Kazakhstan To Use National Fund For Oil Price Damage Limitation

For the second time in seven years, Kazakhstan will tap its National Fund as one way to help sustain its economy, which has become a victim of the global drop in oil prices.

“One of the main tasks of the fund is to ensure the stability of our economy against external shocks, which include a fall in world prices for natural resources,” President Nursultan Nazarbayev said Nov. 11 in a televised address to the nation, oilprice.com reports.

He said his government will use $3 billion a year from 2015 through 2017 “to develop transport, energy, industrial and social infrastructure,” but he also stressed that the expenditures will be accompanied by unspecified “structural reforms” to Kazakhstan’s economy.

He said the country is also expected to receive $9 billion during the three-year period from international financing organizations, including the Asian Development Bank, the European Bank for Reconstruction and Development and the World Bank.

Together with the withdrawals from the National Fund as well as an additional $6 billion from the fund to support private businesses, Nazarbayev said, the investment in Kazakhstan’s economy will be $24 billion through 2017.

The National Fund is fed by revenues from oil exports, and contained $76.8 billion at the end of October. Nazarbayev previously spent $10 billion when Kazakhstan came under great pressure during the global financial crisis of 2007-09. The country’s total international reserves, including gold and foreign currency reserves, total more than $100 billion today, twice what they were in 2007.

Kazakhstan’s economy is crucial in its neighborhood. It’s the world’s 18th largest producer of oil, which provides the government with half its revenues and accounts for two-thirds of the country’s exports. It’s also Central Asia’s largest economy and, after Russia, it is the second-largest oil producer among the states that once made up the Soviet Union.

Meanwhile, Nazarbayev’s government also is considering several ways of hedging against lower energy revenues because of the drop in the price of its oil. Kairat Kelimbetov, the governor of Kazakhstan’s central bank, told the Financial Times that the Finance Ministry is working with the investment bank Goldman Sachs to determine an appropriate hedge program.

One option would be to follow Mexico’s example, Kelimbetov said, which has been spending heavily each year on derivatives – contracts based on the value of a given commodity, in this case oil – in an effort to protect its petroleum industry from a precipitous decline in oil prices.

“We studied the Mexican experience with Goldman Sachs,” Kelimbetov said. “From the commercial point of view it seems very attractive.” But he stressed that the talks with Goldman were still at “very early stages,” and that a hedge strategy was “quite controversial” among local government officials.