LONDON (Reuters) - The quickening pace of what is now a 30 percent drop in the rouble seems almost certain to send the currency dominoes toppling again in the neighbouring “rouble zone” of ex-Soviet states.
Storm clouds were gathering over the Russian economy well before the Ukraine crisis took hold, but Western sanctions over the unrest and now a slump in its main revenue-earner oil and currency RUBUSD=R has made the situation much more acute.
Across the Commonwealth of Independent States — oil-rich Kazakhstan and not so rich Tajikistan, Kyrgyzstan, Uzbekistan, Belarus, Armenia and Azerbaijan — memories linger of 2008, when Russia’s economic slump played out across the region, triggering recession, housing crashes and mini banking crises.
The problem is the massive trade dependency the countries have on their former soviet master.
Kazakhstan, the second largest of the ex-Soviet economies, has denied it will devalue its currency, the tenge KZTONOR=KZ, again having already done so once this year; but the reality is most analysts think it probably will.
The devaluation in April was a 19 percent cut but it has been more than wiped out since then by the near 30 percent drop by the rouble against the tenge. The Kazakh government also slashed its growth estimates last month.
“Kazakhstan is the obvious suspect for a devaluation for sure,” said Viktor Szabo, a fund manager at Aberdeen Asset Management in London.
“Whereas the others can let the market do it, its currency is almost pegged and the fall in the rouble since June has more than wiped out the April devaluation.”
Rouble depreciation creates headaches for CIS governments, especially for Kazakhstan and Belarus which earlier this year entered a free trade zone with Russia, but for others too.
Armenia, for instance, sends a fifth of its exports to Russia. This revenue is crucial for its balance of payments deficit, a huge 10 percent of GDP. Its other mainstay is remittances (workers sending money back to their homelands), of which 80 percent flow from Russia.
Of the others, a quarter of Uzbek exports go to Russia, the Asian Development Bank says. Russia also takes 15 percent of Kyrgyz and almost a tenth of Kazakh exports.
Unsurprisingly, with tensions between Kiev and Moscow flaring up again, the hyrvnia UAH= is also squarely in the market cross-hairs.
It has risen around 20 percent against the rouble RUBUAH=R since August and there has been little sign of a change of direction despite its 8 percent tumble against the dollar UAH= this week.
Kiev revealed on Friday that due to gas payments and efforts to prop up the hyrvnia, its foreign currency reserves had plummeted by 23 percent in October to their lowest since 2005.
With only $12.6 billion left, investors worry the writing could to be on the wall for the hyrvnia.
“They will either have to burn reserves or let the currency depreciate,” Aberdeen’s Szabo said adding Belarus was another that had similar problems. “For Ukraine, with its debt profile, it is important to keep its reserves.”
Reporting by Marc Jones; editing by Ralph Boulton