Structural constraints of Kazakhstan’s economy as a driver of inflation and the high cost of borrowed capital

Abstract

This article examines how structural constraints in the national economy shape inflationary dynamics and contribute to the persistently high cost of borrowed capital. It argues that, under conditions of pronounced commodity dependence, monopolisation of key sectors, limited financial-market depth, and sizeable capital outflows, the effectiveness of conventional monetary policy instruments is markedly reduced. The paper shows that, in such circumstances, increases in the National Bank’s policy rate are largely compensatory: they curb inflation only temporarily while simultaneously tightening investment constraints, raising the cost of credit, and slowing economic growth. Particular attention is paid to illicit and semi-legal capital flight as one of the central structural sources of macroeconomic instability. The article demonstrates that sustained outflows of financial resources abroad erode the tax base, constrain foreign-exchange supply, heighten devaluation risks, and create a vicious circle of high inflation and expensive borrowing. Drawing on domestic and international research, the paper proposes a comprehensive approach to overcoming macroeconomic instability, including measures to promote de-offshorisation, strengthen foreign-exchange and tax oversight, reduce market concentration, revise production-sharing agreements, and expand domestic production. The conclusion is that only a combination of structural reforms and a coherent macroeconomic policy mix can deliver a durable decline in inflation, lower the cost of borrowed capital, and enable a transition to long-term economic growth.