Kazakhstan Depletes Sovereign Wealth Fund

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Kazakh President Nursultan Nazarbayev says the country’s sovereign wealth fund has the money to help wean the central Asian nation off its dependence on oil revenues and build an economy of entrepreneurs.

The 76-year-old president, who led Kazakhstan to independence from the Soviet Union 25 years ago, earlier this year told visitors to the new capital city he built that “Kazakhs have never lived as well as they live today” and the nation’s savings help maintain living standards.

But since Mr Nazarbayev created the so-called National Fund in 2000, his government has withdrawn $US83 billion ($116n) from it, according to a Wall Street Journal analysis of data from Kazakhstan’s central bank that was corroborated by the International Monetary Fund. The National Fund had a balance of $US61 billion as of November 30, down 21 per cent from its peak in August 2014.

Leaders of petrostates from Kazakhstan to Azerbaijan, Russia and Venezuela have spent billions of dollars from sovereign-wealth funds as the relatively low price of oil has pressured government budgets. Spending the money deposited in these funds — rather than just the investment income they generate — is threatening the funds’ long-term viability.

“It’s really important for Kazakhstan and other oil-producing developing nations to convert these savings into a permanent windfall,” said Angela Cummine, an Oxford University academic and author of C itizen’s Wealth, a book examining sovereign wealth funds. “It is very unwise to draw down the fund until it is depleted because then the major windfall from oil will be gone but economic problems will remain.”

Kazakh Prime Minister Bakyt­zhan Sagintayev acknowledged the problem in December. “If we continue spending in this way, we won’t have a National Fund soon,” he told business leaders.

The government in November published a draft decree “to prevent further reduction” of the National Fund. The government proposes spending less of it and investing more of the fund’s money in higher-yielding assets such as stocks and private equity rather than bonds, according to the draft. On December 22, an official at the central bank said that the president had signed the new decree.

The scale of spending from the fund has prompted some people to express concern. That can be a risky move in a nation where, according to New York non-profit Human Rights Watch, criticism of the government is regularly suppressed.

“It was a wise idea to create the National Fund,” Rakhim Oshakbayev, a former deputy minister for investment and development, said. “When we started spending the money in the National Fund, it was like opening Pandora’s box.”

Money from the fund has helped finance the construction of Astana, the new capital city, according to the government. At the centre of the city’s futuristic layout is Bayterek, a gold-orbed tower that stands as a monument to Mr Nazarbayev, containing his metallic handprint on a plinth encrusted with silver and gold.

Sovereign-wealth funds are state-owned investment funds usually created to save surplus revenues, often collected from natural-resource exports.

Kazakhstan’s National Fund transfers billions of dollars each year to the government budget and projects, according to the central bank.

The governments of Russia, Azerbaijan and Venezuela have also spent billions from their sovereign wealth funds in this manner.

Venezuela’s Fund for Macro­economic Stabilisation is essentially empty after the government spent almost $US7bn from the fund since its inception in 1998, according to the Venezuelan government.

Russia, the world’s biggest oil producer, has spent about $US195bn from its Reserve Fund since it was created in 2008, leaving $US31.3bn in it as of December 1, according to the government.