2023 Economic Results: How Budget Deficits Can Steal Future from Children


The past year has been an eventful one for Kazakhstan’s economy. However, Orda’s financial analytics department has found that there have namely been ripple effects. And if the government does not take urgent measures, in the coming years Kazakhstan risks not only being left without a National Fund but also becoming a so-called failed state. And all this is due to either unwillingness or an inability to live within one’s means.

Landmark Events

First of all, it is worth noting several events and decisions that will positively affect the economy of Kazakhstan.

The influence of the Nazarbayev family is fading. Its members are still parting with their once-acquired assets, such as the two Kairats: Satybaldyuly and Boranbayev. Timur Kulibayev has also put up for sale several assets in Kazakhstan. He is likely to continue to do the same with others this year. The fewer the assets, the less ability they have to participate in and influence the economy. The latter statement extends to politics as well.

Such voluntary and compulsory relinquishing of illegally acquired assets seems to be losing steam. But, judging by the fact that the republican budget is experiencing an acute shortage of revenues, they may continue with renewed vigor to improve state revenues.

Qarmet and Jusan

The most important achievements in the struggle for assets can be considered the sale of ArcelorMittal Temirtau and the transfer of the Jusan group to domestic investors. Perhaps things did not turn out the way we had hoped, but it's a victory nonetheless. We have reviewed both transactions in detail, both with Qarmet and with Jusan.

Consolidation of Exchanges.

The announcement about the unification of Kazakhstan’s two exchanges — Almaty KASE and AIX capital, operating under the AIFC's jurisdiction, surely was a cause for rejoicing among domestic brokers.

The latter was created on Kairat Kelimbetov’s initiative as part of the AIFC domestic mega-offshore project, operating based on British law to attract investors. At the time of AIX’s creation, many could not wrap their heads around the reason for two exchanges for Kazakhstan’s small market. Now, this blunder, resulting in billions of budget fund expenditures, like other initiatives of Kairat Nematovich, will be corrected.

The event that caught everyone’s attention, however, was the National Fund for Children initiative, as it gave hope to many parents for at least some security for their children.

The National Fund for Children or The Government?

On January 1, 2024, minor Kazakhstanis began to receive 50% of the investment income of the National Fund’s funds. It is managed by the National Bank and the funds are credited to special savings accounts. The initiative was first announced by President Toqayev in his annual address to the people in 2022. The population enthusiastically welcomed it, whereas the professional community perceived it with a healthy dose of skepticism.

A closer analysis reveals the reality of the situation. 50% of the average investment income over the past 18 years in US dollars will be transferred to the accounts.

The National Fund has not been profitable every year. Its profit is also often due to the exchange rate difference due to the tenge’s regular depreciation.

In the National Fund’s 23 years of existence, five years have been unprofitable: 2002, 2008, 2014, 2015, and 2022. The total income exceeded 25 trillion KZT, however, about 80%, i.e. approximately 20 trillion KZT is from the exchange rate difference due to currency depreciation. The weighted average return on assets of the National Fund for the entire period of its existence was slightly more than 3%. Current data indicates that the currency assets of the National Fund amount to $58.6 billion. Minor Kazakhstanis can therefore expect about $1.8 billion by 2023’s end.

In 2023’s beginning, 6.7 million citizens under the age of 18 lived in Kazakhstan. At the beginning of 2024, the annual increase in newborns in the range of 200-300 thousand minus those who turned 18, should lead to an increase in the number of minors: 6.9 million.

Each child should receive approximately $260. Given that this population is constantly increasing, and the assets of the National Fund have been decreasing since the peak of 2014 ($73 billion) and have not grown in the last eight years, then every year without a significant increase in assets and their profitability, annual payments per child will fall.

Even if the yield for each child remains at $260 per year, then by the age of 18, $4,680 will have accumulated in an account. This is enough for three square meters in Almaty housing or six square meters in a region according to current prices.

The National Fund is Not Elastic

By 2030, according to the president’s instructions, the National Fund's assets should reach $100 billion. This is no easy task for the Ministry of Finance and the National Bank, considering the constantly growing government spending and regular withdrawals of funds to cover the budget deficit.

The National Fund regularly receives funds from oil sales, mainly from corporate income tax and mineral extraction tax from companies in the oil sector, as well as Kazakhstan's share in production sharing agreements. In the most profitable years, 2011-2014, subsoil users transferred 3.5 trillion tenge to the National Fund at the corresponding dollar exchange rate.

Against the background of the tenge’s rapid devaluation in 2015 and the fall in oil prices, the National Fund's income decreased significantly. Even the record 6.4 trillion tenge by the end of 2022, not disregarding the significant drop in the tenge's exchange rate, does not seem all that impressive.

At the same time, withdrawals from the National Fund are growing from year to year. There are two types of transfers: guaranteed and targeted. Guaranteed transfers occur annually to cover budget deficits. During COVID-19 in 2020, it amounted to 4.7 trillion tenge, 2021 - 2.7 trillion, and 2022 — 4 trillion. Targeted transfers are not allocated regularly, only when debit and credit in the Ministry of Finance do not align.

From 2018 to 2020, there were no targeted transfers, and in 2021 1.85 trillion tenge was transferred, whereas in 2022 - 0.55 trillion tenge. Over the past three years, withdrawals from the National Fund amounted to a total of 13.8 trillion tenge or 4.6 trillion tenge per year.

