Spending is more than income: who is to blame for the budget crisis and what to do?

The gap between income and expenditure of the domestic budget is growing. According to the most optimistic calculations of the government, this year the country's budget deficit will amount to more than 4 trillion tenge. What is the risk of this imbalance and what to do? We'll find out today.
When state finances sing romances
Expenditures of the local and national budgets in 2024 increased by 13.4%, eventually amounting to 34.7 trillion tenge. The expenses exceeded the revenue side of the budget by almost a quarter or 7.6 trillion tenge. Experts have already warned about the crisis of state finances that awaits us this year. But, judging by the picture of the first months of the coming year, the government is not aware of the problem, thereby exacerbating it. At the same time, the Left Bank suggests that the country tighten its belts and live within its means. All this sounds against the background of an imminent tax increase and almost unreasonable cuts in bloated budget expenditures.

Although the President has repeatedly demanded that the government focus on the rational use of budget funds, increase the efficiency of government agencies and prevent unjustified spending.

How do I switch the survival budget to development mode? And what about the state finances that have been singing romances in recent years? We're dealing with the experts.
Alibek Konkakov, Director of Public Administration and Policy at the Desht Analytical Center, notes that the growth of budget expenditures accompanies the development of the economy.
"Today, the expenditures of the state budget of Kazakhstan amount to about 22% of GDP, while in general, in countries with per capita incomes above the average, this figure is more than 30%, and in high–income countries - more than 40% of GDP.

At the same time, the dynamics of government spending in the last 10 years has been moderate. The ratio of expenditures from the state budget to GDP increased from 2014 to 2024 by about 3 percentage points to 22.6% (if we use the government's forecast for GDP in 2024), the economist notes.
The changes in individual items were also moderate: the largest increases were observed in spending on education (from 3.4% to 5%), social assistance and welfare (from 3.9% to 4.5%) and debt servicing (from 0.6% to 1.7%).
"The budget deficit remained unchanged over the same period, remaining at the level of 2.7%. Of course, this level is supported by significant transfers from the National Fund, but the non-oil deficit is also not growing and even shows some negative dynamics, having decreased from 9.5% to 8%," the analyst continues.
At the same time, optimization of budget expenditures is certainly necessary, he believes.
"Today, there is an absolute predominance of current costs over capital costs in the cost structure (79% versus 17%). At the same time, this situation has only strengthened over the past 10 years.

Current expenses increased significantly (their share in the structure increased by 10 percentage points), in particular due to an increase in transfers to individuals (from 17% to 20%), wages (from 12% to 14%) and remuneration payments on domestic loans (from 3% to 6%). At the same time, capital expenditures decreased slightly over the same period (from 19% to 17%)," Alibek Konkakov says.
He also records an increase in subventions to the regions – their share in the cost structure increased from 15.2% to 22.8%.
"Today, 17 regions of the country are subsidized, of which 8 account for more than half of local budget revenues from the republican budget: Turkestan (67.6%), Kyzylorda (62.9%), Zhambyl (60.8%), Kostanay (50.7%), Akmola region (50.2%), North Kazakhstan region (63.4%) Zhetisu (65.5%) and Abai (53.8%) regions," says the economist.

Alibek Konkakov, Director of Public Administration and Policy at the Desht Analytical Center
All these trends highlight the need to improve the institutional environment," the source said.

An economy with a dynamic private sector not only generates revenue for the budget, but also reduces current costs by creating more high-income jobs, he emphasizes.
"Of course, fiscal balance problems are typical for such economies, but the difference is that investment attractiveness keeps them afloat. Therefore, it does not occur to the governments of these countries to sharply raise basic taxes," the Desht expert emphasizes.
Three problems
Sergey Domnin, head of Kursiv Research, identifies three main problems of Kazakhstan's public finances.
"The first is the systematic dependence on oil revenues, which form from 30 to 40% (in some periods – up to 50%) of the budget revenue. This dependence is caused by a historically unbalanced budget, where for a long time (until 2023) effective budget rules did not apply to limit the growth of the expenditure side.

