In 2022, Almaty sustained a robust revenue stream, continuing into an interim period in 2023. The city’s financial foundation is bolstered by tax revenues and allocations from the national budget. Since 2020, Almaty has benefited from corporate income tax revenues derived from the profits of small to medium-sized enterprises, accounting for approximately 58% of its total revenue in 2022.
Revenue flexibility faces constraints under centralized tax regime
Almaty, akin to other Kazakhstani municipalities, lacks the autonomy to adjust tax rates, which are centrally regulated. The potential for augmenting revenue through tax hikes is minimal, especially when juxtaposed with plausible revenue contractions during economic recessions. This centralization of fiscal power curtails Almaty’s financial independence and adaptability.
The city’s spending is characterized by stability, with essential public services such as education, healthcare, utilities, and transportation—less susceptible to economic cycles—comprising half of the total expenditure in the years 2021-2022. Almaty is not mandated to implement counter-cyclical fiscal strategies, which could otherwise escalate social expenditures in economic downturns.
Mandatory spending limits Almaty’s budgetary flexibility
A significant portion of Almaty’s operational spending is obligatory, posing challenges to expenditure reduction in times of diminished revenue. As a contributor to Kazakhstan’s consolidated fiscal framework, Almaty is subject to compulsory financial transfers to the national budget, as stipulated by the central government. Historically, these transfers have represented about 20% of the city’s total spending, though this figure declined to 17% by the end of 2022.
Kazakhstan’s local and regional governments operate under rigorous debt management protocols, including constraints on debt accumulation, borrowing modalities, and interest payment ceilings. Annually, the state prescribes debt limits for each municipality. For most local governments, budgetary loans remain the sole borrowing option. However, Almaty’s unique status as a republican city grants it the privilege to issue bonds.
The issuance of guarantees by local governments is prohibited, rendering the debts of government-related entities the sole contingent liabilities for Almaty. As of the close of 2022, various municipal corporations held self-financed state-related debts.
Liquidity management constrained by state-imposed ceilings
The state determines the maximum cash reserves permissible for deposit with the National Bank of the Republic of Kazakhstan. Deposits are short-term, not exceeding a week, and yield interest rates significantly lower than market offerings. The credit risk associated with this arrangement aligns with the sovereign credit rating.
Almaty’s debt profile maintains ‘AAA’ rating outlook
Fitch Ratings anticipates Almaty’s debt repayment metrics to remain robust through 2027, with a payback ratio below fivefold (2022: 0.1x), a coverage ratio exceeding sevenfold, and a fiscal debt load under 25%. These projections are based on a scenario that upholds strong primary and secondary financial indicators from 2023 to 2027. Fitch forecasts that Almaty’s payback ratio—net adjusted debt to operating balance, a key indicator for type B local and regional governments—will not surpass twofold within the forecast period. This outlook is underpinned by a healthy operating balance and controlled debt expansion.
The actual debt service coverage ratio—operating balance to debt service, inclusive of short-term debt obligations—is expected to remain above fourfold, while the fiscal debt burden—net adjusted debt to operating revenue—will stay below 25% in the concluding year of the forecast. Accordingly, all metrics are projected to align with a ‘AAA’ rating assessment, as per Fitch’s analytical framework.
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