ASTANA – Kazakhstan’s state fund, long considered the financial lifeblood of the country’s future, is now under intense scrutiny from experts as the country’s budget relies heavily on transfers. There is.
5000 tenge. Cash in the Republic of Kazakhstan. Photo credit: Shutterstock.
The need for stricter rules governing transfers has been repeatedly raised by President Kasym-Jomart Tokayev, including in his national address in September.
What is the National Fund?
The National Fund was established in 2000 with the aim of stabilizing the economy and protecting the vast hydrocarbon revenues. The fund is managed by the National Bank of Kazakhstan (NBK).
Endowments serve two important functions: savings and stability.
The savings feature ensures the accumulation of financial assets with moderate risk and long-term returns. The stabilization function alleviates economic overheating and inflation when commodity prices rise by directing excess revenue from oil and gas taxes to overseas assets. When commodity prices fall, these assets are put back into the budget to support spending and economic growth.
The National Fund disburses funds through guaranteed transfers to the national budget and targeted transfers to projects of social importance.
The assets are kept in NBK’s government account. Fund assets peaked at $77.2 billion in 2014, according to NBK data, but have declined modestly since then. By December 2022, this number had fallen to $55.7 billion. As of September, the fund had $62.7 billion in assets.
Remittance from National Fund
The National Fund disburses funds through guaranteed transfers to the national budget and targeted transfers to projects of social importance. According to NBK data, between 2020 and 2022, remittances from the State Fund increased from 575 billion tenge (US$1.2 billion) in January 2020 to 455 billion tenge (US$937.5 million) in December 2022. It was in the range of
According to data from the Ministry of Finance, in 2023, 4.1 trillion tenge (US$8.4 billion) was transferred from the state fund to the state budget in the form of transfers.
According to Kazakhstan’s draft budget for 2025-2027, withdrawals from state funds are expected to reach 5.4 trillion tenge (US$11.1 billion) in 2025.
Timur Suleymenov, chairman of the National Bank of Kazakhstan, which manages the fund, assured that the amount of transfers in the coming years will be significantly lower. Suleimenov told a government meeting on August 27 that total remittances in 2026-2027 are expected to reach 2 trillion tenge (US$4.1 billion) and that no targeted transfers were planned. .
Suleymenov said that if significant tax reforms do not lead to substantive and systematic measures to increase state budget revenues, additional withdrawals from the state fund may be necessary in 2026-2027. pointed out.
Analysts estimate that without the withdrawals and bond investments, the fund’s assets could have soared to $262.4 billion, or 100.4% of GDP.
Data from the analytical material created by the Analytical School, an initiative launched by the Upper House of the Kazakh Parliament, the Upper House, shows that the first large-scale withdrawal from the Fund was conducted in order to alleviate the effects of the global financial crisis of 2007-2008. It was revealed that the withdrawal took place in 2009. crisis. A total of 1.2 trillion tenge (US$2.4 billion) will be donated to the Development Bank of Kazakhstan, Samruk Kazyna Sovereign Wealth Fund and KazAgro, with the aim of recapitalizing banks, stabilizing the real estate market and financing real estate sector projects. allocated to the holdings.
In 2014, 1 trillion tenge (US$2 billion) was distributed in two installments to support small and medium-sized enterprises (SMEs). Of this amount, 500 billion tenge (US$1 billion) was used to address problem loans, finance industrialization projects and support the development of small and medium-sized enterprises. The remaining 500 billion tenge (US$1 billion) will be put into the Problem Loan Fund to stabilize the banking sector, obtain toxic loans, provide preferential loans to small and medium-sized enterprises, and finance the construction of the EXPO 2017 complex. We have increased our capital.
From 2015 to 2017, $9 billion was withdrawn at a rate of $3 billion per year. In 2021, the Fund allocated 1.8 trillion tenge (US$3.6 billion) in targeted transfers to support health care, housing programs in Nurly Zher province, and employment roadmap.
Between 2009 and 2023, an additional 3.5 trillion tenge (US$7 billion) of bond loans were issued by the Fund. The largest withdrawal was 8.1 trillion tenge (US$16.3 billion), made between 2020 and 2023 to fight the COVID-19 pandemic and fulfill other social obligations.
In 2024, the Fund began supporting a new National Children’s Fund program that provides annual funding to citizens under the age of 18. The program is funded by 50% of the Fund’s average investment income over 18 years. In 2023 and 2024, targeted transfers will account for 45% of total transfers, reflecting the increasing role of oil revenues in fulfilling social commitments.
In the first seven months of 2024, 3 trillion tenge (US$6.2 billion) has already been disbursed, representing 83% of that year’s transfer budget of 3.6 trillion tenge (US$7.2 billion).
