Kazakhstan is caught in a vicious cycle of debt. The pandemic has only made it worse

A cul­ture of cred­it was nur­tured for years in the Central Asian state, but now many left job­less by the pan­dem­ic rely on loans to pay oth­er debts

© Dulat Yesnazar / Vlast.kz. All rights reserved

Since the begin­ning of the glob­al pan­dem­ic, Kazakhstanis who are heav­i­ly reliant on loans have plunged even deep­er into debt.

For many cit­i­zens of this Central Asian state, they have turned to loans in an attempt to help off­set uneven income growth over the past decade – to ful­fil basic con­sumer needs, but also to pay for health­care and property.

But dur­ing 2020 and this year, for many peo­ple, loans tem­porar­i­ly replaced wages. Many busi­ness­es and insti­tu­tions were forced to sus­pend oper­a­tions after the gov­ern­ment announced a lock­down in March last year. The sit­u­a­tion remained uncer­tain. Lockdowns were intro­duced and relaxed unpre­dictably by the author­i­ties of the larg­er cities. This unsta­ble sit­u­a­tion meant busi­ness­es and insti­tu­tions could not resume work, and as a result, many peo­ple have faced declin­ing incomes or have lost their jobs.

In part­ner­ship with inde­pen­dent Kazakhstani media Vlast.kz and Mediazona, openDemocracy pub­lish­es a trans­lat­ed ver­sion of their new arti­cle on the ‘debt trap’ in Kazakhstan.

Credit after credit

Until the end of 2019, Aigul’s fam­i­ly had not fall­en behind on loan pay­ments. She used to work in a bank, while her hus­band was employed by a con­struc­tion com­pa­ny. They took out sev­er­al con­sumer loans for med­ical treat­ment, elec­tron­ics and oth­er house­hold items, being ful­ly con­fi­dent that they would be able to pay them back with­out any problems.

The fam­i­ly did not have enough sav­ings to make siz­able pur­chas­es, so there was no alter­na­tive to tak­ing out loans.

In order to make pay­ments on loans, we sold every­thing of val­ue that we had. Then I had to take out oth­er loans to pay off the pre­vi­ous loans”

When the pan­dem­ic began, their debt reached three mil­lion tenge ($7,600-$7,800), and just at that moment Aigul was fired from her job, and her hus­band was forced to take a lengthy peri­od of sick leave after frac­tur­ing his heel.

I did not expect that we would col­lapse so quick­ly and be left with­out work,” Aigul explained. “In order to make pay­ments on loans, we sold every­thing of val­ue that we had. Then I had to take out oth­er loans to pay off the pre­vi­ous loans. We could not sit and wait for some­one to help pay off the month­ly pay­ment. My rel­a­tives also have their own loans.”

Aigul and her hus­band had to use some of the mon­ey they had bor­rowed to buy food through­out the year. Today, they have three loans with total month­ly pay­ments of 250,000 tenge ($585).

Recently, Aigul man­aged to get anoth­er job, but the wage she received was sub­stan­tial­ly less than what was orig­i­nal­ly promised.

© Ravkat Mukhatrov / Vlast.kz. All rights reserved

From time to time, she has to sell their belong­ings to make repay­ments to the banks. Aigul’s health has wors­ened as a result of the finan­cial strain, and her con­di­tion hasn’t improved.

She does not know who could help her in the cur­rent cir­cum­stances: Aigul and her fam­i­ly have lit­tle hope that the Kazakhstani gov­ern­ment will help.

How did the debt problem appear?

Kazakhstan is far from the only coun­try whose cit­i­zens have found them­selves in a debt trap. Over the past 50 years, loans have helped smooth out stag­nant incomes for peo­ple in the West, too.

After the Second World War, the US and the lead­ing states of Europe began to pur­sue a social­ly ori­ent­ed pol­i­cy, pro­vid­ing peo­ple with basic ser­vices, hop­ing to reduce the dis­con­tent that sparked sev­er­al rev­o­lu­tions at the dawn of the 20th cen­tu­ry. But in the 1970s, the grow­ing demands of the mass­es led to sky­rock­et­ing inflation.

