Kazakhstan macro: GDP growth gradually decelerates, dragged by delayed budgetary spending, strong tenge

KAZAKHSTAN - Report 23 Aug 2024 by Evgeny Gavrilenkov

In recent publications, the Bureau of National Statistics of Kazakhstan has provided additional color on the country’s macroeconomic performance of the past few months. According to the Bureau, the nation’s GDP grew by 3.2% y-o-y in 1H24, which looked unimpressive compared to last year’s 5.1% growth and the 3.8% y-o-y seen in 1Q24. One of the reasons for growth deceleration this year stems from the fact that lacking revenues due to the excessively strong tenge, the government chose to keep the budget balance in check and decided to delay spending by a sizeable amount (having financed only 44.8% of annually budgeted expenditures in 1H24). Last year spending was smoother as the authorities depleted budgeted transfers ahead of schedule (having created problems for 4Q23).

This year, the changed tactics resulted in weaker economic growth in the segments that depend on budgetary funds. In 1H24 activities on the production side of GDP, such as the healthcare and social safety net segment, professional and scientific research activities, education, and government administration (the latter combined with defense) posted unimpressive growth. Even though these segments cannot be considered the core of the Kazakh economy, they represent an important chunk of it on the production side of GDP (about 16% of GDP). Hence, the lack of timely budgetary financing somehow dragged on the country’s economic growth in 1H24 (in 2Q in particular).

Without having the USD/KZT exchange rate closer to its equilibrium, i.e., weaker than it is now, achieving the ambitious annual GDP growth target of about 6.0% in 2025-2029 that the government recently announced won’t be easy (if not impossible). Achieving high growth rates will require a more stable and less interventionist macroeconomic policy, including managing the budgetary component with smooth financing during the year. What may happen in 2024 is that, while catching up with spending in the remaining months of the year and increasing expenditures to offset the effect of the aforementioned delayed financing, the government may generate more inflation for the rest of the year rather than support real economic growth.

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