Kazakhstan macro: long-awaited tenge depreciation to boost budget revenues in 2024

KAZAKHSTAN - Report 28 Sep 2023 by Evgeny Gavrilenkov

The Kazakh Finance Ministry recently published regular monthly budgetary statistics for August, including the cash flow data of the National Fund, the execution of the republican and aggregate local budgets, and the consolidated budget. Statistics on the National Fund’s revenue flow reveals that the government accumulated less than 53% of the annual revenue target in 8M23. Revenues of the republican budget also lagged well behind the plan. The tenge’s appreciation in mid-year significantly reduced the net income/profits of main exporters. Hence, taxes paid in mid-year were lower than earlier in the year when the tenge was weaker. The fact that combined tax revenues of the regional budgets exceeded 72% of the annual target in 8M23 suggests that medium-sized businesses as well as other business segments, which do not depend much on the exchange rate, and which remain main taxpayers to the regional budgets, were doing quite well. It seems that export-oriented companies whose income flow was suppressed by the excessively strong tenge took the major hit as their costs increased due to high domestic inflation. Hence, the lack of tax revenues in the republican budget.

As the tenge weakened in September, one may expect more tax revenues going forward. However, if the tenge moves close to, say, USD/KZT 500 later this year it won’t be enough to compensate for a lack of tax revenues in summer months or fill the gap between the revenue target and currently accumulated revenues (the government will need to increase transfers from the National Fund). However, this level will support a stable revenue flow next year and will help the government reach its 2024 targets. Moreover, as inflation in Kazakhstan is likely to stay elevated in 2024, it will mean further pressure for the real tenge to appreciate. Hence, additional nominal tenge correction would be desirable, say to about USD/KZT 520 or so by mid-2024 (assuming other factors, such as oil prices, are equal).

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