Kazakhstan’s parliament seeks to curb withdrawals from sovereign wealth fund

Members of the Senate, the upper house of Kazakhstan’s parliament, have proposed amendments to the budget rules to impose legislative limits on transfers from the National Fund. Senator Sultanbek Makezhanov made this statement during discussions on the draft national budget for 2025-2027.

«We believe it is crucial to tighten the budget rules, allowing transfers from the National Fund only during periods of economic downturn. We must limit the use of these funds by setting covenants in a specific percentage ratio for all state budget expenditures, tied to a countercyclical budget policy,» Makezhanov said.

Following the discussion, the senators sent the draft budget law back to the Mazhilis, the lower house, for revision.

Transfers from Kazakhstan’s National Fund can be either guaranteed or targeted. Guaranteed transfers are used to cover the budget deficit, and by law, they are limited to KZT2 trillion (approximately $4 billion at the current exchange rate, USD1 = KZT495.2) over the next two years. Targeted transfers are allocated for specific projects, and their size is determined annually by the cabinet. This year, the targeted transfer was supposed to be KZT1.6 trillion, but in the fall, the government requested an additional KZT2 trillion due to a budget deficit.

Makezhanov says that financing government spending through withdrawals from the National Fund has reached record levels. In 2024, transfers from the National Fund are projected to total KZT6 trillion ($12 billion), and in 2025, KZT5.2 trillion, which will exceed the fund’s receipts by nearly KZT500 billion (KZT4.8 trillion to be received by the fund in 2025).

Targeted transfers are legally intended solely for projects of national importance, but the government does not always comply with this requirement, Makezhanov said.

«An example of the arbitrary use of the National Fund’s targeted transfer is the financing of subventions in 2025, amounting to KZT1.6 trillion. These are expenses that are not directly related to critical infrastructure or projects of national importance,» he added.

A subvention is a type of financial assistance provided by the state to local authorities to finance specific projects or assignments.

Makezhanov highlighted that the lack of clarity around the size of targeted transfers could lead to a downgrade by the international agency Fitch Ratings, harming Kazakhstan’s investment attractiveness.

«There has already been a slowdown in investment activity since last year. The gross inflow of foreign direct investment (FDI) in 2023 decreased by 16%, and the statistics for the first six months of this year show even lower results,» the senator stated.

He noted that in the first quarter (Q1) of 2023, Kazakhstan attracted $13.4 billion in investments, while in Q1 of this year, the figure dropped to $9.8 billion, a 27% decrease in FDI year-on-year.

Timur Suleimenov, head of the National Bank, was first to call for limiting the size of targeted transfers. The regulator has sent this proposal to the cabinet for consideration.

The National Bank is concerned about the growing withdrawals from the National Fund, as the regulator has been tasked with boosting the fund’s size to $100 billion by 2030, up from the current level of over $60 billion. According to Suleimenov, withdrawals from the National Fund undermine this goal, and the cabinet should not increase transfers arbitrarily during the year. Analysts at Halyk Finance share this concern.

The National Fund has been sustained over the past two years solely through investment income — profits earned from investing its assets in instruments like deposits, stocks and investment fund units.