Kazakhstan macro: budgetary policy to gradually improve
The August budgetary statistics brought no surprises as trends that had emerged previously remain the same. At the same time, recent statistics and some official publications hinted at some changes in budgetary policy and the implications for exchange rate dynamics. Even though the tenge weakened in 2Q24, the pace of its weakening slowed in 3Q24, and in recent weeks it remained directionless, having hovered at around USD/KZT 480. As the Brent price slid from the $85/bbl-$90/bbl range close to $70/bbl, the exchange-rate-dependent republican budget faced increased pressure. In 8M24, the republican budget was able to accumulate only 46.4% of tax revenues. Even in August, i.e., a month when tax collection normally soars relative to previous months as some taxes are paid quarterly, tax collection was poor. The situation differs materially on the local budgetary level. In 8M24, the tax revenues of local budgets combined reached 74.3% of the annual target. Total revenues were slightly lower in terms of a percentage of the yearly target (68.7%) but high enough despite slow allocation of transfers from the upper level (i.e., the republican budget). Local budgets have no problems financing their expenditures as the broader economy appears in decent shape and taxes not linked to the oil price and exchange rate are flowing in excess of plan. In 8M24 local budgets were in surplus of over KZT1.1 trln while the 2024 plan assumed a deficit of about the same size. Therefore, it looks unsurprising that the government recently amended local budget expenditures (by 16.8%).
The conclusion from recent budgetary statistics and the 2025 budgetary plan is that republican budget spending will be less generous next year, especially in real terms, as inflation will likely remain elevated. Assuming other factors are equal, it will help the authorities to avoid various schemes aimed at inflating non-tax revenues. If so, then it will require fewer FX interventions next year, which may help the tenge to adjust to more justifiable and equilibrium levels, i.e., to weaken. At the same time, as the combined budget of the local governments remains in surplus (amid delayed spending though, as the amendments were recent), it may mean that next year the role of the local budget will increase further, as expenditures will be likely raised more than in the case of the republican budget.
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