Budget deficits grow as FX sales from the National Fund appreciate the tenge and trim revenues

KAZAKHSTAN - In Brief 27 Nov 2023 by Evgeny Gavrilenkov

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The Ministry of Finance reported that in 10M23, the republican budget deficit reached KZT 2.9trln, while the plan for this period was far smaller (KZT 2.355 trln) as the deficit for 2023, as a whole, assumed the KZT 3.209 total amount. In 10M23, the government financed 78.0% of annual planned expenditures, which is more in line with the spending profile by month. Such “timely” financing was possible as the government depleted the National Fund ahead of schedule as transfers from the fund accounted for revenues. In 2023, as a whole, the republican budget assumed these transfers to reach KZT 4.432 trln. In 10M23, they already climbed to KZT 4.139 trln, i.e., the fund financed the republican budget ahead of schedule. There is no doubt that total transfers from the National Fund will significantly exceed the target as revenues of the republican budget suffer from an excessively strong tenge. In the previous reports of this series, we mentioned that too generous budgetary spending (after the amendment in 2Q22) appeared destructive to the revenue flow. Amid a lack of revenues, the authorities had nothing to do but sell more FX from the National Fund. In October, the government FX sales accounted for 43% of the total FX market turnover. Hence, after a short period of a healthy correction in mid-year, the tenge recently appreciated (to USD/KZT 460). Therefore, budgetary statistics look unsurprising on the revenue side: in 10M23, tax revenues of the republican budget approached 67.8% of the annual target only. Total revenues reached 76.5% of the yearly target during this period - but only because of financing from the National Fund ahead of schedule. An excessively strong tenge...