National gov­ern­ments found their way out of the sit­u­a­tion via aus­ter­i­ty mea­sures and curb­ing infla­tion. The pol­i­cy change almost imme­di­ate­ly led to a decline or stag­na­tion in incomes, which con­tin­ues to this day. To com­pen­sate for falling liv­ing stan­dards, Western gov­ern­ments have tried to dereg­u­late their finan­cial sec­tors. Authorities promised to enrich peo­ple by turn­ing the wealth­i­est of them into users of invest­ment prod­ucts. For the less for­tu­nate, they sug­gest­ed main­tain­ing pur­chas­ing pow­er through flex­i­ble forms of lend­ing. In the late 1990s, then, finance began to pen­e­trate all spheres of life in Western coun­tries. Often, loans pro­vid­ed peo­ple with the only oppor­tu­ni­ty to meet their basic needs for food, med­i­cine and housing.

This trend was delayed in Kazakhstan. The wide­spread use of retail lend­ing ser­vices began only towards the mid-2010s, fol­low­ing a sharp drop in oil prices, which led to nation­al cur­ren­cy deval­u­a­tion in sev­er­al stages.

These forms of cred­it were intend­ed to com­pen­sate weak wage growth – a result of the creep­ing deval­u­a­tion of the nation­al cur­ren­cy and the grow­ing cost of import­ed goods

Since then, the vol­ume of loans to indi­vid­u­als in the coun­try has more than dou­bled, reach­ing 6.6 tril­lion tenge (more than $17bn) by the end of 2019. During this time, microloans, inter­est-free loans, instal­ment plans for the pur­chase of var­i­ous goods and ser­vices have become wide­spread. These forms of cred­it were intend­ed to com­pen­sate weak wage growth – a result of the creep­ing deval­u­a­tion of the tenge and grow­ing cost of import­ed goods, which occu­py a sig­nif­i­cant share in the con­sumer bas­ket of Kazakhstanis.

These ser­vices were pro­vid­ed by inter­na­tion­al finan­cial insti­tu­tions such as Citi, Dutch bank­ing group ABN AMRO and HSBC, which active­ly entered the Kazakhstani mar­ket in the late 1990s. Local play­ers quick­ly adopt­ed their approach­es and lend­ing instru­ments, trans­fer­ring them from the pre­mi­um seg­ment to the mid­dle seg­ment of clients.

In addi­tion to mort­gages, the most pop­u­lar retail prod­uct dur­ing the 2000s was cred­it cards. However, the growth of non­pay­ments through this chan­nel and the loss of sources of cheap fund­ing in the West after the 2008 finan­cial cri­sis prompt­ed banks to switch to expen­sive retail lend­ing and ser­vic­ing the wealthy cat­e­go­ry of clients.

Lending to eradicate poverty?

Microfinance organ­i­sa­tions began to devel­op in response, espe­cial­ly with the pop­u­lar­i­sa­tion of Nobel Peace Prize lau­re­ate and Bangladeshi banker Muhammad Yunus, who since the 1980s has pro­mot­ed lend­ing as a way of erad­i­cat­ing pover­ty – and who reg­u­lar­ly attend­ed the Astana Economic Forum in Kazakhstan.

As the non-resource sec­tors of Kazakhstan’s econ­o­my slowed down and the cost of domes­tic financ­ing rose, banks also began to switch to more active retail lend­ing. This coin­cid­ed with the dig­i­tal­i­sa­tion of the country’s cred­it indus­try, which meant loans became flex­i­ble to an unprece­dent­ed degree.

Suddenly, almost all goods and ser­vices could be pur­chased via an inter­est-free instal­ment plan or a ful­ly fledged loan.

In mid-2019, imme­di­ate­ly after the pres­i­den­tial elec­tions, Kazakhstan’s then new­ly elect­ed pres­i­dent Kassym-Jomart Tokayev decid­ed to hold a cred­it amnesty for those cit­i­zens whose debts did not exceed three mil­lion tenge ($7,600–7,800). The effect of this mea­sure turned out to be lim­it­ed, since it was ini­tial­ly aimed at social­ly vul­ner­a­ble seg­ments of society.

Other groups of cit­i­zens received no assis­tance, although their sit­u­a­tion was becom­ing equal­ly vulnerable.

I promised myself that I would get work, what­ev­er the cost, so I took on three jobs at once”

About four years ago, Marat, a lawyer by train­ing, lost his job. “I was depressed, I did not know what to do and how to make mon­ey,” he explained. “With work [it became] dif­fi­cult, it was impos­si­ble to get a job accord­ing to my skills. And then, even if you get a job some­where, you will receive 150,000 tenge [$240-$350], which is not enough to buy anything.”

For some time, Marat got by with odd jobs, at one point moon­light­ing as a plumber. But from May to November 2020, amid the chaos of the glob­al pan­dem­ic, he could not do any­thing. To com­pound the sit­u­a­tion, he devel­oped anx­i­etyand suf­fered pan­ic attacks due to a lack of mon­ey and the death of his mother.