The second problem is the deterioration in the quality of revenue planning, especially tax revenues for two key groups of taxes – corporate income tax and value added tax. Actual receipts have chronically deviated significantly from the projected ones, and several adjustments were required over the course of the year to bring the plan and the fact closer," says the expert.
The third problem is the high and increasing growth rates of the expenditure side of the state budget, which are not balanced by the growth of tax revenues.
"If in the period 2010-2019, when the economic growth rate was 4.4% and consumer inflation was 7%, budget expenditures grew by an average of 14% per year.

In 2021-2024, against the background of an average GDP growth rate of 4.5% and inflation of 12%, budget expenditures accelerated to 16% per year.

State budget expenditures are also growing structurally: if in 2010-2019 their ratio to GDP averaged 19.9%, then in 2021-2024 - 21.7%.

It would seem that this is an uncritical growth, but it is not fully offset by an increase in tax revenues: in the corresponding two periods they amounted to 13.0 and 14.4% of GDP, respectively," notes Sergey Domnin.
That is, we responded to the structural increase in expenditures by about 1.8 percentage points by increasing non-oil revenues by 1.4 percentage points. On the long track, these few percentage points, against the background of other long-standing budget imbalances, led to a serious imbalance in the state budget, he states.

What should we do to ensure that we have a budget for development rather than survival? To begin with, the analyst suggests defining the wording.
"I may be mistaken, but there is no such wording in the Budget Code of the Republic of Kazakhstan – the "development budget". It talks, for example, about development transfers, there are budgets in accordance with the development plans of certain government agencies or regions, but there is no talk of a "development budget" as a structural part of the state or republican budget. This is a category from the reports of the Supreme Audit Chamber, which, apparently, refers to part of the expenditures of the state and republican budgets, which are listed in the statistics of state finances as capital expenditures, that is, expenses for the creation of tangible assets, fixed assets," the channel's interlocutor clarifies.
This is the construction of buildings and structures – roads, bridges, dams, utility networks, and so on. These costs contribute to the creation of jobs during the construction period, generate demand for investment goods and, if properly distributed, ensure long-term economic growth.
"By the end of 2024, the share of capital expenditures in the structure of the state budget of the Republic of Kazakhstan amounted to 17%, in 2019 it was at the level of 13%, in 2015 – 15%, in 2010 – 23%.

But at the central level, they are dissatisfied not only and not so much with the fact that the share of capital expenditures in the structure of government expenditures is decreasing. Most of these funds are distributed at the local level, and in the structure of the republican budget these expenses are no longer 23%, but 10%. At the same time, a significant part of such expenses has recently been paid for by transfers from the National Fund," the analyst focuses attention.

Sergey Domnin, Head of Kursiv Research
Government speakers say that the state needs to invest more in fixed assets, he recalls.
"Theoretically, it is possible to redistribute funds between existing groups of expenses – from current to capital. However, it is difficult to reduce current expenses both technically and politically: in their structure, two thirds are pensions, benefits, and salaries for state employees, a quarter are public procurement, and about 10% are debt servicing.

This means that it is necessary to increase income. Could it be possible to increase the size of transfers from the NF? But President Tokayev set the task to bring the volume of NF assets to $100 billion by the end of 2029. This task will not be completed only due to the growth of the investment income.

How to solve a problem with such conditions? The answer is obvious: to structurally increase the share of tax revenues. How can this be done taking into account the current inertia of the growth of the tax base? Only through an increase in the tax rates collected in the republican budget – VAT and CPN," believes the head of Kursiv Research.
Remove imbalances
Askar Kysykov, Director of the Talap Center for Applied Research
, states: in recent years, the problem of fiscal sustainability has been greatly aggravated.
"The discussion that is underway now, especially regarding tax increases, VAT rates and other major changes, is justified by the need to finance the budget deficit. At the same time, the parameters of only one component of the system are shown – the republican budget.

However, the system has a local budget, a National Fund, and extra-budgetary funds. This is a complex system of state finances, and it is impossible to make major reforms, especially in terms of taxes, using only one element," the economist emphasizes.
The national economy depends on the oil sector: the share of oil in exports is 60%. These revenues go to the National Fund, and Astana has a desire to remove budget dependence on oil revenues.
"A good wish that has not been questioned for many years. But in the current conditions, this task is impossible, since the oil sector occupies a significant share in the economy and has a multiplier effect on all sectors, including business.

