Parliament • 31 October, 2018

Mazhilis of the Parliament approves draft republican budget for 2019-2021

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October 31 the Prime Minister Bakytzhan Sagintayev took part in a plenary session of the Mazhilis of Parliament, during which the deputies approved the draft law “On the Republican Budget for 2019-2021” prepared by the Government of Kazakhstan.

The draft law “On the Republican Budget for 2019–2021” was prepared on the basis of the socio-economic development forecast and budget parameters of the Republic of Kazakhstan for 2019–2023 and the annual Presidential Address to the people of Kazakhstan.

The Minister of National Economy Timur Suleimenov reported that according to the forecasts of the International Monetary Fund in 2018–2019, gradual growth of the global economy at the level of 3.9% is expected. The consensus forecast for the price of oil by world financial organizations in 2019 is $66.7 per barrel. Taking this into account, the oil price in the baseline scenario is $60.

“Real GDP growth is projected at 3.9% in 2019, with subsequent growth to 4.6% in 2023. The average annual GDP growth rate will be 4.2%. Nominal GDP will grow from 64,145.7 billion tenge in 2019 to 86,944.7 billion tenge in 2023. GDP per capita will be $9.9 thousand in 2019 with an increase to $12.9 thousand in 2023 ,” Suleimenov reported.

The main driving force behind the growth of economic activity in the medium term will be the processing and agribusiness sectors, the construction industry, the transport and logistics sector and the service economy. The manufacturing industry will grow by 4.4%, the mining industry — by 3%. A steady pace will remain in agriculture — 6.4%, the construction industry — 4.2% and trade — 4.6%. Exports will amount to $56.5 billion in 2019 with an increase to $68.5 billion in 2023.

According to the Minister of National Economy, oil production will increase from 88 million tons in 2019 to 99 million tons in 2023 due to increased oil production at the Kashagan field and the project for future expansion of Tengizchevroil.

In addition, based on the macroeconomic predictions, forecast of budget parameters for 2019–2021 was developed. Revenues of the republican budget (excluding transfers) are projected in 2019 in the amount of 6,809.7 billion tenge, in 2020 — 7,382 billion tenge, in 2021 — 8,024.7 billion tenge. The budget deficit in 2019 is planned at the 2018 level of 1.5% of GDP, with a subsequent reduction in 2020 to 1.4% of GDP and in 2021 — to 1.3% of GDP.

Minister of Finance Alikhan Smailov reported that the budget was aimed at solving three key tasks. These include ensuring all social obligations in any economic situation, the implementation of seven policies and reforms within the framework of the implementation of the Strategic Development Plan of the country until 2025, as well as the implementation of the Head of State’s Address “Growing Welfare of Kazakh Citizens: Increase in Incomes and Quality of Life.”

“The basis of the budget and its available financing are based on conducting a stimulating macroeconomic policy, which is implemented through a gradual decrease in the dependence of the budget on oil revenues and ensuring the sustainability of tax revenues. The volume of oil revenues to the budget in the form of a guaranteed transfer from the National Fund and export customs duty on oil in 2019 will amount to 3.5 trillion tenge, or 5.4% of GDP, followed by a decline to 4.1% by 2021. The share of oil revenues in the budget is reduced from 35.5% in 2019 to 28.9% in 2021,” Smailov said.

According to him, the limited use of the National Fund and the rise in oil prices already in 2018 will lead to the early stabilization of the fund’s assets. The volume of non-oil revenues for 2019 is planned in the amount of 6.3 trillion tenge, with growth against the plan of 2018 by 973.2 billion tenge, or 18.3%. The key drivers of change were an increase in the pace of economic development, improvement in tax administration and the efficiency of tax collection, predicted as a result of the work of the project office.

The draft republican budget ensures the implementation of the task of keeping the debt at a safe level by reducing the budget deficit from 1.5% to GDP in 2019 to 1.3% by 2021. The expenses of the republican budget in 2019 will amount to 10.7 trillion tenge with an increase of 11% to the plan of 2018 (2020 — 11.1 trillion tenge, 2021 — 11.4 trillion tenge).

“The expenses in the social area are fully linked to the systemic reform of building a new human capital under the Strategy 2025 and in the three-year period will amount to 15.7 trillion tenge, of which for 2019 — 4.8 trillion tenge, or 45% of the total expenses, and in 2021 this figure will be 49.1%,” Smailov reported.

As the minister of finance announced, the expenses of the social block increased by 107 billion tenge for the implementation of the President’s Address. In particular, to increase in the minimum wage from Jan. 1, 2019, to 42,500 tenge, to build more schools for 50 billion tenge over three years, and to strengthen the work of school psychologists.

“The costs of supporting and developing the real sector of the economy are associated with the implementation of policies to ensure the competitiveness of economic sectors, technological upgrading, digitalization, and in the medium term will amount to 4.6 trillion tenge, of which in 2019 it will be 1.8 trillion tenge. In implementation of the instructions of the Head of State, expenditures in this area were increased by more than 600 billion tenge in three years, including by 215 billion tenge in 2019,” Smailov said.

In addition, it was further proposed to allocate 190.4 billion tenge over three years to the development of the manufacturing industry and exports. For the development of small and medium business under the Business Road Map 2020 program, additional 90 billion tenge over three years, or 30 billion tenge each year will be allocated. These funds are proposed to subsidize interest rates on business loans. It is proposed to further allocate 300 billion tenge over three years, or 100 billion tenge annually, to the development of the agro-industrial complex. An increase in the cost of building rental housing in the three-year period is proposed in the amount of 30 billion tenge, or 10 billion tenge each year.

