Kazakhstan plans $50 billion in budget spending next year: what else?
President Kassym-Jomart Tokayev signed a budget plan for 2024-2026 on December 9, with the majority of the funds to be directed to the social sector. More about where the budget money will go in the next three years in Kazakhstan and how efficient their use is in the latest article of Kazinform News Agency.
As per the law, the budget expenditures are set to increase by 1.3 trillion tenge and reach 23.3 trillion tenge in 2024. In 2025, the projected budget spending for 2025 is 23.8 trillion tenge, surpassing 25.1 trillion tenge in 2026.
Budget revenues are expected at 20.19 trillion tenge in 2024, including 15.8 trillion in tax revenues. In 2025, the figure will stand at 19.9 trillion tenge, and 20.9 trillion in 2026.
Focus on the social sector
In general, a significant portion of the national budget is earmarked for the implementation of state and social obligations and the development of regions, said Deputy Prime Minister and Minister of Finance Yerulan Zhamaubayev, presenting the bill in the Senate, an upper chamber of the Kazakh Parliament, on November 23.
A total of 5.4 trillion tenge is allocated for pension and allowance payments, including indexing.
93.3 billion tenge is allocated in 2024 to support families during the childcare period, which has been extended to 1.5 years. Another social initiative involves maintaining the retirement age for women at 61 years until 2028, benefiting over 150,000 people and necessitating an additional 473 billion tenge over the next three years.
Healthcare and education allocations
2.4 trillion tenge will be directed towards the development of the healthcare system, including the implementation of the Modernization of Rural Healthcare national project. The project aims to construct 655 healthcare facilities and modernize 32 inter-district hospitals, providing specialized medical assistance to over 4 million rural residents.
The education sector will receive 1.7 trillion tenge, primarily for the Comfortable School national project, addressing school place shortages and the issue of three-shift schools.
Additionally, 96 billion tenge is earmarked for a 30 percent increase in the salaries of preschool teachers.
What are other expenditures?
Over 7 trillion tenge is allocated for the development of regions. The real sector of the economy will receive 2.9 trillion tenge for development. This includes plans for the development of processing industries and business support.
Expenditures for security forces are planned at 2.6 trillion tenge
Initially, Mazhilis, the lower house of the Kazakh Parliament, approved a three-year budget plan on November 1. The bill was then discussed on November 23 in the Senate, an upper chamber of the Parliament. Discussions on the law, taking into account the remarks and suggestions from Senate committees and deputies, have highlighted the need for changes and additions to the law previously adopted by the Mazhilis. The Mazhilis finally adopted the bill with the amendments on November 30.
The proposed amendments include increasing the budget of the Auyl – El Besigi program to 18.1 billion tenge, including 13.6 billion tenge for the year 2024.
Water supply and wastewater management will receive 19.8 billion tenge, including 14.0 billion tenge for the year 2024. This allocation aims to increase the population's access to water supply services in cities to 99.5 percent and in rural areas to 97.8 percent.
Another amendment touches upon the development of the gas transportation system with a total budget of 5.1 billion tenge, including 3.3 billion tenge for the year 2024. Officials expect this funding is intended to achieve a gasification level of 61 percent.
National transfers
As per the Kazakh Ministry of Finance projections, the government is anticipated to run a deficit in 2024, exceeding revenues by 3.5 trillion tenge, with subsequent increases to 3.6 trillion tenge in 2025 and 3.9 trillion tenge in 2026. To address this shortfall, a portion will be covered by a guaranteed annual transfer of 2 trillion tenge from the National Fund, a reduction from 2.3 trillion tenge in 2023.
The guaranteed national transfers from the National Fund in Kazakhstan constitute a mechanism wherein a share of the nation's oil revenues, accumulated in the fund since its establishment in 2000, is allocated to meet specific budgetary requirements. The National Fund was originally created to accumulate windfall profits from the oil sector and ensure fiscal stability, especially during periods of oil price volatility.
However, much criticism has been directed towards the government’s heavy reliance on the transfers, reflecting its failure to use the budget wisely and efficiently.
Experts note the growth rate of state budget expenditures remains elevated. As a result of excessive expenditure growth coupled with more modest revenue increases, the state budget deficit sharply increased, reaching 75% of the deficit figure for the entire year 2022. The profound budget deficit necessitates increasingly larger borrowings, the size of which has surged by two and a half times compared to the previous year.