At the same time, over the same three years, revenues amounted to 10.4 trillion tenge. That is, they took significantly more from the National Fund than they put in. The 4.4 trillion tenge investment income allowed us to break into the territory of slightly positive figures, given that in 2022 the investment loss amounted to 1.4 trillion tenge. Again mainly due to the weakening of the tenge. However, part of the investment income will be transferred to children's accounts from 2024.

The government takes 4.6 trillion tenge from the National Fund annually and offers citizens about 0.8 trillion tenge for payment under the National Fund for Children program. A seemingly unfair distribution of funds.

Hole in The Budget

2023 turned out to be relatively good for the National Fund. Most likely, revenues at the end of the year amounted to about 4.5 trillion tenge, while the investment income should be around 1.8 trillion tenge. Yet, state revenues are not keeping pace with the constant increase in expenses. Therefore, withdrawals from the National Fund also continue to increase to maintain the budget.

In 2020, budget expenditures amounted to 17 trillion tenge, 2021 - 18 trillion tenge. In 2022, they soared immediately to 21.5 trillion tenge. In 2023, according to the government's plans, expenditures were to amount to 22.5 trillion tenge.

Last year, the budget deficit reached a record 3.8 trillion tenge, 1 trillion tenge more than 2020's state revenues from oil sales simply collapsing. The government pulled 4 trillion tenge from the National Fund in 2023. The growth of spending on social obligations and the fulfillment of various promises continues to increase, while tax revenues significantly lagged behind the set plan and did not grow as fast as in 2022.

High costs allow the country to live better in the moment but are dangerous in the long run. Social and economic problems are flooded with money and simply shelved. And if we do not take action, future generations will deal with the consequences.

High costs are also forcing the government to make very dubious and unpopular decisions right now, and their essence is only revealed by the budget deficit.

Sad Consequences

It should be noted that the main driver of inflation in 2022 was not Russia's war with Ukraine and all the resulting economic consequences for the CIS countries, but a significant increase in government spending. By 2022’s end, inflation reached 20.3% in annual terms for the first time since 1997.

The National Bank kept the 2023 base rate at a high level to combat inflation. The former chairman Galymzhan Pirmatov paid for it with his position. The weakening ruble also helped somewhat in the fight against inflation. We continued to increase spending, but not as zealously as before, also facilitating the taming of inflation.

Tax reform: The announced fiscal reform was also the result of high costs, which also need to be adjusted to revenues. The government plans to raise VAT, a main source of budget revenue, from 12 to 16%.

To increase the tax base, the government has begun the introduction of a universal income declaration. It had been consistently postponed. The consensus between the government and citizens “You don't ask where we get the money, and we don't ask where you spend it" will become a thing of the past.

This also applies to the increased control over card transfers which most SMEs have used to receive payments. Since the beginning of the year, many bazaar traders have been returning to cash payments, however.

The National Fund and KMG shares.

The shortage of taxes and the growing budget deficit forced the government to take a desperate step in 2023: In October, November, and December, the Ministry of Finance, at the expense of the National Fund, purchased $1.3 billion worth of KazMunayGas shares from the National Welfare Fund Samruk-Kazyna. They were subsequently meant to contribute to the budget as dividends.

This decision by the government was widely criticized in professional financial circles. We sold KMG shares to ourselves, also at an undervalued price, which will allow the National Bank to "whip up" additional paper profits to the National Fund through asset revaluation by the end of 2023.

The National Bank bought 58.4 million shares from the state holding for KZT 12,837.9 per share, i.e. a total of 750 billion. This package is dead weight on the central bank’s balance sheet.


The government constantly tells us about the population’s excessive debt burden and takes measures to reduce activity in the consumer lending market. The logic is very simple: No loans— no problem.

At the same time, officials themselves are drawing up a deficit budget, which at such a pace risks wasting the entire state stash: the National Fund. And no one is considering the root of the problem - people's low incomes. 

In 2023, the quality of public financial management left much to be desired. Expenses grew, and planned revenues did not reach their targets. We should not expect a sharp change in government policy in this regard, and we will continue to pull money from one pocket and put it into another to pay constantly growing bills.

In 2023, the problem with the management of public finances and budget deficits peaked, which required the adoption of many questionable measures from the government, resulting in a rippling effect.

If the approaches to managing the National Fund and withdrawing funds from it, caused by exorbitant government spending, do not change, then we risk leaving future generations not an oil pot, but only three square meters of housing.

An Investment - Ministry of Finance Responds

According to the Ministry of Finance, by the end of 2023, net receipts to the National Fund amounted to 2.3 trillion tenge, leading to an eventual increase in assets from 26.8 trillion tenge in 2022 to 29.1 trillion tenge.

The ministry has also dubbed the 1.3 trillion tenge spent on the purchase of 8% of the shares of JSC NC KazMunayGas investments.

These funds cannot be considered as withdrawals from the National Fund. Placement in KMG shares, as well as in other financial instruments, is carried out according to the Concept of Public Finance Management of the Republic of Kazakhstan until 2030 and the list of permitted financial instruments for the placement of assets of the National Fund, The Ministry of Finance reported.

Shares from the country’s large oil and gas company appeared in the National Fund's portfolio. The ministry called the asset one of Kazakhstan’s most liquid securities of issuers, "demonstrating stable profitability both in terms of their value growth and a significant amount of dividend payments."

Original Author: Orda (Articles: 1, 2)

DISCLAIMER: This is a translated piece. The text has been modified, the content is the same. Please refer to the original pieces in Russian for accuracy. The text has been updated to reflect current situation as of 10/01/2024

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