Kazakhstan macro: 2024 Budget risks arising from strong tenge, low 2023 tax revenues
According to the Ministry of Finance's recently published 2023 annual budgetary statistics, it appeared that the republican budget deficit didn’t deviate much from the target even though tax revenues lagged well behind the plan. The government lacked tax revenues due to an overvalued tenge. The latter appreciated last year in nominal terms despite a strongly negative current account balance. The tenge’s appreciation was triggered by too generous amendments to the republican budget by the government. The need to finance these amended expenditures amid tax revenues' not growing fast enough forced the authorities to tap reserves and invent various schemes to deplete the National Fund more than initially planned. The expenditure increase outpaced the rate of tax revenue growth. The role of government entities in the FX market soared as the supply of FX increased. The tenge appreciated as a result. An excessively strong tenge suppressed the profits of exporters and negatively affected the flows of taxes linked to the exchange rate such as mineral resource extraction taxes and export duties.
All in all, it appeared that the government was able to fully finance its budgetary obligations in 2023 by using reserves, mainly the FX savings of various associated entities. For example, in 4Q23, the authorities orchestrated a partial transfer of ownership of Kazmunaigas from one state-owned entity (the Samruk Kazyna fund) to another entity affiliated with the state (the National Fund). The latter spent KZT 1.3 trln and raised this by selling FX on the market. Whether the government would be willing to orchestrate a similar transaction this year (if it needs additional cash) remains an open question. If the budget remains unamended or amended insignificantly, then some gradual weakening of the tenge could help to increase the normal tax revenue flow and run the 2024 budget smoothly.
Now read on...
Register to sample a report