked how Kazakhstanis were supposed to afford their living with the exchange rate being 300 tenge per $1 but their salaries (paid in tenge) remaining unchanged, Minister Sultanov reminded that the salaries (of civil servants) had been raised a number of times in the previous years, referring to the 10% raise for public sector employees after the 2014 devaluation and probably the promised 50% raise for teachers in 2016. Moreover, he once again stressed that Kazakhstanis had to turn to the national currency instead of orientating themselves with the US dollar as all their expenses were in tenge.

"Raise of salaries should not be connected with dollar exchange rate, but with labor productivity. All expenses of Kazakhstanis are in tenge. Certainly, imported goods hold a large segment of the market. But the work we are doing to increase competitiveness of our domestic enterprises will result in a balance," Sultanov said, but did not specify when he expected the balance to be achieved.

The Minister stated that the livelihood of Kazakhstanis would not change at the 300 tenge per $1 dollar exchange rate. In addition, in August, when the rate rocketed through the ceiling from its 188 tenge per $1 benchmark, local state officials reassured the public that the prices for food and essential goods would not go up.

"I do not think it would change. That is why salaries and purchasing power should depend on labor productivity in the economy," Minister Sultanov stressed.

Besides, despite its earlier claims not to intervene, the National Bank of Kazakhstan did not let the tenge plunge any further when it reached the 300 mark. After the situation on September 16, the National Bank announced putting $144 million in stabilization of the national currency in one day, the next day it spent $270.4 million.

Despite the attempts of the officials to keep the situation stable without much interventions, Kazakh financial experts believe that the exchange rate can be easily manipulated by the market players - there are a little over two dozens of them at the Kazakhstan Stock Exchange (KASE). In response to these concerns, Kazakhstani economist Olzhas Khudaibergenov proposed making information on stock exchange deals on KASE publicly available for monitoring and transparency. "It would be proper for the National Bank to publish information about all the participants of trading sessions every day. There is a possibility that the exchange rate is being manipulated," the economist said.

The Minister of Finance did not comment on Khudaibergenov's suggestion.    

"I cannot say anything about it. It is in the jurisdiction of the National Bank," Sultanov said.

It is yet unknown if the National bank would go to the extent of making all the details of the stock exchange deals publicly available or choose a different way of keeping an eye on the fair currency rates. So far it has started publishing the total value of transactions of each of the participants without specifying if those were buy or sell deals. 

As for Kazakhstanis, it, too, will take some adaptation time to stop holding on to the US dollar as the main datum in the unpredictable market landscape, or to adjust to the new realities and learn to hedge against the currency risks in some new way.  

By Gyuzel Kamalova, editing by Tatyana Kuzmina