Kazakhstan macro: Fiscal Year 2025 may still be challenging despite the weaker tenge
Kazakhstan’s Ministry of Finance recently published budget execution statistics for various segments of the budgetary system, including extra-budgetary funds and the National Fund incorporated in the consolidated budget. The fiscal trends that we have regularly covered didn’t change much, apart from the fact that tax collection increased last month a bit more than it might have, even taking into account that November is a month for quarterly tax settlements. Non-tax revenues also continued to grow, but the main difference from the past was from an increase in transfers. The government decided to tap the National Fund more than planned as tax revenue remained poor. On the expenditure side, the delayed spending caught up: in 11M24 only about KZT0.5 trln remained underfinanced by the republican budget, and about KZT 1.4 trln by the local budgets. A month ago, the sum of these two was about KZT3.0 trln. This year, the government will be able to finance the amended expenditure in full and have a relatively small deficit due to an extra use of reserves.
In 2025, the government intends to allow a bit wider deficit, although it won’t differ much from the 2024 level as a percentage of GDP. So far, the government assumes that total revenues and expenditures won’t rise much in 2025, alhough intentions may change going forward. What still appears uncertain is a rather optimistic view on tax revenue in 2025. Even though the tenge weakened and the government has no ambitions to obtain more tax revenue in 2025 than was planned for 2024, the reality may be more complicated. Given that the government doesn’t expect oil prices to rise in 2025 and the country will still need to comply with OPEC+ arrangements, i.e., will face restrictions in terms of the volume of oil exports, the only way to catch up with the tax revenue plan would mean further tenge weakening. To catch up with the planned tax revenue target, USD/KZT should be close to the 550 mark on an average annual basis. That is to say that it has to weaken even further from the recently seen 510-530 range, implying that, ideally, it should be weaker than the 550 mark by the end of 2025. However, as follows from various statements by government officials, the general mood is to “support” the tenge. Hence, next year may be another year of macroeconomic uncertainty associated with potential FX intervention and budgetary amendments.
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