The 2016–2018 Budget Was Drawn Up on a "Keep the Critics Quiet" Principle
Translated from Russian with the help of AI. Original: Russian version
The budget parameters for 2016–2018 (oil at $40 per barrel, an exchange rate of 300 tenge per dollar and GDP growth of 2.1%) are mutually inconsistent. At $40 oil the tenge would be weaker and growth close to zero.
On Tuesday, November 17, Minister of National Economy Yerbolat Dossayev told journalists the parameters for drafting the national budget for 2016–2018: an exchange rate of 300 tenge per $1, an oil price of $40 per barrel, and GDP growth of 2.1% in 2016. On the face of it, this is a pessimistic budget scenario.
A realistic, sound budget plan is the key to successfully achieving any set of objectives. The more accurate the budget, in any sector and at any level, the better the decisions made on its basis.
That is why I have two questions for the Ministry of National Economy.
If oil were at $40 per barrel now, what would the tenge-to-dollar exchange rate be?
My answer: above 350 tenge. Otherwise the ruble would fall past 70 to the dollar, and the balance of payments would be thrown out of balance.
It is clear that with oil at $40 per barrel and a freely floating tenge, the US dollar cannot cost 300 tenge. The assumption is therefore wrong from the outset.
With oil at $40 per barrel, is 2.1% growth of Kazakhstan's economy possible?
My answer: unlikely. In 2015, with the average oil price above $45 per barrel, the economy is barely managing 1% growth. Moreover, the Ministry of Energy recently stated that at $40 per barrel oil production will decline, and oil is the foundation of the economy. Once again, the indicators are out of balance.
In other words, the budget's authors are ignoring the correlation between oil prices, the tenge exchange rate and GDP growth. Yet Kazakhstan's economy will remain dependent on oil prices for a long time to come; the only question is to what degree.
In my view, with "black gold" at $40 per barrel, the forecast should be for a dollar costing no less than 350 tenge and economic growth of 0.1%.
For now, it looks as though the 2.1% GDP growth figure was set so that "we won't be criticized." Budget revenues at $40 oil were calculated on the same basis: if the actual figures turn out higher, they can be put down to the excellent performance of the civil service. The exchange rate of 300 tenge per dollar was set so that "the public won't criticize": a "people's rate," and anything is better than the current one.
Published in: Forbes.kz, 18 November 2015