In 2019, against the backdrop of launched fiscal stimulus, Kazakhstan's GDP growth accelerated to 4.5% from 4.1% in the previous two years (Fig. 1). The share of state budget expenditures relative to gross domestic product increased from 18.8% in 2018 to 20.4%. At the same time, this economic growth was not comprehensive - electricity consumption, an important component of economic development, significantly slowed down its growth from 5.5% in 2018 to 1.8% in 2019, in addition, there was a weaker growth in retail trade turnover – 5.8% versus 6.5%, in some regions there was a drop in business activity, industrial production was at the lowest level since 2017 - 3.8% versus 7.1%, while oil prices, and the national currency have fallen noticeable. As a result, the quality of economic growth remains low, while an increase in the government spending leads to a widening deficit.
State budget revenues increased by T2 trillion to T12.8 trillion in 2019, where tax revenues increased by T1.3 trillion and transfers of the National Fund increased by almost half a trillion tenge or +18%, played the main role in increasing revenues. Tax revenue showed strong growth of 16.8%. As a result, the share of taxes in state budget revenues amounted to 72%, which was slightly lower than 73% in 2018, but higher than 65% and 59% in 2016-2017. A high growth rate was demonstrated by tax collections on company income + 17%, which is significantly higher than + 9.7% in the previous year and +7.1% in 2017. The increase in CIT payments is explained by the recovery of income from the second-tier banks that sagged in 2018, in addition, the improvement in administration played a role, for example, the taxes on CIT increased several times in Kyzylorda, Kostanay, oblasts and the city of Shymkent, in most other regions there was a double-digit growth rate collectability.
The size of the transfer from the National Fund increased significantly by 18.1% to T3.1 trillion in 2019 after it was at the level of T2.6 trillion in 2018. Moreover, earlier in 2018 it was planned to begin the consolidation of budget expenditures, the size of the transfer from the National Fund was supposed to decrease in 2019 to T2.3 trillion, against T3.1 trillion in fact in 2019, in 2020 to T2 trillion, however, due to a sharp transition to budgetary incentives, the transfer of the National Fund was revised upwards to T2.7 trillion in 2020.
Non-tax budget revenues increased by 57% and showed growth due to a four-fold increase in dividends from the state-owned shares in state ownership. Non-tax revenues also increased substantially by 27%, due to increased privatization of state property.
The state budget balance was better than expected and, in our estimation, amounted to -1.9% of GDP, against -2.1% of GDP planned by the government and -1.3% actual figure in 2018. As noted, a year ago, according to plans, the state budget deficit was planned to be reduced to -1% of GDP starting in 2019, but the adopted adjustments in the spring of 2019 significantly changed the budget situation, in addition to the backdrop of falling oil prices, the fiscal stimulus of the economy seems partly justified and timely. Although even without increased budget expenditures, economic growth was at an acceptable level, while the budget deficit could have been within 1% of GDP, which would have reversed the process of accumulation of public debt.
Our opinion
The economy reached a new level of growth that was facilitated by budget expenditures that increased to 20.4% of GDP and high investment activity. At the same time, the quality of economic growth is without improvement – structural changes are not visible, salaries were temporarily raised due to the budget, expenses mainly financed current needs (75% of total expenses), while the state budget deficit in 2019 widened to -1.9% of GDP from -1.3% a year earlier. The fall in oil prices by more than 10% was accompanied by a decrease in oil revenues by 6% and was partially offset by the depreciation of the national currency. Against the background of growth of tax revenues by almost 17%, the indicators of taxes on CIT, VAT and excise taxes were lower than planned. A positive point is the sharp increase in non-tax revenues of the state due to increased dividend payments by national companies and increased revenues from privatization of state property. In turn, the expenditures of the state budget increased more than the revenue – by 20.6%. State budget spending on the social sector increased by 26% in 2019. Pension costs were 14.4% higher than a year earlier. As part of measures to increase household incomes, wage costs from the budget increased by almost 22%. Considering that three quarters of all state budget expenditures were directed to current expenditures, the budget impulse stimulates the economy only for a short period of time, while the burden on public finances will have a longer-term effect. Due to the outstripping growth of state budget expenditures, increasing its expenditures is counterproductive, while there was accompanying decrease in sovereign fund accumulations due to an increase in the use of its funds. Along the chain, this leads to high values of the non-oil deficit of almost -9% of GDP and cements the dependence of state finances on oil rent.
