Kazakhstan

Public finances are under structural strain despite a favorable headline. The fiscal deficit is projected to narrow to 2.7% of GDP in 2026, but this relies on elevated oil prices (Brent averaging above USD85/b) and continued withdrawals from the National Fund. This pattern erodes the sovereign buffer without addressing underlying revenue mobilization weaknesses, while tax reform remains slow.

The CPC crisis introduces acute fiscal risk: with ~80% of crude exports transiting via Novorossiysk, a prolonged shutdown compresses oil revenues at source while budgetary spending commitments remain fixed. If the terminal remains inoperative for 4-6 weeks, the fiscal deficit could widen by 0.5-1pp of GDP above baseline.

The banking sector is well-capitalized, with improved risk-based supervision, but underlying vulnerabilities persist. Retail lending dominates credit growth, with the corporate portfolio lagging. Microfinance organizations saw profits halve in 2025 while loans overdue by 30+ days rose over 25% y/y – an early signal of consumer stress in lower-income segments. Legacy problem assets from previous crises have not been fully resolved. Related-party transactions require continuous monitoring. A meaningful oil revenue shock would tighten liquidity conditions and risk spillovers from the energy sector to construction and services SMEs dependent on procurement flows.

Kazakhstan's business environment benefits from its strategic location, resource wealth and improving digital infrastructure but is constrained by uneven governance, corruption and market dominance by politically connected elites. The regulatory environment remains unpredictable, with frequent policy shifts and interventionist measures that raise operational risk.

The Middle Corridor is the structural opportunity. With both the northern route (through Russia, under sanctions and now physically disrupted) and the southern route (through Iran, blocked by the Hormuz crisis) facing unprecedented disruption, the Trans-Caspian corridor through Kazakhstan, the Caspian Sea, Azerbaijan, Georgia and Türkiye has gained massive momentum. The Kazakhstan-Georgia e-Permit agreement signed in July 2026 is a concrete step, and container volumes on the route have surged. However, capacity bottlenecks (particularly Caspian port throughput and rolling stock) limit near-term scalability and require sustained investment.

Energy infrastructure gaps persist, with recurrent power shortages highlighting decades of underinvestment in domestic generation. Privatization and SOE reform proceed slowly. The Eurasian Economic Union and Belt and Road Initiative participation offer trade access but increase exposure to Russian and Chinese geopolitical dynamics. For the business environment to truly transform, Kazakhstan must translate its new connectivity relevance into institutional quality that retains foreign investors beyond resource extraction.

President Tokayev has consolidated power since the 2022 unrest, implementing a single seven-year term limit and constitutional reforms that nominally redistribute authority. In practice, political space remains tightly controlled – media freedom, civil society and political opposition face significant restrictions. Industrial unrest, particularly in the energy sector, continues to pose social risks, amplified when production cuts force layoffs or wage arrears.

Kazakhstan's foreign policy is undergoing its most significant reorientation since independence. The November 2025 accession to the Abraham Accords marked a public step toward Western alignment. The country has distanced itself from Russia's war in Ukraine diplomatically – but the CPC crisis exposes the limits of declarative independence when physical infrastructure remains hostage to a conflict zone on Russian soil. Kazakhstan condemned the July drone strikes as "an unacceptable infringement on the economic interests of the Republic," yet has limited leverage over either belligerent.

The deeper structural question is whether Kazakhstan can actually reroute its export architecture. Trans-Caspian oil shipments and the Middle Corridor offer alternatives, but replacing 1.2mn b/d of CPC capacity requires years of investment in tankers, Caspian port infrastructure and Azerbaijani pipeline capacity. In the meantime, the country's economic sovereignty is physically mediated by a conflict it cannot control. This is the single most significant political risk facing Kazakhstan today: not internal instability, but the external weaponization of its export geography.