When the economy expands, the state spends freely. When it slows down, spending tightens. That’s not a metaphor – it’s the story of Kazakhstan’s fiscal behavior over the past decade. The National Bank’s report “Parameters of Kazakhstan’s Fiscal Policy” offers a rare, data-driven look into how government decisions amplified economic swings instead of softening them.
Fiscal policy is the nervous system of the state. How it reacts to economic signals determines the economy’s overall stability. Between 2010 and 2022, Kazakhstan faced global crises, oil price shocks, and volatile growth. The National Bank’s analysis shows how fiscal choices – spending and saving – either fueled or restrained these cycles.
The main finding is blunt: Kazakhstan’s fiscal policy was largely procyclical.
That means government spending tended to rise when the economy was already growing and shrink during downturns – moving in the same direction as the cycle, rather than against it.
The research examines three key indicators: the cyclically adjusted fiscal balance, the non-oil fiscal balance, and the structural fiscal balance. Together, they reveal how fiscal actions align with or diverge from economic fluctuations.
The study’s purpose was to identify the nature of Kazakhstan’s fiscal stance and assess how dependence on oil revenues affects long-term sustainability. To do so, the authors applied international methods used by the IMF, OECD, and European Commission, including the frameworks of Bornhorst and Ardanaz, which are widely recognized in global practice.
This research matters not only to economists. It explains why public finances behave the way they do – why budgets seem limitless when oil is expensive, and painfully tight when prices fall.
Fiscal policy, alongside monetary and macroprudential tools, is meant to smooth economic fluctuations, maintain employment, and keep inflation moderate. But in practice, it often did the opposite.
The report traces the evolution of two main schools of thought. Keynesians argue that in times of crisis, governments should spend more to stimulate demand. Neoclassical economists believe the opposite – markets eventually self-correct, and excessive state intervention leads to inefficiency.
In Kazakhstan, both philosophies overlap. As an oil-exporting country, fiscal policy plays a special role. Oil revenues are finite, volatile, and tied to global demand. They create boom-and-bust patterns in the budget and raise intergenerational fairness questions.
When oil prices rise, revenues soar, and spending expands. When they fall, revenues shrink, forcing budget cuts. This pattern defines procyclicality.
The study covers data from 2010 to 2022, using official statistics from the Bureau of National Statistics and the Ministry of Finance. Analytical tools include the Hodrick–Prescott filter, ARDL models, and modified IMF and OECD approaches.
The results show that the oil and non-oil sectors of Kazakhstan’s economy move in opposite directions. High oil prices lift overall GDP but weaken other industries – a symptom of “Dutch disease.” When oil prices drop, non-oil sectors temporarily gain competitiveness.
In short, Kazakhstan has a two-layered economy. The oil sector drives GDP growth, while the non-oil economy bears the shocks.
The National Bank also measured how sensitive tax revenues are to the economic cycle. The elasticity of non-oil revenues was estimated at 0.69, higher than in earlier studies (0.26 in 2017) but still low by global standards.
The reason is clear: weak automatic stabilizers. Tax revenues respond slowly to changes in output, reflecting limited tax administration capacity and a sizable informal economy.
Kazakhstan’s tax system is largely proportional, meaning its main taxes – individual income, corporate profit, social, and indirect – change little with income levels. Government expenditures are also insensitive to business cycles since unemployment benefits make up only a small share of total social spending. Most spending decisions are discretionary – political, not automatic.
The analysis shows that the cyclically adjusted fiscal balanceremained negative throughout the period – around 0.5–1% of potential GDP. The non-oil balance was far deeper, showing deficits between 8% and 14% of potential non-oil GDP.
This reveals a crucial point: oil revenues mask underlying fiscal weakness. They make the budget look stable on the surface but hide a worsening structural deficit. In practice, this means fiscal policy often amplified economic swings instead of damping them.
To understand direction, the authors calculated the fiscal impulse- the year-to-year change in structural balance. A positive impulse means fiscal expansion; a negative one indicates tightening.
Out of 12 years, only six showed countercyclical policy: 2013, 2014, 2018, and 2022 featured tightening, while 2017 and 2020 saw stimulus. In the remaining years, policy was procyclical – tightening during recessions (2016, 2021) or expanding during booms (2019).
Non-oil indicators paint an even more procyclical picture: six years of expansion aligned with upswings, and only three years of genuine countercyclical response. Even when oil prices were high, spending rarely cooled. Instead, governments increased expenditures, creating pressure during downturns when revenues declined.
The structural fiscal balance – which filters out both business-cycle and commodity effects – tells a similar story. In seven of twelve years, policy was procyclical.
During 2015–2016 and again in 2020, when oil averaged $42–55 per barrel, the model showed that at a long-term benchmark price of $72–80, Kazakhstan’s budget would have been in surplus. This means the transfers from the National Fund during those years were justified. But in 2017, despite still-low prices and high withdrawals, the government pursued further expansion – spending more than conditions warranted.
In short, Kazakhstan often spent beyond its sustainable limits.
The report’s conclusion is direct: Kazakhstan must make its fiscal policy less dependent on oil and short-term cycles. The authors recommend basing budget rules on the structural balance – linking spending to long-term fundamentals rather than current oil prices.
Countries like Chile have proven that such rules work. By saving during good years and spending from reserves during downturns, they managed to stabilize their economies and reduce debt volatility.
Kazakhstan, the study suggests, should develop similar institutional rules that can play the role of “automatic stabilizers” in the absence of strong social mechanisms.
Another critical finding involves quasi-fiscal operations. Over the study period, these expenditures exceeded 5 trillion tenge. They include monetary injections by the National Bank into state programs and bank support measures. These actions boosted demand and inflation – reinforcing procyclical behavior.
Thus, not only the budget but also monetary interventions added fuel to the cycle.
The message is clear: a rational, countercyclical fiscal policy is not a theory – it’s a necessity. Without it, each oil price swing or global shock will continue to magnify fiscal instability.
The National Bank’s research frames fiscal sustainability as a core element of economic security. Oil wealth offers temporary comfort, but genuine stability depends on discipline, transparency, and clear long-term rules.
Kazakhstan needs a predictable, forward-looking fiscal policy.Spend less when oil is high, and save more for when it’s not. That’s not austerity – it’s stability.