In the oil economy, we will depend on oil revenues. Another question is how we manage them. And the government's desire to completely cut off oil revenues looks like it's shooting itself in the foot," says the source.
He recalls that at the last meeting with business, the president said: The National Fund is an integral part of the economy, and there is no need to ring the bells because of the use of oil revenues.
"We use some of them through the budget to finance social programs, the development budget, and so on. I consider what is called the oil curse to be a blessing: there is an increase in production. It is estimated that in 2025, additional revenues from the expansion of TCO will amount to 1.4 trillion tenge.

The growth of oil revenues is not only about revenues to the National Fund. Part of it goes to the republican budget as an export customs duty. And the primitive accounting approach to solving budget imbalances that many experts want to impose is absolutely the wrong position," the economist believes.
It is important to balance the consolidated budget, which takes into account the republican, local budgets and the National Fund. The task is to make the entire system a surplus, Askar Kysikov emphasizes.
"I assess the stated goal of accumulating $100 billion in a bucket by 2029 as doubtful and unlikely to be achievable. It can be $80-90 billion. It's okay if we invest some of the money inside the country in various areas, including the development of human capital and improving infrastructure," says the channel's interlocutor.
We have something to reduce
"Clear budget rules are needed - which part of oil revenues can be used for financing within the framework of the republican budget, which part can be used for local budgets," continues Kysykov.
A reform was carried out with the latter – they were given more of the tax base, the IPN, the social tax and part of the CPN from SMEs. The proceeds from big business go to the republican treasury.
"In conditions when the republican budget does not collect taxes, it is necessary to carefully study local budgets. Often, money remains in the field, which is spent by akimats. The regional authorities receive a lot of funds and are trying to use them quickly. I think there are a lot of inefficient projects and expenses. Accordingly, transfers should be adjusted, and regions should be given less money through subventions," the economist believes.

Askar Kysykov - Director of the Talap Center for Applied Research
Regarding the opinion on the growth of the expenditure side of the budget, he notes that the indicator of state budget expenditures to GDP is stable.
"Over the past 5 years, it has amounted to 22-24% of GDP. When it is said that state budget expenditures have increased significantly, it must be borne in mind that they have increased in nominal value. And taking into account inflation, the depreciation of the tenge, the budget grows by the level of accumulated inflation and depreciation of tenge.

The same applies to the size of transfers from the National Fund – if you convert them into dollars, it's about $ 10-11 billion. They have a stable level. Earlier, the National Fund management concept recorded a guaranteed transfer of $10 billion, then they tried to lower its threshold to $8 billion (unsuccessfully). I believe that the latter amount is an adequate amount to maintain the stability of the country's budget," the expert continues.
He recalls the two functions of the national piggy bank - savings and stabilization. And when the economy is in crisis, you can use the accumulated reserves to finance it (including social needs).
"This is a countercyclical policy, but it does not imply an increase in the tax burden during the crisis, which, on the contrary, should decrease. During such periods, reserves are spent, the deficit increases, and when there is a rise, taxes rise, and resources accumulate. It is necessary to use this approach in expenses as well.

The expenditure part, to put it mildly, is ineffective in our country, there are opinions that there is supposedly nothing to cut in the budget. I disagree - there are still large reserves, including in the social part.

There are capital expenditures; in addition to salaries, there are purchases - everything needs to be studied and optimized, as well as research on quasi-structures for ministries, the effectiveness of which is minimal, and the costs are enormous," the head of Talap notes.
In his opinion, it is necessary to reduce costs in many other areas, especially in financing the real sector, when from year to year the authorities are trying to develop the same industry, pumping a lot of money into it, including through the quasi-public sector.
"Bureaucrats can either increase the budget or strengthen the regulation of the industry. And when a new minister comes, for example, agriculture, and asks for another trillion tenge for the development of a priority industry, its effectiveness will not change from an increase in the budget. Because the tools are old and broken.

If we analyze the volume of agricultural subsidies last year and the efficiency of these investments, we will see poor results. It is impractical to continue this practice, and the entire support system for this industry needs to be reviewed. It is necessary to sort out institutional things - the economic turnover of land and other aspects, and so on - in all sectors: medicine, compulsory medical insurance, education; improve procurement.

I am sure that the potential for optimizing budget expenditures, including at the local level, is very high," says Askar Kysykov.