In 2023, the fund acquired a stake in state oil and gas company Kazumunai Gas worth 1.3 trillion tenge (US$2.6 billion). In 2024, the government chose to purchase Kazatomprom’s shares as a fund to support the state budget.
NBK also plans to sell $1.3 billion to $1.4 billion of currency from the state fund in October this year, based on the government’s preliminary request for state budget transfer.
Government strategy to limit withdrawals of funds
To reduce withdrawals, the government introduced measures to consolidate budget spending in the mid-2010s. In September 2022, a fiscal management initiative until 2030 was approved, establishing countercyclical fiscal rules that restrict the movement of funds.
The government is also working on new budget and tax laws aimed at simplifying budget processes, improving tax administration and incorporating digital solutions.
Efforts to combat the shadow economy include amending laws, further digitalizing customs administration, building a national goods tracking system, promoting cashless payments, and strengthening currency controls.
Factors behind fund decline
Kairubek Alistanbekov, Director of the Economic Policy Research Institute, spoke about the factors that influenced the reduction of the fund during the profitable period from 2014 to 2016.
“In 2014, the assets of the State Fund exceeded $77 billion. Since then, they have decreased due to various internal and external factors,” he told the Kazinform news agency. “One of the important external factors was Kazakhstan’s accession to the Eurasian Economic Union in 2015. Before joining, prices in Kazakhstan were 30-50% lower than in Russia. After joining the union, Russian products became more popular in the Kazakh market. While prices within Russia remained stable, the cost of living in Kazakhstan increased. This affected our social sector and ultimately led to an increase in government spending.
The expansion of the social sector coincided with a slowdown in economic growth. Economic indicators worsened between 2015 and 2021, with increased social spending in response to the COVID-19 pandemic adding further pressure. As a result, government spending continued to increase, requiring further withdrawals from the fund, while the fund did not increase.
Currently, 40% of Kazakhstan’s state budget is allocated to the social sector, and the salaries of teachers, medical workers, military personnel and firefighters have increased significantly. This placed an additional strain on the budget.
Oil prices also have a significant impact on the government’s dependence on state funds. In 2014, oil prices soared, with Brent crude reaching $100 per barrel, but in 2016 it fell to $30 per barrel. Currently, the price of crude oil is around $70 per barrel. If prices had remained at $100 per barrel, withdrawals from the fund might have stopped altogether.
Dependence on national funds
Rasul Rismanbetov, an economic and financial expert from Kazakhstan, assessed the current situation of the fund and emphasized that the global turmoil poses risks.
“For the past 10 years, the fund has been fluctuating and we were practically dipping into the fund with both hands,” he told the Astana Times.
“Guaranteed and targeted transfers are taking place, and currently state funds are also used to acquire state-owned enterprises. This practice needs to be reduced. However, while development budgets are shrinking, national “We feel that we are in a difficult situation because a large part of spending, especially social spending, has increased,” he said.
In his opinion, serious and possibly unpopular measures need to be taken quickly to prevent the fund from depleting. He estimated that about 5.4 trillion tenge (US$11.1 billion) would be withdrawn from the fund, with total remittances potentially reaching 7-8 trillion tenge (US$14-16 billion).
Rysmanbetov stressed that relying solely on state funds for long-term economic development is unsustainable, as the country withdraws more funds than it deposits, eventually leading to depletion.
He stressed the need for a comprehensive audit of social spending to identify inefficiencies and misuse of funds.
“The government is working to develop digital tools such as the Electronic Family Map, Business Map and Digital Tenge to better monitor who is receiving financial aid and ensure they are eligible. “Increasing transparency and accountability in social spending could reduce spending by 20-30%,” he said.
To reduce dependence on the fund, Rismanbetov called for long-overdue economic reforms. He warned that political leaders often prioritize social support at the expense of funding, but this is unsustainable.
“Bold action and unpopular reforms are needed. Significant progress should be made by 2025, and these efforts should be fully operational by the end of the year. “This will be an important step forward,” he said.
Another way to reduce dependence on the fund is to diversify the economy, he said. While investments in infrastructure and new factories continue to be built, the country also needs to reduce its dependence on oil.
“Oil is our lifeblood and the national fund is built on oil revenues. But we also need to consider other sectors such as agriculture, machinery and IT. Diversification is vital and oil revenues It should not exceed 20-25% of the budget,” Rismanbetov said.
President Kassym-Jomart Tokayev recently called for improved tax laws in his State of the Nation address, which Rismanbetov believes is necessary. He pointed out that in Kazakhstan, very few people pay taxes and there are many special tax systems. The new tax law is expected to be debated in early 2025.
“If we can collect more taxes, we may not have to rely so much on state funds,” Rismanbetov said.
