Kazakhstan macro: no threat to the budget despite insufficient tax revenue flow
Recent developments in Kazakhstan show that the country’s economy continues to grow at a decent pace, albeit with a slight deceleration, which is natural after last year’s overheating. Inflation decelerated in May to 0.4% m-o-m (versus 0.6% m-o-m in April), and this could have resulted (at least to some extent) from the fact that budgetary financing in April was not as generous as it had been. Hence, inflationary pressure softened in May. As y-o-y inflation fell to 8.5%, a few days ago the National Bank of Kazakhstan decided to cut the base rate to 14.50% (from the previous 14.75%). This move is largely symbolic and won’t have any immediate effect on the domestic economy or domestic financial markets. As the base rate remains high in real terms, one can expect the NBK’s move will have limited impact on the economy in general. Overall, the economy is gradually becoming less overheated in the aftermath of the extremely generous budgetary stimuli since 2020 combined with last year's rapid growth in consumer credit of 29.2%.
Even though the tenge remains too strong and tax revenue flow associated with the exchange rate and the oil price does not look impressive, the republican budget deficit remains moderate. One major difference between the 4M24 and the same period in 2023 was that the government decided to moderate spending from the republican budget this year and acknowledged that in 4M24 it underspent about KZT1.5 trln. As a result, the deficit remained moderate, reaching KZT 1.4 trln, which does not look like much compared to the planned KZT 3.5 trln deficit for the full year. There is another difference between last year's budgetary policy and what we see now. As opposed to last year's case, when the government amended the republican budget, it remains effectively unamended this year, but the planned 2024 expenditures of the local budgets have been recently raised from KZT13.0 trln, to KZT14.0 trln. The combined budget of the regions was in surplus in 4M24, not least due to transfers from the upper levels of the budgetary system. Generally, such a policy looks a bit messy and too interventionist, as it looks as though local budgets wouldn't require that much in transfers as currently planned because tax revenue looks sustainable and can secure well over KZT1.0 trln additional revenues, i.e., in excess of their annual target.
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