Although oil prices are expected to be relatively high over the forecast period (at US$86/barrel), fiscal management will remain opaque. The government is struggling to restore confidence in its fiscal management after the admission last year that domestic payment arrears had risen as high as US$9bn in 2008-09. This has undermined the credibility of efforts to improve public expenditure management under the SBA, which in 2011 will include the introduction of quarterly financing plans for each ministry aimed at aligning spending commitments with available resources. The government revised the 2010 budget, increasing spending by 28% to Kz3.96trn (US$43bn), to reflect the higher oil reference price and the reduction in fuel subsidies, which resulted in a projected budget surplus of 1.2% of GDP. The draft 2011 budget, approved by the National Assembly in November, envisions total revenue rising by 6.4% to Kz3.4trn (US$36.2bn), while spending will decrease by 0.3%, producing a forecast surplus equivalent to 2% of GDP. Social-sector spending is projected to reach 31.5% of total expenditure, in line with recent years.

The IMF estimates that there was a healthy budget surplus of 7.5%% of GDP in 2010, reflecting the recovery in government oil revenue and tight spending restraint in the first half of the year. We expect that strong oil and mining revenue will ensure a surplus over the forecast period, although given the government's commitment to repaying its domestic debt arrear stock by the end of March 2011, coupled with ambitious public investment plans, we forecast that it will be restrained to 4.5% of GDP in 2011 and to 4.1% of GDP in 2012. After peaking in 2013, we forecast that the budget surplus will fall steadily in 2014-15 as spending growth outpaces oil-generated revenue growth.