From 2017, revenues have increased by 75 percent, reaching 20.2 trillion tenge by the end of 2022, while state budget expenditures have risen by 72 percent to 21.5 trillion tenge.
Efficiency of the budget use
The efficiency of the budget use, however, remains low, said Sholpan Aitenova, an expert and head of the Zertteu Research Institute.
“If we rely on the reports of the Supreme Audit Office, the efficiency of budgetary funds utilization in various areas is low. Thus, according to the results of the 9 months of 2023, the Supreme Audit Office identified violations amounting to 336.5 billion tenge, of which 180 billion are related to inefficient use, and 111.5 billion tenge are attributed to inefficient budget planning. These are significant amounts and indicate that the budgetary process is not effective both in terms of planning and utilization,” she said in a comment for this article.
She noted that Mazhilis is currently reviewing a draft budgetary code. The proposed legislation seeks to establish a solid foundation for enhancing the overall effectiveness of the government budget. Key to this improvement is the acknowledgment that budgetary efficiency is directly tied to transparency.
"While transparency is a crucial factor in enhancing budget efficiency, it is important to recognize that transparency can be conditional," said the expert.
Kazakhstan boasts a relatively high level of budgetary transparency, scoring 61 out of 100 according to international ratings, with a continuous upward trend. However, a multitude of corruption-related incidents suggests that the current level of transparency is insufficient.
According to Aitenova, despite efforts such as the creation of a special fund for educational infrastructure support, funded by assets seized from corrupt individuals—receiving a substantial 152 billion tenge this year—the scale of corruption remains alarming.
The expert emphasized that even with high transparency levels in portals such as the government procurement platform and the open budgets portal, showcasing budgetary programs, it is not enough to ensure the efficient and targeted use of budgetary funds.
"In my opinion, the potential for corruption is embedded in the budget planning process, and there is a lack of detail in budget provision, expenditure rationality, and cost justification," stated the expert.
To overcome these challenges, the expert suggested various measures, citing the example of Mongolia, where a law requires the publication of transactions exceeding $2,000. Additionally, the expert proposed conducting public hearings for budget planning with relevant stakeholders, submitting detailed budget proposals to parliament, and ensuring continuous parliamentary oversight and regular reporting by government entities.
"To enhance budgetary efficiency, each sectoral ministry should conduct public hearings during the budget planning process with a target audience, submit detailed budget proposals to the parliament and local councils with a high level of granularity, ensure continuous parliamentary oversight, and regular reporting by government entities,” said Aitenova.
The inefficiency in budgetary spending, however, is not solely about corruption; it extends to the failure to achieve the intended goals and outcomes.
“In conditions of limited resources, improving budget efficiency is an acute necessity, not just empty slogans,” she said.
This should serve as a stark wake-up call for authorities to address these systemic issues promptly.
Economic development scenario
The backdrop against which the national budget is formulated is crucial for understanding its significance. Kazakhstan, like many other nations, has faced economic challenges in recent years, including the global economic downturn, fluctuations in commodity prices, and the implications of the COVID-19 pandemic.
Presenting the bill in the Senate, Minister of National Economy Alibek Kuantyrov said the law is developed based on the forecast of the country's socio-economic development until 2028.
The basic scenario proposes taking the average oil price at $80 per barrel. The average annual GDP growth is projected at 5.8% over 5 years. Inflation is set at 6-8 percent in 2024 and 5.5-7.5 percent in 2025, with a subsequent decrease to 5 percent in 2026–2028.
The real GDP growth in 2024 is forecasted to be 5.3 percent, with a subsequent increase to 6 percent in 2028.
The export volume is planned to reach $83.1 billion in 2024, increasing to $94.8 billion in 2028, while imports will grow from $60.7 billion to $65.6 billion.
The stipulated range for annual inflation in 2024 is 6-8 percent, decreasing to 5.5-7.5 percent in 2025 and further down to 5 percent from 2026 to 2028.
In December 2022, President Tokayev tasked the Government and the National Bank to halve the inflation, which stood at 19 percent as of December 2022. Now, inflation stands at 10.3 percent.
Overall, the current challenges in budgetary efficiency demand a careful reevaluation of planning processes. With calls for increased granularity in budget submissions, there is a collective recognition that merely stating financial figures is not enough, signalling a proactive approach to address these issues and paving the way for a more effective and accountable budgetary framework in Kazakhstan.
