Kazakhstan has been hit hard by three developments in the last two years: Russia’s economic troubles, slowing growth in the Chinese economy and the collapse of commodity prices, particularly of oil. Geopolitical Futures identified Central Asia as an area with a high potential for instability in its forecast for 2016 and therefore monitors developments in the region closely, especially because what happens in Central Asia can impact the region’s neighbors, from Afghanistan to western China and Russia, at a time when Eurasia is already in turmoil. Astana thus far has managed to weather the storm, but there are troubling indicators coming out of Kazakhstan in the past week that indicate the country is struggling to cope with the combined weight of its economic challenges.

Four key further developments have appeared on our radar. The first is the accelerated depreciation in value of Kazakhstan’s currency, the tenge. This downward trend has been at work since the Russian ruble began an inexorable depreciation in February 2014 due in part to political tensions in Ukraine and also slowing Russian growth. In response, Kazakhstan devalued the tenge by 19 percent on Feb. 11, 2014, down to a rate of 185 per dollar. After oil prices began to plummet in the summer of 2014, Kazakhstan went a step further, floating its currency on Aug. 20, which resulted in a one-day loss in value of 26.2 percent, taking it down to a rate of 255.26 per dollar. On Jan. 12, the tenge reached an all time low on the Kazakhstan Stock Exchange, plunging as far as 367 to the dollar before settling at 362.62. In effect, the tenge has lost more than 80 percent of its value since January 2015.

Kazakhstan’s currency woes by themselves are not a new story, but are notable because they sparked a small protest, reportedly involving dozens of people, on Jan. 12 in Kazakhstan’s largest city, Almaty. The protesters hold mortgages in foreign currencies and the decline in value of the tenge has made it extremely difficult for them to pay off their loans. Similar protests have occurred in recent months in Almaty and Astana, and the protest on Jan. 12 was itself fairly small. However, while Kazakhstan may not be at a breakpoint, its currency issues are beginning to manifest themselves in social discontent.

The second notable development in Kazakhstan was a report released by the Ministry of National Economy on Jan. 5, which stated that inflation had reached 13.6 percent by the end of 2015, compared to 7.4 percent in 2014. The spike in inflation was much larger than expected. After sending a mission to Kazakhstan in November 2015, the International Monetary Fund reported that it expected inflation to rise to about 6-8 percent as a result of the floating exchange rate for the tenge instituted in August. The actual rate of inflation is significantly higher than the IMF estimate and is almost double the previous year’s rate. The ministry also noted that the price of food had increased by 10.9 percent and non-food products by 22.6 percent. It is therefore not just those holding debts in foreign currency who have been impacted by the economic decline – the price of everyday goods in Kazakhstan is rising faster than expected. Moreover, considering how far the projections were on inflation, it is hard to put much stock in the National Bank of Kazakhstan forecasting a decline in inflation back down to 8 percent in 2016.

Instability has not only been observed at the grassroots level – there are also indications of political machinations at the upper levels of government in response to the economic challenges. Geopolitical Futures has already addressed the potential for corruption in the military. But President Nursultan Nazarbayev said in a TV broadcast on Dec. 13 that it was important for the country to maintain national unity in the face of challenges in 2016. Reports surfaced on Dec. 19 that Nazarbayev was considering reshuffling his Cabinet of Ministers. That has not yet come to fruition, but on Jan. 13, the lower house of Kazakhstan’s parliament, the Majlis, requested that it be dissolved so that early parliamentary elections could be held. A joint statement by representatives of the three parties in parliament indicated that the anti-crisis measures that would need to be put in place in 2016 required a new social mandate from the public. Special elections would be held within two months of parliament being dissolved. Meanwhile, the chairman of the Kazakhstan Stock Exchange was relieved of his duties on Jan. 11, in part due to the continued downward spiral of the tenge. In isolation, none of these events by themselves would warrant deeper consideration, but taken as a whole, and in the context of the challenges Kazakhstan is facing, it is telling that the government is being shaken up at multiple levels.

The fourth and perhaps most worrying development for Kazakhstan is the continued plummeting of oil prices, falling as low as $29.93 during trading on Jan. 12. According to news website EurasiaNet, oil accounts for 25 percent of Kazakhstan’s GDP and 60 percent of its balance of payments. In Kazakhstan’s provisional budget for 2015, oil sales represented 42.2 percent of the budget. Kazakhstan’s original budgets for 2015 and 2016 were planned with oil at $90 a barrel. The IMF estimated in May 2014 that Kazakhstan needed oil to be higher than $64.50 in order to break even. Kazakhstan’s budget has undergone multiple revisions, with the latest drafted on the assumption that oil will remain around $40 a barrel. Already, the Kazakh government is reportedly planning yet another new budget revision.

Revisions, however, will do nothing to change the fact that Kazakhstan is spending more than it is making currently. Kazakhstan’s National Fund, where it stashes profits from oil exports, is already down to $64 billion, a depletion of 17 percent since it peaked in August 2014 at $77 billion. The Wall Street Journal reported on Jan. 8 that a central bank official said the Kazakh government is currently spending at least $9.5 billion a year from the fund in order to make ends meet. In a televised broadcast on Astana TV on Jan. 10, President Nazarbayev warned that Kazakhstan would need to push austerity measures and economic reforms in the near future. The IMF predicted a current account deficit equal to approximately 4 percent of Kazakhstan’s GDP by the end of last year, and statistics from the Bank of Kazakhstan for the first three quarters of 2015 suggest this forecast is on track. There have also been reports that some current and prospective energy projects may be delayed or canceled as a result of lack of profitability.

Kazakhstan has managed to maintain stability thus far, even with falling oil prices and challenges posed by Russian and Chinese economic woes. China, once Kazakhstan’s largest market for exports, is now the second largest, and exports declined by 51.2 percent from January to June 2015, according to government statistics. Russia was always a smaller export market for Kazakhstan, but Astana’s exports to its northern neighbor declined by 27 percent for the same period. The National Fund represents a significant cushion for the government, and Astana will be able to lean on that money to get by in the short term. But this is not a long-term solution to the situation, and the only thing that could truly improve the country’s standing – higher oil prices – does not seem to be in the offing anytime soon. The government must now engage in the delicate task of cutting government spending and maintaining a level of economic stability without generating significant unrest.