Kazakhstan macro: The tenge correction looks healthy and will stabilize tax flow in 2025
Kazakhstan’s Ministry of Finance recently reported that tax revenues of the National Fund amounted to KZT2.980 trln in 9M24, i.e., about 50% of the annual plan (KZT5.957 trln). In 8M24, the government accumulated KZT2.863 trln (48.1% of the plan). As one can see, revenue flow remained sluggish in September. At the same time, the total revenues of the National Fund were high enough due to an impressive rise in income from the management of the fund’s assets. According to Minfin, these revenues reached KZT2.534 trln in 1H24 and appeared comparable with tax revenues. The amount looks impressive, given that as of January 1, 2024, the total assets of the National Fund equaled KZH29.854 trln, i.e., the profitability of their management appeared well above expectations for investments that could not be too risky. The National Bank of Kazakhstan recently published detailed statistics related to its bond and equity holdings in Kazakh companies. It appeared that it purchased shares at a price well below their fair value, implying that it generated a “profit” and was “successful” enough to transfer extra cash to the budget. The fact that the nominal prices of bonds differ from their fair values also creates some arbitrage.
The side effect of such price setting and related FX intervention is that this practice translates into an extremely uneven money supply growth by month, which is generally inflationary, as prices go up faster following an acceleration of money supply growth (although with a lag), but they don’t fall in the aftermath of months with a money supply contraction. Reducing or eliminating these non-market actions may not only help collect more revenues but also reduce inflation in 2025. The ongoing weakening of the tenge will help collect more tax revenue and help the government avoid complicated non-market intervention operations.
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