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.
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.”
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.”
Kazakhstan’s Mr. Otemurat is concerned about losing his job. The central bank governor who hired him in 2014 was fired in November after the national currency, the tenge, plunged after moving to a free-floating exchange rate in August. After meeting the new central bank governor in November, Mr. Otemurat said he thought the future of the National Investment Corp. is uncertain. The deputy governor who chaired the unit he leads has also left and a new chair hasn’t been appointed.
“The new governor is busy with other things,” Mr. Otemurat said. “The whole idea we worked on for the last two years could be just shelved.”
The central bank declined to comment.
While National Investment Corp. was created to manage the oil fund, it didn’t get final approval, Mr. Otemurat said. To win the trust of politicians, the central bank gave the unit $2 billion from its foreign-exchange reserves to start investing in 2013. The following year, the central bank took back $1.2 billion as its reserves came under pressure.
The National Investment Corp. has invested $150 million of the money it was left with in Chicago-based hedge-fund manager Grosvenor Capital Management LP, according to a document prepared by the National Investment Corp. in November. It also made a $225 million commitment to the Bala Cynwyd, PA.-based private equity manager Hamilton Lane and approved more than $100 million of commitments spread across Blackstone Group LP, Warburg Pincus LLC and Advent International Corp.
In September, Mr. Otemurat helped organize a dinner in New York so Nursultan Nazarbayev, president of Kazakhstan for the last 24 years, could meet investment professionals. The president of the former soviet state dined on sea bass and caviar with former Federal Reserve chairman Ben Bernanke and Wall Street chiefs including KKR & Co. co-founder Henry Kravis, Blackstone co-founder Stephen Schwarzman, Carlyle Group co-founder David Rubenstein and TPG co-founder David Bonderman. The orange hazelnut napoleon dessert was designed after the Kazakh flag, according to the menu.
“The president previously met oil and gas guys,” Mr. Otemurat said. “If the president has the final say we thought it would be helpful for the president to meet Wall Street people.”
Mr. Otemurat said he was making the unusual move of speaking publicly about his concerns for the central Asian nation of 17 million because he believes a lack of transparency there isn’t serving the public interest.
The National Fund had an average annual return of 1.96% in the last five years, just a fifth of the 9.6% average for a group of sovereign-wealth funds including Norway, Singapore and South Korea, according to the National Investment Corp. document. The fund has invested 86% of its money in bonds, compared with a 16% average for the group of sovereign-wealth funds, according to the document.
“If on $100 billion we can make $5 billion or $6 billion a year in income, it helps support annual government spending,” said Mr. Otemurat. “We have to disclose our returns, how we invest, who the managers are, inflows, outflows and spending. It isn’t the case today and it is difficult.”
The profit-sharing agreements for Kazakhstan’s oil fields—the source of the money in the National Fund–aren’t publicly available, and the fund doesn’t have its own website, he said. The 35-year-old executive said he sees himself as part of a new generation of Kazakhs with international experience that isn’t represented in the country’s political leadership.
“There is a need for more transparency,” he said. “Transparency should put more pressure and accountability on the government as to how they manage these funds.”
Write to Simon Clark at [email protected]