Risk Overview

The current turbulence in international markets is a concern for Kazakhstan too, and we need to start assessing all the risks and possible consequences now. Oil, the key indicator for our economy, is trading at around 60 dollars a barrel, and the latest news from OPEC+ does little to lift the mood. At this price, revenues to the National Fund, and therefore to the state budget, will fall significantly, since the oil and gas sector's earnings feed into the budget indirectly through contractors and the export customs duty. In such circumstances, the situation calls for even faster action. Most likely, this year the National Fund's inflows will be substantially smaller than the withdrawals from it: the new Tax Code has not yet been adopted and we will feel its effect only in 2026, whereas the current budget deficit will have to be financed this year.

The country's current economic model, which rests on redistributing natural resource rent through public spending, is highly unstable. On the positive side, a great many infrastructure projects are now under way, and they should benefit the economy. On the other hand, we see significant imbalances in the banking sector, in the state's direct participation in the economy, and in the investment climate, along with a lack of progress in attracting foreign direct investment.

The banking sector is currently the most profitable sector in the country, and this rests largely on the regulatory arbitrage I have written about many times before. We all understand that banks in a country's economy should perform a redistributive function. At present they do not; instead they mostly enjoy benefits from the state, in the form of an elevated base rate combined with state-subsidized costs of attracting funds. Meanwhile, lending to the real sector is not growing. The higher tax and higher MCI (monthly calculation index) rates that the state is planning do nothing to solve the problem. The tax side may be resolved through efficient allocation of revenues and expenditures, but the higher MCI will only give the banking sector one more justification for not lending to the country's real sector. So far, the root causes of the excess profits have not been eliminated and, as I understand it, there are no plans to eliminate them, with reference to certain risks that doing so could affect the redistribution of liquidity.

Privatization and the withdrawal of the state from the economy could bring not only additional budget revenue but also greater efficiency in certain industries. We have been hearing about privatization, with specific plans and lists, for some 15 years, and clearly there has been little progress. Some national companies are even expanding their presence and increasing their share, KTZ for example. There is modest movement overall, and there are good examples of the state divesting itself of companies: the sale of Bereke Bank, the sale of Tele2, the IPO of Air Astana, the IPO of Kazatomprom. But in my view, we need to be bolder here, leaving only strategic industries in state hands and handing everything else over to the market. For example: the assets of Samruk-Energo, Kazpost and Kcell, the non-strategic assets of KazMunayGas (refineries, small fields and so on), the stake in ERG, most of the assets of Tau-Ken Samruk, and so on. Moving all of these assets into the market would significantly raise their efficiency, and the state would receive far more in CIT and other taxes than it does in dividends from these companies. Unfortunately, every manager at his own level thinks about how to protect his own fiefdom and keep it from going to the market, because it is a huge resource for him. And there will always be 1,001 reasons why this or that asset cannot be privatized, even though world practice shows that it is the only right path.

The investment climate and foreign direct investment are absolutely positively correlated, and everyone knows that FDI depends directly on the investment climate. This is a very delicate matter that cannot be assessed so simply. Often, to solve short-term problems, we neglect the investment climate and thereby, in the long run, significantly reduce FDI and damage the attitude of both foreign and domestic investors toward us. For example, initiatives to assess additional taxes through public channels will, on the one hand, most likely increase tax inflows in the short term, but they will significantly undermine the transparency of tax administration and the legal rights of taxpayers, and so signal to any investor that there is no tax stability. The return of assets from representatives of the old Kazakhstan is, from a moral and public standpoint, quite fair. However, the clumsy implementation of this process greatly heightens nervousness among existing domestic investors. The concern is not only whether this or that oligarch will land on the list for asset recovery, but, even more, what it means for new investment: how well will new investments be protected in the future, and will they be challenged 10 years from now if the political course changes? This is a very important point, since every major businessman, one way or another, deals with the state. It now directly affects decisions on investing in the country.

I have written about only a very small part of the issues we now face, and how our country develops depends on how each of them is resolved. I would like decisions here to be made not on a horizon of 6-12 months, but on a horizon of 6-12 years.