Situation with the state budget in the first half of 2019 reflects a positive change in the dynamics of the main indicators - double-digit investment growth, expansion of trade turnover, low and declining unemployment with a relatively steady economic growth of more than 4% since 2017. It is important to mention the extraordinary presidential elections held in the first half of this year, it is quite logical that such an event is accompanied by a large scale expansion of government spending, especially those aimed at improving the welfare of the population, which stimulates domestic consumption. The total size of the additional package of economic stimulus spanning three years exceeds T2.3 trillion, or almost 4% of 2018 GDP.
As a result of the social support measures, in particular, the reduction of PIT for people with low salaries, it led to a slight decrease in the revenues from this tax at the beginning of this year (Fig. 3), which improved in the second quarter, while income from taxes on corporate sector incomes are noticeably increased, and the overall collection of taxes progress within the framework of generally positive economic dynamics. Note that the weakening of the national currency also played a positive role for public finances with a high share of income from external operations and a still low share of external liabilities.
Our opinion
Economic growth accelerated in the second quarter to 4.4% yoy from 3.8% yoy in the first quarter, receiving recharge from a powerful fiscal stimulus and a rapid increase in investment, which ultimately translates into double-digit growth of tax revenues. The state budget deficit in the first half of 2019 was slightly higher than the same period last year, however, given the expansion of expenditures by about T2 trillion this year, the budget situation is developing within controlled limits. Non-oil revenues slightly outstripped oil revenues at 14% yoy vs. 13% yoy in the first half of this year for the first time in the last three years and, in addition, were higher than their previous values, which confirms the thesis about improving state of the economy. Nevertheless, the share of oil revenues has not yet changed and corresponds to 35% of total budget revenues.
In the wake of increasing budget spending on anti-crisis and image projects, the state budget spending on debt servicing is growing at a faster pace, showing a threefold increase over the past five years (1.8 times faster than other state budget spending), which was facilitated by reliance on foreign exchange loans and a continuous weakening of tenge from the second quarter of 2018. Efforts to reduce the non-oil deficit have so far failed, in the current year, according to our estimate, its size may again increase to 8.4% of GDP from 7.4% in 2018. The problem seems to be that the state, trying to increase the role of the non-primary sector, increases government spending for these purposes without due attention to the effectiveness of these spending, as a result, the structure of the economy does not change, and accordingly the budget remains deeply unbalanced, spending huge sums of the National Fund.
