Kazakhstan macro: Solving the budgetary puzzle
Kazakhstan’s Ministry of Finance published a complete set of budgetary statistics for 10M23, which included the republican budget, combined budgets of the regions, the National Fund, and the consolidated budget. The republican budget is the cornerstone of the country’s public finances not only due to its relative size but also because it acts as an intermediary, allocating transfers from the National Fund to the budgets of lower levels. The key takeaway from the recent data is that it fully confirms our point of view, mentioned on several occasions in the past: the decision to amend the 2023 expenditures based on the hope that tax revenues could magically soar proportionally has proven unsustainable. There will be no problem with financing the increased expenditures fully this year by depleting the National Fund in larger amounts. The problem is that such a policy appreciates the national currency, which in turn suppresses corporate profits and trims tax revenues. Hence, an excessively strong tenge will automatically trim 2024 tax revenues. To avoid this, the government needs to be brave enough to orchestrate a smooth correction of the tenge’s exchange rate—at least by about 10% in 1Q24 (assuming other factors, such as the oil price, stay the same). As inflation is likely to remain elevated, some further weakening of the tenge will be highly desirable to support growth in the tradable sector.
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