This year I have decided to offer a weekly blog post on the topic of the ‘Emerging Markets Crisis’. The IMF has recently assessed that there are 29 countries which are highly at risk from the downturn in the commodities downturn. The crisis is most severe in the oil-exporting countries from Russia to Venezuela, but it is being felt in every country whose exports are primarily commodities, including Indonesia and Malaysia. Over the past week, there have been plenty of signs that the emerging markets crisis has been worsening, especially in the oil exporting nations. This has been most evident of all in Nigeria and Venezuela, but economic weather has also turned bad for Kazakhstan, which until recently had been growing at a very decent clip.
The government, which in 2014 relied on oil for two-thirds of revenue, can no longer afford to finance its education budget or scheduledinfrastructure projects. With the economy growing at barely half 2014’s 6.3 percent, a recession can’t be ruled out this year, according to Morgan Stanley. Nigerian stocks have fallen 16 percent since the end of December, the most in sub-Saharan Africa. Signs of a mounting crisis are also evident in the exchange rate for the naira. It has been frozen at 197 to 199 to the US dollar for a year now, but on the blacket market it has continued to fall steadily. Just a few weeks ago, the black market rate went past 300 to the USD dollar and now it is has already breached 350 to the dollar. This indicates a loss of 76% of its value in the space of a year. The terms of trade have swung wildly against Nigeria and unless the oil price rebounds sharply, which appears unlikely, its fiscal situation is going to remain dire. Most outsiders have suggested that the country would be better off devaluing the currency, but President Buhari suggests that this would stoke inflation, causing social unrest. It is a sure sign of how fearful the Nigerian ruling elite are that they are already basing fiscal policy on avoiding a popular uprising.
Kazakhstan is the ninth largest country on Earth by area, but it remains extremely under-reported in the Western media. This is despite the fact that it was easily the most dynamic economy in Central Asia over the past twenty years. During its 20 year-long boom, it sucked in expat workers from all over Central Asia and remittances from Kazakhstan became very important to the economies of weaker countries such as Tajikistan and Turkmenistan. However, since 2015, the Kazakhstan econmic miracle has now began to seriously falter. In August 2015, the country stopped propping up the tenge, the national currency, and it rapidly fell from around 240 tenge to the US dollar, to its current level of around 350 tenge to the dollar, a collapse of almost 50%. After 20 years of robust growth, it turned in very weak growth of only 1.5% in 2015, yet even if that result may be good compared to 2016. The Economist Intelligence Unit has recently predicted that the country will experience a recession in 2016, contracting by up to 2%. This would be the first dent in Kazakhstan’s growth since the Asian Monetary Crisis of 1998. Like most countries in Central Asia, Kazakhstan is under the authoritarian control of a strongman. 76-year old President Nursultan Nazarbayev has suppressed dissent, been accused of human rights abuses by several human rights organizations, and dominated all aspects of the economy and public life. Until now, there have been only minor rumblings of discontent, but a full-blown recession would be a much more stringent test of his rule.