In November [2020], in order to get out of my finan­cial dif­fi­cul­ties, I decid­ed to look for a job even with this anx­i­ety. I pulled myself togeth­er, worked on myself and promised myself that I would now get a job, what­ev­er the cost,” Marat said.

Working morning, noon and night

Marat was hired as a piz­za-deliv­ery dri­ver, but after a few months began work­ing at Yandex.Taxi as well (from 6am to noon) and anoth­er deliv­ery ser­vice (from lunch to late evening).

By that time, it was impos­si­ble even to find a job with­out tak­ing on more loans. This was because to car­ry out his duties, Marat need­ed to buy a new car, and this could only be done on cred­it. Now, for the next sev­en years, he will give the bank 100,000 tenge ($240) every month on a month­ly income of 300,000–350,000 tenge ($700-$820).

Source: Daniyar Mussirov / Vlast.kz. All rights reserved

Marat is a father of two chil­dren. His fam­i­ly lives in a rent­ed apart­ment. And while they would like to buy their own home, they can­not afford it. “In total, if you count it all up, [every month I have to pay] 100,000 tenge for the car ($240) and 120,000 ($280) for the apart­ment,” he explained. “And you also need to buy food that is con­stant­ly becom­ing more expen­sive, and clothes for the children.

My income is not enough for this, but you work like a beast every day in order to earn at least some­thing [and pay off your loans].”

Marat notes that many dri­vers and couri­ers with whom he is famil­iar are in the same posi­tion. Most of them pay loans for their vehi­cles, work­ing from morn­ing until late at night, and some­times even on the night shift.

How the pandemic made Kazakhstan’s debt problem worse

During the pan­dem­ic, Kazakhstanis who lost their jobs or most of their earn­ings con­tin­ued to take loans in order to feed them­selves, pay for treat­ment or close exist­ing loans. In 2020, the loan port­fo­lio of indi­vid­u­als increased by 500 bil­lion tenge (almost $1.2bn) in Kazakhstan, despite the more than 2.6% decline in the nation’s GDP.

Today, accord­ing to one cred­it bureau, First Credit, 7.1 mil­lion out of 9 mil­lion eco­nom­i­cal­ly active Kazakhstanis have loans. For each cit­i­zen of Kazakhstan, accord­ing to var­i­ous sources, on aver­age there are from 900,000 to one mil­lion tenge of loans ($2,100-$2,300). Every year 400,000–500,000 new clients apply for loans, while the aver­age amount bor­rowed annu­al­ly is 300,000 tenge ($700).

A sec­ond cred­it amnesty was one of the main demands made at a major pub­lic demon­stra­tion after lock­down. This was organ­ised by the unreg­is­tered Democratic Party of Kazakhstan. Its leader Janbolat Mamai report­ed that about 100,000 sig­na­tures had been col­lect­ed call­ing for a cred­it amnesty.

During the lock­down, many peo­ple lost their jobs and found them­selves in a very dif­fi­cult finan­cial situation”

Mostly peo­ple took out loans for med­ical needs. Sometimes for edu­ca­tion. Often these are small con­sumer loans, for 300,000–350,000 tenge [$700-$820]. But peo­ple could not even pay those off because dur­ing the lock­down, many peo­ple lost their jobs and found them­selves in a very dif­fi­cult finan­cial sit­u­a­tion,” said Mamai.

People are pushed to bor­row mon­ey for health­care and edu­ca­tion because of the state’s poor social pol­i­cy. Kazakhstan offers free school­ing, for exam­ple, but does not sub­sidise col­lege and uni­ver­si­ty tuition, with only a small num­ber of grants.

The same applies to health insur­ance: cit­i­zens can receive only a min­i­mum pack­age of ser­vices for free, but for more seri­ous treat­ments, it can be a huge out­lay, even in state clin­ics. Despite renewed pleas from strug­gling Kazakhstanis for help with the cred­it bur­den, the gov­ern­ment is not show­ing any will­ing­ness to address this grow­ing finan­cial malaise.

© Ravkat Mukhatrov / Vlast.kz. All rights reserved

Citizens, how­ev­er, con­tin­ue to take to the streets, out­raged by declin­ing wages amid high infla­tion and cur­ren­cy deval­u­a­tion. Since the end of 2020, strikes by work­ers in the raw mate­ri­als, ser­vices and pub­lic sec­tors have become more fre­quent in sev­er­al regions of Kazakhstan.

