Kazakhstan macro: Exchange rate and inflation to remain key variables to watch amid the forthcoming tax reform
The Kazakh parliament recently approved the updated government’s macroeconomic forecast for 2026-2028 after the final polishing of next year’s republican budget. The official forecast assumes GDP to grow by 5.4%, which is only slightly higher than the expected average annual growth for the next three years (5.3%). The authorities anticipate the tenge to remain relatively stable at around USD/KZT540 for the entire period (assuming an average oil price in the baseline scenario at $60/bbl). Next year, inflation is expected to remain relatively high (at 9-11%), while in the succeeding years, the authorities expect it to come down to 6% annually.
High inflation has become a hot topic in government circles. If the government fails to curtail inflation, the trends could appear unsustainable in the case of hypothetical global shocks, and the tenge might not remain stable in the coming years, as the government currently expects. If the tenge weakens (after a period of hypothetical stability over a certain period), inflation will likely accelerate again.
Tax reform aimed at reducing the budget dependence on USD/KZT, combined with moderate spending, could be the key factors breaking the vicious circle of a persistent lack of tax revenue in the republican budget, generous expenditures, and high inflation. The latter requires even more spending in the coming periods, and the problem reemerges. To secure more revenues in the budget under the current arrangement, the government needs a weaker tenge, while the latter’s weakening fuels inflation.
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