The lower chamber of Kazakhstan's parliament, the Mazhilis, has approved government plans to amend the central budget for 2014-2016 due to the lower oil price and poorer-than-expected economic performance this year so far.
At a plenary session on October 29, Kazakh MPs agreed to reduce expected revenue by KZT420.7bn ($2.3bn) to KZT3,940.4bn ($21.8bn) in the 2014 budget. They also agreed to increase budget deficit by KZT164.2bn ($900m) to KZT1,082.8bn ($6bn), or 2.6% of forecast GDP in 2014 against an earlier target of 2.3% GDP.
Presenting the amended budget at the Mazhilis, National Economy Minister Yerbolat Dossayev explained that the preliminary results of economic performance in the first three quarters of 2014, trends on the global raw materials markets and updated 2013 GDP figure had prompted the amendments. The 2014 budget envisages the global oil price at $95 per barrel but a recent drop in the oil price to a four-year low of $81 per barrel gave the government the jitters.
The government kept the forecast oil price at $95 per barrel in the 2014 budget, but changed a forecasted increase of 4.1% in metal prices to a drop of 6.3% in 2014 compared with 2013.
"With account of the current situation in the economy, a real GDP growth is forecast at 4.3%, 1.7% percentage lower than the earlier expectations," Dossayev was quoted as telling MPs by Tengrinews.
He said that nominal GDP was expected to total KZT40,959.1bn ($226.3bn) in 2014, KZT1,336.4bn ($7.4bn) more than the earlier figure. Updated GDP figures show that the economy was valued at KZT35,275bn ($229bn) in 2013, KZT1,754bn ($11.4bn) more than the earlier thought. The discrepancy in the dollar value of GDP is explained by a 19% devaluation of the national currency, the tenge, in February.
The delays in industrial oil production in the giant Kashagan field in the Caspian Sea dashed the government's plans to increase oil output to 83m tonnes this year. It now expects it to stand at last year's 81.8m tonnes. This plus sluggish global demand for metals forced the government to reduce forecasts of industrial output growth from the earlier 2.7% to 0.8% in the amended budget. The government also lowered forecasts of Kazakh exports by $5.3bn to $81bn and imports by $3.6bn to $48.6bn.
The government expects that lower-than-expected foreign trade volumes will mean a shortfall of KZT225.3bn ($1.2bn) in VAT on imports and KZT173.8bn ($960m) in taxes on foreign trade and operations.
Due to the lower-than-expected revenue, expenditure was reduced by KZT259.5bn ($1.4bn) but an increase of KZT325bn ($1.8bn) in transfers from the National Oil Fund and an increase in budget deficit means budget spending was increased by KZT65.5bn ($362m) to KZT7,190.3bn ($39.7bn).
All revenue from the extractive sector is accumulated in the National Oil Fund from where the budget receives guaranteed transfers worth $9.5bn (KZT1,480bn in the original draft of the 2014 budget). The February devaluation means the budget will receive additional funds (KZT325bn) due to the difference in the exchange rate.
The falling oil prices are also forcing the government to redraft the budget for 2015-2017 with the forecast oil price of $80 per barrel.
The government said budget spending cuts would concern servicing public debt and replenishing government reserves to the tune of KZT64.1bn ($340m), state purchases and government programmes to the tune of KZT68.5bn ($378m) and amount of budget funds worth KZT93.5bn ($517m) allocated but not expected to be spent (due to the cumbersome tendering process). At the same time, the government gave the reassurance that spending on social programmes would not be affected by the budget sequester.
At a meeting with the public in Astana on October 22, President Nursultan Nazarbayev said due to the worsening economic conditions in the global economy Kazakhstan was going to face two or three years of hardship and needed to trim its public spending. "However, wages, pensions and social benefits should be maintained at the current level," Nazarbayev said.
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