Kazakhstan macro: the budget still lacks tax revenue as the tenge remains strong

KAZAKHSTAN - Report 26 Apr 2024 by Evgeny Gavrilenkov

Kazakhstan’s Ministry of Finance published the budgetary statistics for 1Q24, and it appears that the general trends are the same as in 2023—the tax revenue flow remains well behind the plan, while transfers to the republican budget from the National Fund are well ahead of it. The latter factor is enabling the government to finance expenditures more or less in line with the plan. The situation looked the same in 2023, but this year, the utilization of budgeted transfers from the National Fund appears to be going faster. Another difference stems from the fact that in 2023, the government significantly amended expenditures of the republican budget, while this year, that hasn’t happened yet (and most likely won’t happen as looking for additional sources of budgetary revenues may not be as easy as last year). This year’s nominal expenditures of the republican budget are budgeted only 6% higher than in 2023. As inflation will most likely exceed this level, it will mean that budgetary spending will contract in real terms, which may suppress economic growth.

In 1Q24, the consolidated budget, i.e., a combined entity incorporating local and republican budgets along with extrabudgetary social funds and the National Fund, appeared in deficit in 1Q24. According to the plan, the consolidated budget is supposed to remain balanced in 2024.

The situation with the republican budget looks more peculiar. According to the Ministry of Finance, in 1Q24, tax revenues accounted for only 16.4% of the annual plan. At the same time, transfers accounted for 40.2% of the yearly planned amount during the same period. An accelerated usage of the transfers amid a lack of tax revenues implies additional FX sales by the government from the National Funds. This keeps the tenge too strong and suppresses tax revenue flow. A fundamental solution that could enable the government to collect additional tax revenues associated with the exchange rate and the oil price should be sought in a weaker tenge (assuming that either the volume of oil exports or the oil price doesn’t soar).

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