As a country highly dependent on oil exports, Kazakhstan is particularly vulnerable to price swings on the global market. In response, the government has developed a set of strategies aimed at reducing the budget's reliance on oil revenues and increasing gold and foreign currency reserves. Yet the implementation of these plans raises questions: on the one hand, there is the goal of accumulating 100 billion dollars in reserves by 2030; on the other, an urgent need for major investment in infrastructure and social programmes.
Key elements of the new budget policy
The Kazakh government's main strategic initiative of recent years is to reduce the budget's dependence on oil revenues, with a target of cutting the oil share of the budget to 5%. This ambitious goal implies finding new sources of revenue and diversifying the economy, which is crucial given the volatility of world prices for oil and hydrocarbons. In parallel, the government has set a goal of building up gold and foreign currency reserves to 100 billion dollars — a financial buffer meant to help the country withstand external economic shocks and support the national currency in periods of global financial turbulence. Such a policy presupposes strict budget discipline and more efficient management of state assets.
Yet despite their apparent prudence, these measures provoke considerable controversy among experts. On the one hand, accumulating large reserves requires substantial cuts in public spending and restraint in investment in key sectors of the economy. On the other, Kazakhstan urgently needs to invest in infrastructure and the social sphere, which calls for active use of available financial resources.
"Speaking of fiscal policy ideology, you named cutting the oil budget to 5% and accumulating 100 billion dollars in gold and currency reserves. That seems a somewhat contradictory goal to me, because the country faces a gigantic need for infrastructure investment. We are all waiting for the infrastructure plan, and on closer inspection it exceeds our financial capacity many times over. At the same time we set the goal of saving 100 billion dollars. Why exactly that figure? Because it is a round, pretty number? At the peak in the best years we had 77 billion dollars. The same dilemma stands: save or spend. Right now we clearly need to spend. Doesn't that goal strike you as contradictory?" — Rakhim Oshakbayev, chief economist of the TALAP Center for Applied Research.
He was not alone at the round table in stressing that under-investment could aggravate the economy's existing structural problems, slow growth and erode the population's quality of life.
"We certainly need to look for a balance. They are probably contradictory — two parallel goals. When we calculated the 100 billion dollars, we modelled inflows to and withdrawals from the National Fund. Taking the long-term horizon into account, the figure came out at around 100 billion dollars. Volatility is there, we cannot escape it, but we took quite a conservative approach in these calculations. Overall there is a margin of safety, and we will reach the target of 100 billion dollars in the National Fund by 2030," said Azamat Amrin, Vice Minister of National Economy of the Republic of Kazakhstan.
Problems of the budget system
"The public finance system consists of many elements, and it must be balanced and managed on a single principle and with a single goal," said Askar Kysykov, director of the TALAP Center for Applied Research.
Taking a comprehensive view of the public finance system and its role, total revenues exceed 40 trillion tenge. The state's role in the country's financial system is very high — 40% of GDP.
Flows bypassing the budget are growing — through extra-budgetary funds that are removed from all budget procedures: the UAPF, the State Social Insurance Fund and the Social Health Insurance Fund. Today 3.3% of GDP is redistributed through these funds. In essence these are taxes, since the payments are mandatory. "Accordingly, the burden on the payroll fund keeps growing," Kysykov said.
Despite a steady trade surplus and high oil prices, the consolidated budget has run a deficit for the past five years. The country is spending its assets rather than saving. Over five years public debt has grown by 77%, while net assets have shrunk to 1.6% of GDP. The government is now in a position where it can balance the budget in three ways: non-oil taxes, dividends, and borrowing.
"I think these rules may need to be revised. Kazakhstan is an oil-dependent economy in any case. If we have oil revenues, we should probably create an instrument so that part of those taxes goes to the budget — perhaps not as a transfer but directly via a cut-off price, so that the government balances the budget from a set oil price. The National Fund could then be mothballed, with money taken from it only for a super-priority development budget — major national projects that pass through Parliament, so that the whole society knows how effective they are," Kysykov said.
Rakhim Oshakbayev, in turn, suggested taking a broader view of the notion of crisis — not only in terms of solvency and cash gaps, but also in terms of the efficiency of budget spending.
"We can nominally increase spending on some sector while its conversion rate into public benefit declines. We spent even more on healthcare, yet the nation got sicker. We bought heaps of CT scanners — someone made good money on that — and they stand idle and dusty with no specialists. There are paradoxes: in terms of expensive equipment per capita our coverage is far higher than in France, yet the nation's health is worse. Access to medical care for vulnerable groups has fallen because of the clumsy social health insurance system. A telling example was given on water supply: if we take that 1 trillion tenge under the existing system, will it save the situation? What if it's two, or ten?" Oshakbayev said. One of the budget system's core problems is the lack of openness and transparency in reporting. Public finances and budget spending often remain closed to public scrutiny, which breeds abuse and entrenches corruption schemes. Many decisions on allocating and using budget funds are taken without proper justification or oversight.
The quality of the economic forecasts underlying budget planning also draws serious criticism. Forecasts are often based on unrealistic expectations or outdated data, forcing constant budget revisions during the fiscal year. This not only complicates public finance management but also undermines trust in state institutions. Moreover, the mismatch between macroeconomic forecasts and economic reality hampers efficient resource allocation and the planning of long-term state programmes.
Today Kazakhstan has two key legislative documents regulating the consolidated budget system — the Budget Code and the Concept for Public Finance Management — which creates deep problems for control over the budget system.
For example, the National Fund is a key part of the budget system and budget policy, yet the specific rules for using its resources lie outside parliamentary control and are governed by the Concept. The current design of budget legislation (a separate Concept) creates a significant conflict of interest and diminishes Parliament's role in the budget system.
Corruption risks and their impact on the financial system
Presenting an analysis of corruption risks, Bolat Kassymov of the Eurasian Development and Innovation Foundation said the state has invested more than 1 trillion tenge in water supply since 2010 — yet most facilities in Kazakhstan do not work. As an example he cited Astana's NFS-3 station, which cost about 50 billion tenge: "It could have been built twice as cheap. In the village of Novoishimskoye the capacity exceeds the need 12-fold; in the city of Turkestan, 4-fold. There is rampant corruption and inefficient decision-making. On top of that, the country lacks proper quality acceptance of works at every stage of implementation." Solving the water crisis, among others, is possible only with maximum involvement of civil society and industry specialists.
Fighting corruption requires a comprehensive approach that includes modernizing legislation, increasing the transparency of state institutions and creating effective oversight mechanisms.
The need for reform: expert opinions and proposals
Experts are unanimous that Kazakhstan's budget system needs substantial reform. The key proposals cover the following areas:
- Greater transparency of the budget process — clear and understandable mechanisms for tracking public spending and revenues are needed;
- Standardization of budget accounting and reporting to international standards — a transition to international accounting standards;
- Reform of the public finance management structure — revising the division of responsibility between different levels of government;
- Civic oversight mechanisms — independent public councils and platforms for discussing budget issues.
Experts stress that only a comprehensive approach to reform can stabilize the financial system and ensure sustainable economic development. Murat Temirkhanov, economist and adviser to the chairman of the management board of Halyk Finance, points to the importance of addressing not only technical but also political issues.
"Budget system reform must go hand in hand with strengthening the institutional independence of economic regulators from political influence, so that they can act in the interests of the whole country rather than particular groups," he said.