In Kazakhstan there are calls for exit from Eurasian Economic Union due to Russian invasion of Ukraine

Experts’ community of Kazakhstan calls the entry of their country in the Moscow-controlled EAEU, a “fatal mistake”. These words are brought by Russia’s actions. This is what Kanat Altynbaev, kazakh analyst, writes.

Economic impact that came after Russia’s invasion of Ukraine, are the reason for calls in Kazakhstan to leave the Eurasian Economic Union (EAEU) that is controlled by Moscow. 

This union includes Russia, Kazakhstan, Kyrgyzstan, Armenia and Belarus.

Since Russian president Vladimir Putin began his bloody attack on Ukraine on 24th of February, Western capitals excluded Moscow from the global financial system, letting the Russian ruble enter a freefall and putting the country on the verge of default.

Effect from sanctions, including $300 billions of foreign exchange reserves of Russia, is very palpable.

The Russian banking sector and financial system are paralized and the ruble has dropped.

Now Russia is at the risk of announcing default for debts for the first time in decades.

For the first two weeks of war, until the 11th of March, Russia’s gross domestic product dropped by 2%, or $30 billions, according to “Bloomberg” calculations. Agency claims that by the end of 2022 this index will drop by 9%.

Economy of Kazakhstan, as most of countries’ of Central Asia, is tightly connected with Russia’s.

As a Result, Kazakhstan is also suffering from the invasion while not being at fault.

Since the intrusion began on the 24th of February to the 15th of March the national currency of Kazakhstan, tenge, sharply depreciated by 20% to the dollar.

Because of this, Nationalbank raised its base rate to 13,5% and began selling its foreign exchange reserves on the local stock exchange, aiming to support tenge and preservation of price stability.

By the 15th of March, Kazakhstan spent 815 millions of dollars to hold tenge afloat.

Aside from that, Nur-Sultan had to severely limit currency trading.

“We are a member of EAEU, so our national currency is tied to the ruble, and our economy is closely integrated with Russia’s,” – told to “Karavasaray” Daulet Akhmetov, director of the capital’s company specialized in supply of building materials “Nur-Sultan StroyServis”.

“This is a big problem,” says Akhmetov.

“All these years Kazakhstan lost from the participation in this union, but we held on thanks to raw materials export. And now our economy is in risk of a collapse.”

Akhmetov noted that now Kazakhstan turned into the largest payer of import custom payments in the EAEU, since Russia won’t provide any substantial incomes.

“But as stated in conditions of the economic union, Russia will be getting 85% of the earnings of the customs authorities of all countries-members, while Kazakhstan’s share isn’t more than 7%,” he said.

Entrepreneur considers that Nur-Sultan has to urgently change these “predatory for Kazakhstan” proportions, either that or exiting the EAEU.

In the country itself senior citizens are rising right now. Prices for raw resources are rising.

Meruert Makhmutova, an economist and former director of the public fund Center for the Analysis of Public Problems, who is currently living in Almaty, noted that the state once invested part of Kazakhstan’s pension assets in Russian securities.

Among them are bonds of the Ministry of Finance of the Russian Federation, bonds and depository receipts of such companies as “Gazprom”, “Sberbank”, “Rosneft”, “Vneshtorgbank”, “Norilsk Nickel”, which are on the US and EU sanctions lists.

“The shares of these companies collapsed, and the UAPF [Unified Accumulative Pension Fund] pension fund will be forced to record losses when revaluing these assets,” Makhmutova told “Caravansary”.

“All of us, depositors, have lost part of our pension savings,” she stated.

At the same time, Russia is taking measures that are contradicting the principles of the EAEU, which implies the free movement of goods across borders.

On March 10, the Russian authorities decided to ban the export of sugar and grain to the EAEU countries until the end of August to protect the domestic market, despite the fact that Russia is provided with grain for 150% of domestic needs.

The Ministry of Economic Development of the Russian Federation stated that this measure is necessary to prevent the re-export of these products to third countries.

The ban is clearly aimed at Kazakhstan, which, against the memory of a weak harvest last year, has increased grain purchases by 77%, or 2.3 million tons, since July last year, according to the agricultural regulator Rosselkhoznadzor. So it is Kazakhstan who closes the top three buyers of Russian grain after Turkey and Egypt.

The Russian ban has led to an acute shortage of sugar in Kazakhstan, including due to the population’s panic buying.

“Russia itself is already… violating many principles of mutually beneficial cooperation — previously, these were artificial obstacles for Kazakh producers to enter the Russian market,” wrote Dosym Satpayev, a political scientist and director of the Risk Assessment Group from Almaty, on the 18th of March in an article for Forbes.kz.

“And now Russia, in the face of severe sanctions, is imposing restrictions on the export of certain goods, including to the EAEU countries.”

Satpayev believes that the basis for Kazakhstan’s withdrawal from the union with the Russian Federation is provided by Article 3 of the Treaty on the EAEU, which introduces such basic principles as ensuring mutually beneficial cooperation, equality and taking into account the national interests of the parties involved.

The political scientist draws attention to the fact that, according to the documents of the EAEU, by 2025 the members of the union must carry out “harmonization of their legislation in the field of the financial market”, and by that time, in his opinion, Russia will finally secure the status of a pariah for most of the world.

“This will also apply to its financial system, harmonization with which will be akin to a kiss with a dead man,” Satpayev noted. “The leadership of Kazakhstan needs to think about how to avoid this kiss now.”

“Many of our entrepreneurs have long been disappointed with the EAEU, which is in reality beneficial only to the Russian Federation,” Akhmetov is convinced.

“All these years they [Russian officials] have been protecting their market from us with artificial barriers, while our producers have been losing their home market due to the influx of cheap Russian products,” he wrote.

“But it’s obvious already that we can’t stay in the EAEU – Russia and Belarus will sink – and drag us down along with them.”