Kazakhstan: The conspiracy of high inflation and Covid

Just as the Russia-Ukraine conflict was coming off the boil, protests have erupted in Kazakhstan. Sadly, these have taken a deadly turn. The catalyst for the Kazakh unrest was the removal of the price cap for liquified natural gas (LNG), which is widely used for auto fuel in the country. The removal resulted in essentially the doubling of the price of LNG. Admittedly the timing was odd, given that inflation is only slightly off its five-year high of 8.9% in October. Putting this in context, some countries, such as Poland and South Korea, are temporarily removing or reducing taxes on gas-related products to alleviate inflationary pressures on their citizens. So the removal of the cap does seem a bit tone-deaf. The Kazakhs reacted with protests and riots, which spread across the country and engulfed Almaty, the economic capital. Coincidentally, new Covid restrictions were to be imposed this week. Could high inflation and Covid-fatigue be the fatal cocktail that sparked the unrest? President Tokayev has moved quickly, dismissing the government, switching off the internet, and introducing a country-wide state of emergency. He has also requested assistance from the CSTO, which will bring Russian and Belarusian troops into the country to help restore calm. As Friday was already a holiday and today was declared a bank holiday, the government has four days to stabilize the situation, which it seems to be doing. We believe the unrest will be short-lived as there is no opposition leader that the protestors can rally around, nor is there a clear theme. And the government has the ability to pay off the protestors as the budget deficit is just 3.5% of GDP and the Sovereign Wealth Fund is >$60bn; that is a lot of fire power. We believe that, in many countries around the world, high inflation and on-again off-again lockdowns are taking their toll on peoples’ patience. Kazakhstan may be just the first country to see protests in 2022.