NFRK assets are a safety net for public finances
The National Fund of the Republic of Kazakhstan (NFRK) is a fund of national importance, and its assets are the country’s core reserves. The NFRK’s portfolio consists of stabilization and savings funds; trust management is carried out by the National Bank of the Republic of Kazakhstan (NBK).
Since its creation in 2001, the fund has accumulated money from companies of the commodities sector. Currently, funds are transferred from the NFRK to the budget in the form of guaranteed transfers and targeted transfers (funds are mainly used to develop infrastructure and cover force majeure expenditures). The amount of funds in the NFRK peaked in dollar equivalent at the end of 2014, when it reached USD 77.3 bln, or 35% of GDP for this year. The fund reached its maximum savings relative to GDP in 2016 (45% of GDP). These indicators today indicate the significant volume of the fund and the presence of a safety net for public finances both now and in the future.
Figure 1. NFRK foreign exchange assets, USD bln
Sources: national agencies, ACRA
Initially the NFRK’s assets considerably exceeded public debt, but now this advantage is no longer valid
The structure of Kazakhstan’s public debt is dominated by liabilities denominated in the national currency. As all nominal macro indicators in tenge increased, including the state budget deficit with the need to finance it, public debt also grew1, increasing on average by 25% annually from 2008 to 2023 compared to 15% growth of nominal GDP in tenge. In most years during this period, growth rates reached double-digit percentages, and the maximum level of 60% was recorded in 2015 (Fig. 2). NFRK assets were twice the size of public debt in 2007–2009 and almost double in 2016, when the size of the fund’s assets peaked relative to GDP. However, by 2022–2023, this gap had become insignificant, both statistically (due to the revaluation of the tenge exchange rate public debt could exceed the funds assets), and from the point of view of the analytics (there is no clear advantage in the volume of reserves, therefore, the ‘safety net’ is not so stable).
Furthermore, the calculated debt indicator — negative net public debt, taking into account government debt guarantees and sureties — implies that the state’s liabilities exceeded this type of its reserves already in 2022–2023 (Fig. 4).
1 ACRA analyzed the period since 2007 in order to include financial crises in the analysis.
Figure 2. Growth dynamics of Kazakhstan’s nominal GDP and public debt
Sources: national agencies, ACRA
Figure 3. Dynamics of public debt and NFRK currency assets
Sources: national agencies, ACRA
Figure 4. In 2022 and 2023, the NFRK’s assets became comparable to the country’s public debt (with and without guarantees and sureties)
Sources: national agencies, ACRA
Support for the tenge exchange rate with transfers from the NFRK contributes to the estimated equalization of public debt and the fund’s assets
It is important that the NFRK’s supply of foreign currency to the market, which arises when it is necessary to replenish the budget for guaranteed and targeted transfers, occupies a significant share of the total foreign currency supply in the market (almost 30% at the beginning of 2024) and supports the national currency (Fig. 5). In addition to the fact that these large annual transfers deplete reserves, the strengthening of the tenge results in more obvious pressure on the country’s finances in terms of public debt, since the external part of the public debt is denominated in foreign currencies, which is about a quarter of the public debt as of April 2024. At the same time, a strong national currency leads to an estimated (in tenge equivalent) underestimation of reserves (both monetary and NFRK assets), thereby further leveling the surplus of the fund’s foreign exchange assets over the public debt.
Despite all the above trends, the country’s reserves remain significant and account for about a quarter of GDP, and the government’s plans include a gradual reduction in transfers from the NFRK to Kazakhstan’s budget: up to 13% of total budget revenues in 2025 (2% of GDP) and 6.7% in 2027 (0.8% of GDP) with a corresponding increase in the volume of the fund’s foreign exchange assets.
Figure 5. The NFRK’s share in the country’s foreign exchange market, %2
2 Positive values are shares in currency supply, negative — in currency demand.
