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In March, the market dynamics of the national currency were maintained. The Exchange Market Pressure Index increased by 0.1 percentage points, however, the Index value itself is still in the zone of external pressure absence. Such dynamics are primarily due to the growth of international reserves and the National Fund assets, as well as the growth of the average weighted TONIA rate.

The Exchange Market Pressure Index increased by 2.9 percentage points in February, but its value still indicates the absence of excessive pressure on the exchange rate. Now, the exchange rate dynamics reflect the balance of market factors to the greatest extent. The chart below shows an abnormally high growth of the Index in March 2022 (+31.6 p.p.), which occurred due to a decrease in international reserves and a sharp increase in the base rate. The surges were observed in June (a decrease in reserves by 3%), in August, September (the impact of an increase in the base rate) and December (an increase in TONIA rate). Such a change in the Index indicates a certain degree of interference in the foreign exchange market

Risks and prospects of fiscal policy development in 2023

Increased geopolitical tensions due to the conflict between Russia and Ukraine, problems in supply chains and transportation of oil in April-May of last year led to the need to provide additional support to the economy. As a result, the Government revised its budget plans for 2022 and increased expenditures.

The sources of covering expenses were the revised guaranteed transfer level from the National Fund of the Republic of Kazakhstan (revision of the plan by +1.6 trillion tenge) and own budget revenues (by +3.5 trillion tenge). At the same time, fiscal stimulus in the short term primarily affects the expansion of aggregate demand, which leads to an additional increase in inflation.

According to the results of the year, the budget deficit was reduced due to record tax revenues over the past 5 years and under-fulfilled expenditure plans.

The budget was also strongly influenced by the transfer receipts from the National Fund of the Republic of Kazakhstan, without which the non-oil deficit is significantly deepening and exceeds the levels of previous years. Thus, the further development of fiscal policy will largely depend on external macroeconomic conditions and energy prices as before.

At the same time, we believe that the new concepts being developed today for the development of various sectors of the economy, designed to ensure the further trajectory of the country’s social and economic development, will continue to put pressure on the budget expenditures.

The issue of the budget revenue growth with a reduction in the share of oil revenues, planned within the framework of the republican budget for 2023-2025, remains quite difficult in the conditions of prolonged political/economic tension and global tightening of monetary measures.

And this, in our opinion, causes some uncertainty in the planned fiscal policy implementation this year.

Main conclusions

• High energy prices ensured a 77% increase in tax revenues compared to last year;
• A quarter of budget revenues are transfers from the National Fund, which increased by 15% in the first half of the year;
• The execution of the plan for tax revenues to the National Fund in the first half of the year amounted to 79.3%;
• The largest revenue growth is observed in Almaty, Shymkent and Atyrau regions. The largest expenditure growth is noted in Almaty region, Almaty city and the capital;
• The share of transfers to local budgets is on average half of the income. In some areas, the share exceeds 70%;
• The bulk of expenditures comes to education, social assistance and security, while there is an increase in defense expenditures;
• Kazakhstan’s public debt continues to grow. 725.2 billion tenge has been allocated from the state budget for debt servicing, which is significantly more than in previous years;
• The political and economic situation that has developed due to the conflict between Russia and Ukraine, and the global monetary tightening harms the fiscal policy of Kazakhstan and leads to the need to revise the budget constantly;
• The basic risk to the budget of Kazakhstan is still its high dependence on the oil and gas sector. At the same time, many existing state programs and national projects indicate that the budget expenditure will only grow;
• The government should not delay the transition to a countercyclical policy of budget planning in the face of external threats of inflation and pricing pressure.

Risks and prospects

The political and economic situation that has developed due to the conflict between Russia and Ukraine and the global monetary tightening harms the country’s fiscal policy and requires constant budget revision.

The government increases guaranteed transfers from the National Fund every time and support the budget, while there is a continuing increase in the non-oil deficit. This leads to economic instability and indicates significant risks for maintaining fiscal stability.

In our opinion, the basic risk to the budget of Kazakhstan is still its high dependence on the oil and gas sector.

The current budget surplus is formed only hence price surge of energy prices.

At the same time, many existing state programs indicate that the expenditure budget will only grow. And the efficiency of the allocation and use of budget funds remains controversial.

Thus, the government should not delay the transition to a countercyclical policy of budget planning in the face of external threats of inflation and pricing pressure.