Which Banks Hold UAPF Funds, and Why?

On the KZT 50 billion allocated to subsidize Kazakhstan Temir Zholy (KTZ)

I do not support the subsidy itself and consider it not quite the right decision, but I want to make clear that it has nothing to do with pension assets.

We are badly confusing two things: the sources of financing and the level at which decisions are made.

I hope the National Bank of Kazakhstan (NBK) will provide a clear answer and explanation.

Let me set out my own view here.

Interest rate subsidies on loans are provided by the Government, and for this there is an approved national budget, which is adopted by the deputies of the Mazhilis and the President.

The budget has several sources of funding:

1. Taxes

2. The National Fund

3. Debt financing in the form of government securities

Money from the UAPF falls under the third source: it goes to the state as debt.

The state, in the person of the Government, decides for itself where this money will be invested, and the NBK has absolutely nothing to do with it, unless repayment of this debt is tied to a specific project and is not backed by a state guarantee (which is unlikely). For example, if the UAPF were to buy KTZ bonds, that would be the NBK's decision, because the NBK would have taken on KTZ's risk.

As for government securities, the UAPF has no alternative to them, since at least 50 percent of UAPF assets must be placed in government securities. Whether the NBK likes it or not, half of the contributions from citizens will go into government securities, which the state, in the person of the Government, will then dispose of.

I think that in this case the First Vice Minister for Investment and Development most likely misinterpreted what he meant to say, but that is for the Government to clarify. He does not single-handedly decide how budget money is spent; he can only initiate and justify particular expenditures. Nor can he specify funding sources, since that falls more within the remit of the Ministry of Finance.

In the future, government bonds will be repaid out of our taxes, so the question is not quite correctly framed.

Pension money goes into the budget, and it is the budget itself and its expenditure items that should be criticized, without tying them to specific sources of financing.

So we should wait for more detailed information and only then criticize and offer more substantive comments.

To be more frank: if there is a chance that the state will not be able to repay the money in the future, then what needs to change is the UAPF's investment declaration, which governs the fund's activities, rather than criticizing where the Government has spent money that the UAPF no longer has, and cannot have, anything to do with.

What worries me more, for example, in the context of the UAPF is how decisions are made on placing money with second-tier banks, where the risks are a thousand times higher than with government bonds. Anyone can look at which banks have received the most UAPF deposits and bond purchases and draw their own conclusions.

I am more interested in the UAPF's investment declaration and investment rules than in the question of where the state budget has spent its money, at least as far as pension assets are concerned.

If we look at it from the standpoint of the efficiency of public spending, there are even more questions, but that is another story, which has practically no bearing on this.

And in general, there are so many conflicts of interest within the NBK that I will write a separate post about it.