Pandora's box is open — an expert on the purchase of shares of Kazatomprom with funds from the National Fund

As you know, the government has allowed the National Fund to invest in Kazatomprom shares to finance the republican budget. The corresponding decree was signed on June 14 by Prime Minister Olzhas Bektenov. 

As recalled in the inbusiness comment.kz Director of the Talap Center for Applied Research Askar Kysykov, the practice of repurchasing shares of Kazakhstani companies by the National Fund dates back to the period of the international financial crisis of 2008-2009. After the temporary termination last year, the fund resumed this practice by purchasing shares of KazMunaiGas in the amount of 1.3 trillion tenge. This decision was due to the need to balance the state budget in conditions of insufficient transfers from the National Fund.

"In the context of a growing budget deficit, it is financed through the active use of the National Fund and the attraction of loans. Since the size of transfers is limited, a "side door" is opened by selling shares directly to the National Fund, bypassing the budget. Probably, this year a decision will be made to buy back shares of Kazatomprom through the National Fund, which is a continuation of last year's practice. This is due to a significant shortage of tax revenues, in particular for corporate income tax (CIT) and value added tax (VAT), the fulfillment of which is only 80% of the plan," says Askar Kysykov.  

He recalled that the creation of the National Fund of Kazakhstan was aimed at protecting the country's economy from the "Dutch disease" — a phenomenon in which excess income from the export of raw materials can negatively affect other sectors of the economy. The main task of the fund was to sterilize excess liquidity in order to prevent its excessive inflow into the domestic market.

"Over time, the functions of the National Fund have expanded, and now it is actively used for domestic investments, which raises certain questions and may undermine the initial savings function of the fund. Let's say that investments of oil savings in the KazMunaiGas oil company look questionable. When the oil crisis comes, both the budget and KazMunayGas will have problems. In this aspect, investments in Kazatomprom look more justified, given its listing status on international exchanges and the stable position of the company. But the question of the liquidity of shares remains open, that is, how easily and quickly you can exit this asset, if necessary," the economist wonders.

Askar Kysykov continues, investments of the National Fund of Kazakhstan in shares of large international companies or bonds of developed countries are usually considered reliable due to the high liquidity of these assets. However, when it comes to investments in shares of companies such as KazMunaiGas and Kazatomprom, there are concerns about their liquidity. If it is necessary to sell these shares quickly, it may be difficult to do so without significant loss of their value.

According to him, the budget deficit is the main reason for such operations. A budget deficit of 3.6 trillion tenge is planned for the current year, and there is a risk that it may increase. To prevent a further increase in the deficit, the government is considering the possibility of selling KAP shares to the National Fund as one of the ways to balance the budget.

"Experts often criticize approaches that circumvent established budget financing procedures. It is difficult to disagree with these opinions. The Government should openly acknowledge the need for funds to balance the budget and use existing mechanisms for this instead of developing alternative schemes. At the moment, half of the investment income of the National Fund is distributed to children's accounts. This income is generated by the increase in the value of assets, dividends and interest on bonds. Therefore, the choice of investment direction should be consistent with the fund's strategy and ensure maximum profitability, given that the population is closely monitoring the effectiveness of the fund, especially in light of the low profitability in recent years," the economist cites the data.

In his opinion, investing the funds of the National Fund directly in shares of Kazakhstani companies without the participation of the budget and parliament is an approach that raises doubts. Such actions can lead to the opening of a Pandora's box, when an indefinite number of companies without clear selection criteria will be included in the investment list.

"It is necessary to adhere to the initial strategy of the National Fund, which consists in investing in foreign assets. If the fund's funds are used internally, then this should happen through targeted transfers and the budget for the implementation of priority projects, and not through direct investments in shares, bypassing consideration in parliament," Askar Kysykov concluded.