Incomes not enough to pay loans

By the end of May of this year, work­ers had held at least 35 to 40 protests across the coun­try. The strik­ers feel the action is jus­ti­fied in spite of the risk of becom­ing unem­ployed. Emphasising the need to raise wages to increase, strik­ing work­ers insist that their cur­rent incomes do not allow them to pay off loans or buy basic products.

Before lock­down, Asyl worked at the National Academy of Sciences. Since its incep­tion, the insti­tu­tion began to expe­ri­ence dif­fi­cul­ties – the state and oth­er author­i­ties sus­pend­ed fund­ing for var­i­ous projects. This led Asyl to take up work as a deliv­ery dri­ver for an on-demand ser­vice. “Those peo­ple who left sci­ence are now engaged in oth­er areas,” he said.

The old­er ones left to work in restau­rants [or] became tech­ni­cal per­son­nel, because they are not tak­en any­where else. Young peo­ple start­ed work­ing in deliv­ery ser­vices. But this is [not only a recent sit­u­a­tion]. If you meet any couri­er from Glovo, Wolt, Yandex or Chocofood [food deliv­ery ser­vices], and ask where they worked before the pan­dem­ic, many will say they worked in nor­mal places, with office jobs.”

Asyl found a new job pret­ty quick­ly, but soon his man­agers bur­dened him with extra trans­porta­tion costs.

When he got the job, he had a motor­cy­cle, which he decid­ed to sell with the onset of win­ter. Instead, the couri­er decid­ed to buy a car, for which he took out a loan.

I had to take loans sev­er­al more times and as a result I have six loans – this is in addi­tion to oth­er payments”

Having bought a car, Asyl began to use it every day and there­fore he often had to repair it, change var­i­ous com­po­nents and oil. But one day the break­down turned out to be more seri­ous – he had to get the engine replaced. He couldn’t afford this on the salary he was on, so he had to take out anoth­er loan.

The repairs took a week, and dur­ing that time Asyl could not work. When the due date for the next loan repay­ment approached and mon­ey ran out, he was forced to take anoth­er loan.

I work day and night, I work as a taxi dri­ver in my free time, but I still don’t have enough mon­ey. I live in a rent­ed apart­ment, I have to pay for the apart­ment, for util­i­ties. Over a month, it costs about 110,000 tenge [$255] [to pay for every­thing]. I had to take loans sev­er­al more times and as a result I have six loans – this is in addi­tion to oth­er pay­ments,” explained the courier.

© Zhanara Karimova / Vlast.kz. All rights reserved

Asyl’s com­pa­ny recent­ly cut wages and work­ers went on strike. After the decline in earn­ings, they could bare­ly afford to buy food. Many of the couri­ers once again took out addi­tion­al loans to pay off the pre­vi­ous ones.

Using banks and micro­fi­nance organ­i­sa­tions, accord­ing to Asyl, is almost always the only way out. “Who else can I turn to? My rel­a­tives were almost all left with­out work; my moth­er is a pen­sion­er, and my father died not so long ago,” he explained. “The state can­not help us in any way – now the state also has dif­fi­cult circumstances.”

Individual recklessness blamed by media

Various Kazakhstani media com­men­ta­tors blame indi­vid­u­als’ finan­cial reck­less­ness for the cur­rent state of affairs, but when peo­ple take out loans, they are not fol­low­ing their own greed or desire to live “beyond their means”. They are try­ing to sur­vive in an unsta­ble econ­o­my that can­not pro­vide them with income growth and job security.

After the col­lapse of the USSR, the finan­cial indus­try began to promise peo­ple a rich life with an abun­dance of goods, if only they would start reg­u­lar­ly using their ser­vices – and stop demand­ing a social pol­i­cy from the state.

The Kazakhstani state itself con­stant­ly inspired peo­ple with sto­ries about the immi­nent pros­per­i­ty of the nation, once cit­i­zens’ efforts were con­cen­trat­ed not on chang­ing the polit­i­cal struc­ture of the coun­try, but on achiev­ing max­i­mum eco­nom­ic growth.

Inspired by the peri­od of high oil prices and a rapid­ly grow­ing GDP, peo­ple were full of opti­mism, believ­ing that the future had already arrived and they would eas­i­ly cov­er all the costs of loans, which they were offered to com­pen­sate for low incomes.

However, no utopia hap­pened. Over the past ten years, the econ­o­my of Kazakhstan has suf­fered many set­backs, all of which wors­ened socio-eco­nom­ic inequal­i­ty and height­ened the debt bur­den of its citizens.

Dmitriy Mazorenko, Dariya Zheniskhan, Almas Kaisar