How to solve Kazakhstan’s toxic assets problem?

To solve the Kazakh economy’s lingering toxic assets problem the government should use foreign loans, instead of “plundering” the National Welfare Fund, as it would force it to work on returning them, financial consultant Rasul Rysmambetov says.

Whereas in other countries, like China, toxic assets can be divided and resold, in Kazakhstan it is not always possible because “most of our toxic assets involve ‘a political component’, i.e. they are a result of irrational government decisions”, Rysmambetov told Exclusive.kz in an interview.

He said that, by his estimates, the Kazakh economy had accumulated toxic assets worth about 5bn dollars in the banking sector and another 10bn in the quasi-state sector, i.e. the assets owned by the national Samruk and Bayterek holdings.

“It is huge money,” he said. “The construction of one oil refinery costs about 1bn dollars. So, relatively speaking, we could use part of that money to fully solve the issue of meeting our domestic demand for fuel.”

Rysmambetov also said that the toxic assets in the non-banking sector were a bigger concern because the government made them “quietly ‘disappear’” by moving them from one state-run holding to another.

“This is exactly what happened with the Problem Credits Fund in 2013. The assets did not go anywhere, but issues multiplied.

“Initially it was supervised by the National Bank, which ensured absolute transparency. But at some point, it was handed over to the Finance Ministry, under pressure from certain people, and then the Fund started to buy out everything – offices, millions of hectares of land, bank debts and so on,” Rysmambetov said.

“We also have the Investment Fund, which was created in the early days of independence to diversify the economy. However, it went down the same classic route – nationalising loss-making companies, privatising successful ones. The Fund itself was privatised at one point, then re-nationalised, and now, as far as I know, Bayterek does not know what to do with its problem assets.”

“The government is going down the slippery slope of moving debts from one state pocket into another. Our National Fund keeps many secrets,” Rysmambetov said.

“The government promised to save 100bn dollars in it and use half the revenues from investments to set up deposits for children. A great idea, except that in 2022 the Fund had a negative balance, they say. This is why I like that Samruk has started to slowly get rid of its daughter companies,” he said.

Rysmambetov said he saw two possible scenarios.

“First, nothing changes, we face no crises, the economy will continue to get slowly strangled, like, for instance, in Egypt, where there are many rich people, but most people live in poverty.

“Second, something catastrophic happens. For example, there are accidents at five power stations at once. We would have to find a huge amount of money at once – we could empty the National Fund, or urgently borrow from abroad. I would prefer an external loan because we would have to repay it. If we use the National Fund again, there will be no need to return anything.  

“There is one more scenario, a good one – tough, unpopular measures. But I do not see any sign of that happening,” he said.

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