Kazakhstan’s $64bn oil fund in jeopardy, Central Bank official says

Kazakhstan’s $64 billion oil fund could run out within six or seven years as slumping oil prices cut revenue and the government spends its savings, a central bank official said, according to the Wall Street Journal.

The so-called National Fund has fallen 17% from its peak of $77 billion in August 2014. The government is drawing as much as $9.5 billion a year from it for spending. Kazakh politicians and the central bank need to cut spending, boost tax collection and invest the fund in higher-yielding assets such as private equity, according to Berik Otemurat, chief executive of the National Investment Corp, a unit of the central bank created in 2012.

“We are eating up the National Fund,” Mr. Otemurat said in an interview. “The money we have been lucky to accumulate is the only money we have to capitalize on. I think the government needs to focus on the National Fund’s investment management.”

Mr Otemurat’s unit was set up to manage the fund, but hasn’t actually taken it over. Instead it is investing $800 million of central bank foreign-exchange reserves.

Trillions of dollars of state savings in oil-rich nations from Kazakhstan to Saudi Arabia are under threat as governments that grew accustomed to high oil revenues scramble for cash. The International Monetary Fund is advising nations from Asia, Africa, Latin America and the Middle East to devise sovereign asset and liability management plans that will involve a combination of asset sales, budget cuts and domestic and international borrowing to stabilize public finances.

“They need to act quickly,” Michael Papaioannou, an IMF official who has advised Kazakhstan on managing its reserves, said in an interview. “If the current situation continues the assets of the sovereign-wealth funds are going to be disappearing fairly quickly.”

The reserves of the Saudi Arabian Monetary Agency, the nation’s central bank, fell 14% to $635 billion in the 12 months through the end of November. Khalid Alsweilem, the former chief investment officer of the agency, says his country needs to create an independent sovereign-wealth fund to make it harder for the finance ministry to dip into the reserves.

“If we go on with the same spending pattern the reserves will go much lower,” Mr. Alsweilem said in an interview. “The Saudi reserves were practically open to the Ministry of Finance spending so reserves have been declining.”