Executive summary
Economic growth accelerated significantly in the first quarter
Kazakhstan’s economy experienced significant acceleration in the first quarter of 2025: according to preliminary government estimates, real GDP grew by 5.8% yoy (compared to 3.8% yoy in Q1 2024). The short-term economic indicator (STEI) reached a 10-year high of 8.3% yoy. Key growth drivers included transport and construction, where government-funded infrastructure projects enabled growth of 21% yoy and 16.9% yoy, respectively. Industry overall rose by 6.7% yoy. The manufacturing sector grew by 8.7% yoy, supported by expansion in metallurgy, electronics, and machinery manufacturing. After a decline at the end of 2024, the mining sector posted 6.1% yoy growth, mainly due to increased oil production following the test launch of the Future Growth Project (FGP) at the Tengiz oil field. Trade growth slowed to 6.3% yoy, possibly indicating a return to its long-term trend after the abnormal surge seen in the second half of 2024.
According to our forecasts, GDP growth in 2025 will remain high – at around 5.3%. The main driver will be increased oil production following the full-scale launch of the FGP at the Tengiz field. Additional support will come from the implementation of major infrastructure projects, elevated government spending, and continued transfers from the National Fund. However, several constraining factors remain: relatively low levels of new investment, tight monetary policy, and global market volatility. It is important to note that our forecast is based on an average oil price of $70 per barrel. Revisions to oil production plans, the effects of trade conflicts, and a potential decline in global oil prices may impact the achievement of the projected growth rate.
Fiscal stimulus measures continue
In the first quarter of 2025, fiscal expansion remained active: state budget revenues reached KZT 7 trillion, increasing by 16.2% yoy, primarily due to higher tax collections (+18.6% yoy). Non-tax revenues also saw a substantial increase, more than doubling compared to the same period in 2024. Government budget expenditures rose by 9.5% yoy in Q1, reaching KZT 6.7 trillion. Fiscal stimulus measures continue, including the implementation of major infrastructure projects in select sectors.
Withdrawals from the National Fund (NF) remain at a high level. In the first quarter, they totaled KZT 1.45 trillion, closely mirroring the dynamics of 2024. This does not include bond-based withdrawals. Inflows to the NF declined by nearly half yoy – from KZT 1.2 trillion to KZT 631 billion – mainly due to lower tax revenues from the oil sector. Continued global market volatility and the projected decline in oil prices may lead to a reduction in the NF’s investment income, which covers a substantial gap between withdrawals and inflows (KZT 1.78 trillion in 2024, excluding the purchase of Kazatomprom shares for KZT 467 billion and bonds issued by Samruk-Kazyna companies for KZT 238 billion). Against this backdrop, compliance with countercyclical fiscal rules is becoming a key condition for maintaining the sustainability of the fund and ensuring the predictability of fiscal policy.
The National Bank tightened monetary conditions
In the first quarter of 2025, inflationary pressures intensified: in March 2025, annual inflation reached 10% (compared to 8.6% in December 2024), while quarterly inflation accelerated to 3.9%, up from 2.7% in Q4 2024. A significant contributor to the inflation increase was the rise in utility tariffs. Other key factors included fiscal stimulus and a sharp depreciation of the tenge at the end of last year and in January of this year, which led to a rise in imported inflation.
The National Bank (NBK) strictly tightened monetary conditions by raising the base rate from 15.25% in January to 16.5% in March. According to the regulator, this decision was based on revised forecasts for inflation and GDP growth, as well as the results of data analysis and risk assessment. In April, the base rate remained unchanged.
We expect inflation to return to a downward trajectory in 2025, driven by the diminishing effect of the one-time utility tariff hikes in February and March 2025, the high base rate, easing inflationary pressure from consumer demand, and the waning impact of the tenge’s depreciation in late 2024 and January 2025. At the same time, domestic risks such as weak fiscal discipline, high National Fund transfers, and tenge volatility – as well as external risks including declining oil prices – could exert pressure on price stability. According to our estimates, annual inflation may reach 9-10% by the end of 2025 under the baseline scenario. Inflation levels throughout the year will depend on the extent to which these inflationary risks materialize. Judging by the NBK’s recent statements, the base rate is expected to remain at 16.5% until year-end. However, based on our inflation forecast, we consider 15% to be the optimal base rate level by the end of 2025.
The tenge began to strengthen in response to supportive measures
In the first quarter of 2025, the tenge appreciated following a weakening at the end of the previous year. By the end of March 2025, the USD/KZT exchange rate stood at 503.4, compared to 523.5 in December, an appreciation of 3.8% over the quarter. Yet, the average monthly exchange rate reached 510.7 KZT per USD, which was higher than in the previous quarter. Key factors behind the tenge's strengthening included large-scale foreign exchange sales from the National Fund ($2.2 billion), partly to finance infrastructure projects; the introduction of mirrored gold operations; mandatory repatriation and sale of FX earnings by quasi-state companies; the temporary suspension of FX purchases for the Unified Pension Fund (UAPF), and a seasonal decline in demand for foreign currency.
These measures are largely temporary and aimed at stabilizing short-term volatility in the national currency. To ensure long-term resilience, structural reforms are needed, including liberalization of FX operations, development of market liquidity and hedging instruments, and expansion of the pool of professional FX market participants. According to our forecasts, assuming an average oil price of $70 per barrel, the tenge could weaken to 550-560 KZT per USD by the end of 2025. The tenge's dynamics will continue to be influenced by fundamental factors, the volume of FX sales from the National Fund, and external geopolitical conditions.
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