What Samruk-Kazyna's 355 Exchange Rate Forecast Really Meant

Samruk-Kazyna in favor of another devaluation?

I am very glad that Samruk-Kazyna now has an analytical department that does macroeconomic analysis. That is great news, although its first statement, on the average exchange rate for 2016, leaves me with mixed feelings.

I would like to see, in the public domain, what the assumption that the average exchange rate in 2016 will be 355 tenge per US dollar is based on.

Some background figures:

The dollar is currently trading at around 336 tenge.

The average rate from January 1, 2016 to May 24, 2016 was 347.6 tenge per dollar.

The question is what the average rate must be over the remaining 221 days if the annual average is to come out at 355 tenge per dollar.

A simple equation, (355 − 145/366 × 347.6) × 366/221 = 359.9, gives 359.9 tenge per dollar.

In other words, Samruk-Kazyna expects not a stabilization of the tenge but its depreciation from 336 tenge (at the oil price peak it reached 328) to 360 tenge per dollar. That amounts to a 7% depreciation, and it would have to happen right here and now.

We should also bear in mind that the tenge will not fall to 360 in a single day. So, to hold the average at 355 with a gradual depreciation, the rate will have to weaken beyond 360.

Suppose the depreciation is smooth and even over the remainder of the period. What would the tenge have to be worth at the end of 2016 to deliver an average rate of 355? A simple calculation in Excel shows that, starting from current levels, achieving an average of 355 tenge per dollar requires depreciation of 21 tiyn every day until year-end, leaving the rate at 383.1 tenge per dollar at the end of the year. Measured from the current rate, that is a 14% depreciation.

So where is the stabilization?

There are two possibilities, and you can take your pick:

1. Samruk-Kazyna's calculation of 355 is wrong,

or

2. Samruk-Kazyna genuinely expects a devaluation to 383 tenge per dollar by the end of the year.

For the tenge to go back to 383 per dollar, oil would have to fall to $30 per barrel.

If so, we need an analytical report from Samruk-Kazyna with an oil price forecast, setting out the main reasons why the oil price would drop to $30.

If there is no such report and the forecast is not substantiated, then the 355 rate is, once again, more guesswork than analytical calculation.

Thank you :)