Strict isolation with the slumping oil prices come at a high cost for the economy and the budget. In the first quarter of this year, the Kazakhstani economy showed an increase in gross domestic product of 2.7% in annual terms, largely due to the pre-crisis inertia. However, in the four months when in April there was a peak of quarantine measures and oil prices fell by almost 70% compared to April 2019, GDP fell by 0.2% compared to the same period a year earlier. In our opinion, the economic downturn will last two quarters, after which economic growth will resume by the end of this year.
Weak growth of the State budget revenue and strong increase of expenditures. State budget revenues excluding transfers from the National Fund increased by a modest 1.2% yoy in the first quarter of 2020. At the same time, due to a sharp increase in the transfer from the National Fund by almost 50% yoy, the total budget revenues increased by 14% yoy. As a result of the increase in salaries, there was a serious increase in income from PIT and social tax by about 20% yoy, which contrasted sharply with a decrease in income from taxes on international trade by 18% yoy. Tax collection of CIT moderately increased by 5% yoy, VAT revenues decreased by 0.3% yoy. State budget expenditures in the first quarter of 2020 increased by 15% yoy. Their rise was due to an increase in social spending and salaries, in addition, the outlays on infrastructure projects went up.
National fund provided 35% of the budget revenues simultaneosly annulled the deficit. Thanks to transfers from the National Fund, which compensated for the weak growth of budget revenues with increased spending, the State budget deficit in the first quarter of 2020 amounted to insignificant T35 billion (0.2% of GDP). However, excluding the transfer of the National Fund, the State budget deficit amounted to 8.5% of GDP, while demonstrating a tendency to serious worsening: in 1Q2018, the deficit was at 6% of GDP, and in 1Q2019 – 6.7% of GDP. Amid falling oil prices, tax revenues to the National Fund in the 1st quarter of 2020 decreased by 31% yoy.
April recession of the economy inevitably reflected on the State budget revenues. For the month of April alone, State budget revenues, excluding the transfer of the National Fund, fell by 33.2% yoy, income from CIT fell by 94.3% yoy, VAT by 61.2% yoy, for PIT – by 60.6% yoy, on taxes on international trade – by 66.8% yoy. The increase in revenue was recorded only for social tax, property tax and excise taxes.
Anti-crisis budget will lessen the economy contraction, another time via National fund monies. In April, amid a pandemic and a collapse in oil prices, the government revised budget parameters. Budget revenues will contract by T1.7 trillion, an additional transfer of the National Fund in the amount of T2.1 trillion will be attracted to compensate for shortfalls. The need to expand government spending from 20.6% to 23.9% of GDP for anti-crisis measures will entail a deepening of the State budget deficit to 3.5% of GDP. The main directions of budget expenditures are focused both on supporting demand and supply in the economy and cover measures that increase the purchasing power of household incomes and the availability of loans, fiscal and administrative incentives for sectors of the economy.
Sharp rise in Public debt will significantly increase the budget burdens. The unprecedented measures taken to support the economy will entail a growth in public debt, the size of which will approach 29% of GDP at the end of 2020 compared with 24% of GDP in 2019. Against the background of the expected growth in budget investments related to the need to finance structural adjustment of the economy, we expect a high burden on public finances to preserve in the coming years.
