Kazakhstan’s National Fund for Children program explained
The program is expected to launch on January 1, 2024.
«We have enshrined in the Basic Law the key principle that land and natural resources belong to the people. This is not just a beautiful declaration but the leitmotif of all reforms,» said Tokayev, announcing the initiative.
«Every family must receive a real return on the use of the country’s national wealth. That is why I think it is extremely important to launch a fundamentally new program called National Fund for Children within the framework of the Year of Children that I have announced,» he said.
Fifty percent of the National Fund’s annual investment income will be deposited in special savings accounts for children until they reach the age of 18, with no early withdrawal rights.
When they reach that age, the accumulated funds will be used to purchase housing and get an education.
«These funds will give the younger generation a real ticket to adulthood,» said Tokayev.
The fund will truly acquire the status of national and serve the people's interests. Taking into account the need for careful work on this large-scale undertaking, I instruct that the project be launched on January 1, 2024.
What is the National Fund?
The National Fund was created in Kazakhstan in 2001, modeled on Norway’s oil fund, to accumulate the country’s massive oil revenues.
The Fund aims to ensure the state's socio-economic development by accumulating financial resources for future generations and reducing the economy's dependence on the oil sector and on unfavorable external factors.
The fund has two key saving and stabilizing functions. The stabilization function implies providing transfers to the national budget, which, in turn, requires maintaining a high level of liquidity in the portfolio. The assets of the stabilization portfolio are invested in money market instruments, predominantly short-term U.S. Treasury bills.
The savings function is to save and preserve funds for future generations. However, due to volatility in financial markets, the current value of National Fund assets can fluctuate.
What is the value of the National Fund assets?
As of December 2022, the assets of the National Fund reached $55.7 billion, up from $55.3 billion in December 2021 and $100 million less than in November 2022.
«Uncertainty in the world markets continues. As of December, the results, indices showed multidirectional dynamics. While we witnessed a downward trend in the stock market, we saw an upward trend in the bond indices and the cost of gold, on the contrary, last month,» said National Bank Deputy Chair Aliya Moldabekova in one of her latest interviews.
According to her, in 2022, the currency assets of the National Fund increased by almost $400 million due to the increase in oil prices and, accordingly, an increase in currency receipts to the National Fund from oil sector organizations.
«At the same time, due to a significant drop in financial markets, the investment income of the National Fund by the end of 2022 will be negative,» she said.
Background
At an expanded government meeting on December 12, 2022, President Tokayev noted that the National Fund of Kazakhstan needs to be managed more efficiently.
«The investment yield of the fund is an order of magnitude lower than similar funds in other countries. The yield of the National Fund for the last ten years amounted to 1.6 percent per annum, whereas the yield of similar funds in Singapore was 6.4 percent and Norway - 7.5 percent. This demonstrates a significant inefficiency on the part of the authorized management bodies,» said Tokayev, instructing the National Bank and the government to make proposals to improve the management of the National Fund.
Experts commend the social significance of the initiative, but only if the fund restructures its activities to make investment returns positive.
«Many economists note it is quite difficult to say what the investment return of the National Fund will be each year. It depends on many factors, such as exchange rates, oil prices, the value of stocks and other indicators,» said Arman Toktushakov, an expert at the Institute of World Economics and Politics.
He cites the data from 2021 when the investment income exceeded $4.2 billion. The census of 2021 also indicated there were 6,325,950 children under 17 years old in Kazakhstan.
«According to the calculations of the National Bank and the government, about $3,000 will have accumulated in an individual account by the age of 18. According to other data, the amount could range from $5,000 to $6,000, depending on when the account was opened,» said the expert.
«However, in current realities, considering the challenging economic situation in the world and its negative impact on the economy of Kazakhstan, rational use of the National Fund becomes relevant. For the last several years, this problem has become acute,» said the expert.
While the Unified National Pension Fund will be in charge of operating the savings accounts, the Ministry of National Economy, the Ministry of Finance and the National Bank are also involved in the work. In 2023, they are expected to adopt the necessary legislative changes to implement the project.
Written by Assel Satubaldina