Inbusiness.kz publishes a macroeconomic report from the Halyk Finance analytical center on the economic situation in Kazakhstan with a forecast for 2025.
In 2024, Kazakhstan's economy showed a strong growth rate of 4.8% year-on-year. However, this growth is hardly considered qualitative and sustainable since it was driven by extensive rather than intensive sources. The main growth drivers were trade (+9.1% y/y), which exhibited abnormal dynamics in the second half of the year, and the manufacturing sector (+5.9% y/y), which grew due to its raw material component, while the mining sector demonstrated a decline (-0.2% y/y). Additionally, despite GDP growth, the citizens' welfare did not improve – real incomes decreased by 3.6% y/y.
The issues with budget revenues led to record withdrawals from the National Fund – T6.3 trillion (T5.3 trillion in 2023), indicating a high dependence of the economy and budget on oil revenues. Poor planning and forecasting of tax revenues resulted in shortfalls in corporate income tax and VAT.
Against the backdrop of high inflationary risks, the National Bank raised the base rate from 14.25% to 15.25% at the end of the year and kept it unchanged in January 2025. Inflation accelerated to 8.6% y/y in December 2024, influenced by rising utility tariffs, the weakening of the tenge, and increased transfers from the National Fund.
The national currency rapidly devalued at the end of 2024, depreciating by 9.1% over the quarter (to 525.1 tenge per dollar). The reasons included the strengthening of the dollar, falling oil prices, and sanctions against Russia, which created a surge in demand for foreign currency. Despite currency interventions by the National Bank ($1.3 billion) and other stabilization measures, the exchange rate continued to show high volatility, indicating weak liquidity in the currency market and structural problems in the economy.
According to our forecasts, a dynamic economic growth of 5.6% y/y is expected in 2025, again driven by extensive growth. The key growth driver will be the launch of the future expansion project at the Tengiz field in the second half of 2025. The implementation of infrastructure projects, high budget expenditures, and withdrawals from the National Fund will also support GDP growth rates.
Summary
Economic growth accelerated sharply but did not translate into improved public welfare
In 2024, the economy demonstrated high growth rates, nearly matching the record figures of 2023. In the first half of the year, GDP growth slowed to 3.3% y/y, but in the second half, it accelerated sharply to 4.8% y/y by year-end. The main drivers of GDP growth were trade and manufacturing, which grew by 9.1% y/y and 5.9% y/y respectively, amid a decline in the mining sector (-0.2% y/y). Despite the positive GDP dynamics, such growth is hard to label as qualitative and sustainable. The growth of the manufacturing sector was mainly tied to its raw material component, while the sharp rise in trade appeared anomalous and contradictory, going against the factors that traditionally determine its dynamics. Furthermore, GDP growth did not translate into increased citizen welfare – real incomes decreased by 3.6% y/y. Regions dependent on the mining industry, such as Atyrau and Mangystau, were particularly hard hit, experiencing declines in real wages.
One of the factors behind the accelerated growth in trade was government spending, which increased by 13.3% by year-end. However, the sustainability of such growth raises questions, especially against the backdrop of declining imports, investments, real incomes, and consumer lending. Stagnation in the mining sector was linked to decreased oil production, which accounts for over 70% of the sector's total output – from 90 million tons to 87.6 million tons. Major reasons include capital repairs at large fields, reduced oil extraction under OPEC+ agreements, and energy blackouts.
The manufacturing sector finished 2024 with robust growth (+5.9% y/y), driven by metallurgy (+6.9% y/y) and machine engineering (+9.7% y/y). Agriculture and construction showed double-digit growth rates – at 13.7% y/y and 13.1% y/y respectively, largely due to the low base effect from 2023 and a record harvest. The transport sector also experienced high growth rates (+8.5% y/y), especially in automotive and urban electric transport. In the communications sector, a significant contribution to growth (+5% y/y) came from internet services, while mobile communications showed a decline (-15.8% y/y).
Our estimates for 2025 indicate continued dynamic GDP growth at 5.6%. The main growth driver will be increased oil production due to the launch of the future expansion project at the Tengiz field in the second half of the year. Other sources of growth include further implementation of large infrastructure projects, growth in the manufacturing sector driven by its raw material component, high levels of budget expenditures, and transfers from the National Fund. At the same time, several factors may slow down economic growth rates. These include declining oil prices, the maintenance of tight monetary conditions against high inflationary risks, relatively low investment levels, and possible further slowdowns in the services sector.
Problems with budget revenue led to record withdrawals from the National Fund
In 2024, the main issue in tax and budget policy was the shortfall in budget revenues, primarily due to poor planning and forecasting of tax receipts. The plans for corporate income tax and VAT were met only at 87.4% and 70.5% respectively (compared to the budget approved at the beginning of the year), while the budget deficit amounted to T3.5 trillion. Due to the shortfall in key taxes, the planned transfers from the National Fund for 2024 (T3.6 trillion) were fully utilized by July, after which targeted transfers were additionally increased by T2 trillion. Furthermore, there were off-budget withdrawals from the National Fund through the purchase of shares of "Kazatomprom" amounting to T467 billion, which went into the budget as dividends. Bonds of "Samruk-Kazyna" companies worth T238 billion were also purchased to finance infrastructure projects. Thus, the total amount of withdrawals from the National Fund in 2024 reached a record T6.3 trillion, even surpassing the figures for 2023 (T5.3 trillion).
This situation indicates a persistent pro-cyclicality in fiscal policy, weak budget discipline, and a high dependence of both the budget and the economy on oil revenues. Despite an average oil price of $81 per barrel in 2024, withdrawals from the National Fund (excluding investment income) exceeded inflows by T1.8 trillion. In the context of rising budget expenditures and withdrawals from the National Fund, it is crucial to strengthen the foundations of budget policy, with particular attention to planning and forecasting tax revenues. To reduce the economy's dependence on oil prices and overcome the "resource curse," it is essential to strictly adhere to counter-cyclical budget rules, which will, in turn, ensure macroeconomic stability, the development of private business, and the diversification of the economy.
Against the backdrop of inflationary risks, the National Bank raised the base rate
In the fourth quarter of 2024, the National Bank tightened monetary conditions by raising the base rate by 1 percentage point, from 14.25% to 15.25% at the end of November. This decision, according to the monetary regulator, was based on updated inflation and GDP growth forecasts, as well as the analysis of actual data and risk balance. It should also be noted that at the last meeting of the monetary policy committee in January 2025, the base rate remained unchanged.
In December 2024, inflation accelerated to 8.6% y/y compared to 8.4% y/y in November, while quarterly inflation was at 2.7% against 1.6% in the third quarter. Significant influence on inflation growth came from an increase in tariffs for regulated state services. Among other key factors contributing to rising prices were additional transfers from the National Fund and high volatility in the tenge exchange rate, leading to increased import inflation. Inflation expectations among the population and businesses worsened: the expected inflation one year ahead rose to 14.6% in December, while the perceived inflation over the last 12 months reached 13.2%.
It is expected that in 2025, inflation will return to a declining trajectory thanks to the high base rate and the slowdown of global inflation. However, internal risks, such as weak budget discipline, high levels of transfers from the National Fund, and volatility in the tenge, as well as external threats, including falling oil prices, could exert pressure on price stability. Inflation may also accelerate due to the recent decision to liberalize prices for petroleum products. At the same time, this will be a one-time price increase, and in the medium term, it will have a moderate impact. According to our estimates, by the end of 2025, the annual inflation rate may reach 8% under the base scenario. The inflation values throughout the year will