The Analytical Center of the Association of Financiers of Kazakhstan (AFK) has released a review of Kazakhstan's budget balance for 2024, as reported by inbusiness.kz.
Key Trends of the Period
- Despite economic growth (+4.8%), total tax revenues across the country, including contributions to the National Fund (NF), local budgets (LB), and the republican budget (RB), remained virtually unchanged at 23.5 trillion tenge (+0.2%, or 40 billion tenge) by the end of 2024.
- However, the situation varies across different segments (see below). Tax revenues decreased in the NF (-16%, or 748 billion tenge) and RB (-5%, or 605 billion tenge), but increased in LB (+23%, or 1.4 trillion tenge), which balanced the overall collections.
- The NF saw a significant drop in corporate income tax (CIT) (-267 billion tenge) and mineral extraction tax (MET) (-602 billion tenge) due to lower oil prices, reduced production, and exports.
- In the RB, the declines were primarily in CIT (-236 billion tenge) and value-added tax (VAT) (-495 billion tenge) amid decreased revenues from several large enterprises, lower prices for exported metals, and reduced volumes of taxable oil exports (-4%) and imports (-4%), alongside a substantial increase in VAT refunds (1.2 trillion for 2024 compared to 430 billion tenge for 2023).
- LB experienced the largest growth from social tax (+258 billion tenge), CIT from small and medium-sized businesses (SMEs) (+404 billion tenge), and individual income tax (IIT) (+459 billion tenge), driven by an increase in nominal salaries (+11.3%) and the growth in the number of entities (+10,000) and revenues of SMEs (for example, gross profit of small enterprises rose by 20% in the first nine months of 2024).
- Additionally, the non-tax revenues (1.2 trillion tenge, mainly from dividends on state-owned shares) and high transfers from the NF (5.6 trillion tenge) supported the revenue side of the RB last year. Consequently, total revenues increased to 19.6 trillion tenge (+3.1%, or 586 billion tenge), with taxes accounting for only 63%.
- With total NF assets amounting to 33.1 trillion tenge, withdrawals of 5.6 trillion tenge constituted 17% of its assets, significantly limiting their growth. Potential restrictions on targeted transfers from the NF (not exceeding 30% of the guaranteed tranche of 2 trillion tenge) will allow for withdrawals of around 2.6 trillion tenge.
- In addition to further restrictions on withdrawals to strengthen the NF's role in the country's economic stability, adherence to the 24 fundamental "Santiago Principles," which serve as a benchmark for transparency and effective management of sovereign funds, is essential. Particularly important are the principles regulating the completeness and accessibility of disclosed information (principles 11, 17, and 23), mandatory independent audits (principle 12), as well as the strategic adaptation of advanced global experience in investment management (for example, the share of equities in the Norwegian sovereign fund (70%) significantly exceeds the share of bonds (27%)), including allocations for digital assets.
- While tax collections nationwide remained stable, expenditures (RB+LB) continued to grow steadily: government expenditures increased by 13.4%, or 4.1 trillion tenge, to 34.7 trillion tenge, exceeding revenues by 24%, or 7.6 trillion tenge (see below for expenditure dynamics in RB and LB).
- Current expenditures still dominate the expenditure structure (85%, see below). The situation may change due to the government's intention to channel additional tax collections towards development.
- Amid a high pace of public debt accumulation (7.5 trillion tenge), both the costs of servicing and repaying the debt (from 4.4 to 5.9 trillion) and its total volume (from 27.2 to 31.8 trillion tenge) are increasing.
- Moreover, three-quarters of the volume of government securities issued in 2024 were accounted for by the domestic market, reducing potential currency risks. However, planned changes in the taxation of income from investments in government securities could have serious implications for their attractiveness to local institutional investors and the Finance Ministry's ability to issue large volumes of domestic debt (without increasing the premium).
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Summary
In 2024, the country's state budget deficit significantly widened, increasing by nearly 30%, reaching 3.6 trillion tenge (compared to 2.8 trillion tenge in 2023). The primary reason was the rapid increase in government expenditures against insufficient growth in tax and non-tax revenues.
Stabilization of state finances continued to be supported by transfers from the National Fund, which increased to 5.6 trillion tenge (4.1 trillion tenge in 2023), as well as significant borrowing, totaling 7.5 trillion tenge (5.5 trillion tenge the previous year).
At the same time, favorable conditions in financial markets—growth in stocks, bonds, and gold prices—led to a significant increase in investment income for the National Fund, which reached 5.0 trillion tenge (compared to 1.8 trillion tenge the previous year). Combined with tax revenues to the fund (3.8 trillion tenge), this allowed its assets to grow from 29.9 trillion tenge to 33.1 trillion tenge (+11%, or 3.2 trillion tenge). As a percentage of GDP, they now account for 24.7% compared to 25.0% a year earlier.
In the state budget expenditures, the primary increase was in servicing and repaying loans (+1.4 trillion tenge) amidst rising debt volumes and high interest rates. Consequently, the share of this item in expenditures rose to 16.9% from 12.9% previously.
High planned borrowing volumes (₸6.9 trillion solely in the domestic market) and repayments (this year also involves repaying 2.5 billion dollars in eurobonds) will make this item a leader not only in terms of growth rates but also in share of expenditures (currently, education leads with 19.3%). Additionally, plans regarding the taxation of income from holding government securities could lead to even higher expenditures (increased premiums to compensate for taxes).
"Meanwhile, the goal of raising the National Fund's assets to 100 billion dollars by 2029 and the prolonged budget deficit have necessitated urgent and immediate measures to improve the budget balance. The proposed measures to reform the tax system should include an assessment of the efficiency of its expenditures, the phasing out of ineffective incentives, and enhancing budget discipline to stabilize inflation and exchange rates. Recall that, according to the calculations of the National Bank of Kazakhstan, a 1% increase in budget expenditures this month will lead to a total increase in imports of 1.42% over five months due to the multiplier effect of government expenditures on the overall expenses of economic entities. Accordingly, it is crucial that the growth rate of budget expenditures does not exceed 8% in accordance with budget rules (not surpassing the average GDP value over the past 10 years at 3%, considering the inflation target of 5%)," the message states.