ADB Throws $1B Lifeline To Kazakhstan To Help Counter Economic Slowdown

The Asian Development Bank (ADB) said on Friday that it has approved a loan of $1 billion for Kazakhstan in an effort to help counter an economic slowdown driven by a tumble in global oil prices that forced the nation to devalue its currency, the tenge.

“This loan from ADB’s Countercyclical Support Facility will give the country the fiscal leeway it needs to mitigate the unanticipated and significant negative impacts of the steep decline in world oil prices and the economic slowdown of the neighboring countries,” said Lotte Schou-Zibell, Principal Economist in the Central and West Asia Department. “It will help the government modernize infrastructure and maintain spending programs for job creation, social services, support to low-income households, and private sector development, particularly for small businesses.”

On Thursday, Kazakhstan became the latest emerging market nation to scrap efforts to prop up its currency — before the U.S. Federal Reserve hikes interest rates — as it announced it would shift to a free float of its currency and will pursue an inflation-targeting monetary policy.

Following the move, the tenge plunged by 23 percent to an all-time low of 256.98 per dollar, in addition rattling markets and driving a global equity selloff.

The nation’s exchange rate will now be determined by supply and demand, Kazakhstan’s Central Bank Governor Kairat Kelimbetov said, adding that it would only intervene in the currency market if its stability was threatened.

By floating the tenge, its value is now exposed to fluctuations in the foreign-exchange market, instead of being tied to a specific currency, gold, or a currency basket.

Kazakhstan, Central Asia’s biggest crude exporter, is under pressure amid the fall in oil prices and weakening economic growth in China and Russia, the nation’s top trading partners.

The decision by the nation to shift to a free float is the latest sign of stress in Asian exchange rates following a move last week by China to devalue its currency.

As China started to devalue its currency, fears grew that other regional Central Banks could follow suit with their own currency devaluations, as such countries are attempting to maintain their own competitiveness against China.

And as those feared, Vietnam was the first to follow in China’s footsteps as it took action last week and again on Wednesday as it decided to devalue its currency for the third time this year and also widened its trading band.

Most emerging market currencies have been hit hard following China’s devaluation and continue to remain under tremendous pressure amid plummeting oil prices and trade exposure to China.