In general, for the implementation of the Head of State’s Addresses and the Five Social Initiatives for the three-year period, the draft republican budget provides for 2.4 trillion tenge, of which for 2019 — 817 billion tenge.

In turn, the Chairman of the National Bank Daniyar Akishev said that the coordination of monetary and budgetary policy is a necessary condition for the sustainable development of the economy. Parameters of changes in the republican budget for 2019–2021 based on the macroeconomic forecasts of the Government and the National Bank.

The National Bank will continue to pursue an inflation targeting policy. This means that the main goal of the National Bank for 2019 will be to keep inflation in the range of 4-6%. This corridor was used to calculate the indexation parameters of the main social indicators of the republican budget. To regulate the inflation processes, the interest rate monetary channel is mainly in force. This means that the key rate will remain the base rate of the National Bank, which will determine the range of rates. The National Bank will set the size of the rate depending on the size of the established and expected inflation in the country, as well as external factors.

“For the nine months of 2018, inflation was 3.3%, annual inflation in September 2018 decreased to 6.1% compared to 7.1% at the end of 2017. To reduce the risk of inflation, October 15 the base rate was increased from 9% to 9.25%,” said Akishev.

In 2019 the National Bank will continue to work to ensure financial stability. From Jan. 1, 2019, a risk-oriented approach is introduced, an appropriate law and necessary regulatory and legal acts will be adopted, and requirements for the level of capitalization of the risk management system will be increased. Banking sector recovery processes and the introduction of new approaches to regulation and supervision will significantly reduce the risks for key banks.

“The main priority for the National Bank will be the implementation of the instructions of the Head of State, given in the Address to the People, especially in terms of providing loans to priority sectors. The implementation of the 7–20–25 Program will continue. According to our estimates, the growth of bank loans in 2019 may be more than 10%. The National Bank will continue to take measures to ensure price and financial market stability in order to ensure sustainable economic growth and improve the well-being of our citizens,” said the National Bank chairman.

Prime Minister Bakytzhan Sagintayev, answering questions from deputies of the Mazhilis of the Parliament, said that in order to ensure targeted growth of the economy, 12 areas were identified within the project management system, including 8 industry-specific and 4 cross-cutting, within which indicators were set for each industry. The project office was also established at the ministries and akimats.

Sagintayev noted that the Head of State in his Address gave instructions for the development of the economy of simple things and the social economy, that is, in the field of health care, education and services. Thus, the President instructed the National Bank to allocate 600 billion tenge in order to start lending to the economy.

The government has today held a series of negotiation rounds with the National Bank and second-tier banks with the participation of the association of financiers, Atameken National Chamber of Entrepreneurs on the mechanism for bringing the allocated funds to the economy. The basic parameters are defined: this money must be issued on the terms of urgency, payment and refundability. The total of 600 billion tenge are divided: 300 billion tenge from the National Bank and 300 billion tenge from the United Accumulative Pension Fund. The base rate is set at 11% (that is, with the Pension Fund, funds will be allocated at the market rate), plus 4% is interest from second-tier banks, since the main risks are borne by banks. In total it is 15% — this is unbearable for the market, for business.

In this connection, within the framework of the Business Roadmap, the state will subsidize the rate of 7%, with a total output (for SMEs) at the level of 8%. Together with the Atameken NCE, a pool of 4,000 projects in various sectors was determined. Second-tier banks are also now completing the formation of their own project proposals.

The Prime Minister outlined that out of 600 billion tenge, 300 billion will be directed to the manufacturing industry, 200 billion tenge — to the agro-industrial sector and the processing sector, 100 billion tenge — to support SMEs. Currently, priority directions are being determined. In November 2018, the relevant documents will be issued, in early December, upon the readiness of projects, second-tier banks will begin to finance. For 2018, the National Bank has already allocated more than 100 billion tenge.

At the same time, the Head of State also set the task of revising the priority of the projects necessary for the country. In this direction, the Government will determine the main projects necessary for the economy and the population. For example, to maintain the stability of the price of sugar — to begin construction of modern large sugar factories in the country. This will allow to secure an internal need at a safe level.

The issue of maintaining and ensuring the stability of prices for socially important goods and services is weekly, on Tuesday, worked out with akimats at Government meetings. Each position on socially significant products is under control. Regarding the contribution of tariffs on regulated services to inflation, it was predicted to be 1.2%. At present, this is a contribution of 0.4%, that is, tariffs do not have a particular impact on inflation.

In conclusion, the Prime Minister thanked the deputies for adopting the draft three-year budget. Bakytzhan Sagintayev noted that this year’s budget is of particular importance because it reflects all the instructions of the current Address of the Head of State, and the project is aimed at their execution. In this regard, the Government adopted today and approved an action plan for three years will be carried out in two stages: the first — until the end of the year, the second — starting from 2019. All work will be aimed at fulfilling the instructions of the Head of State. The Prime Minister stressed that all orders will be executed, and the proposals and comments that the deputies expressed will be considered and taken into account in the forthcoming work of the Government.

During the meeting of the Mazhilis of the Parliament, the deputies also approved the draft law “On the guaranteed transfer from the National Fund of the Republic of Kazakhstan for 2019-2021.” Along with this, in the second reading, the draft law “On Cinematography” and the accompanying law on amendments were approved.

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