Kazakhstan will complete its planned transfer of pension funds into a state entity in the middle of next year, its central bank governor said on Friday, a delay from the previous timetable of the end of 2013. The oil-rich country wants to hold all its pension assets in a single, state-run fund to allow the government to mobilise billions of dollars for large projects to help sustain fast economic growth without raiding the strategic National Fund, which manages windfall revenues from oil exports.
Kairat Kelimbetov, who became central bank governor a month ago, said that the focus of the pension fund investments would be on domestic infrastructure projects, rather than on overseas investment. In an interview with Reuters he also said the central bank was committed to tackling bad loans at Kazakh banks.
"The central bank is very much committed to resolving the issue of non-performing loans in banks and implementing the risk management requirements according to the new Basel rules," Kelimbetov said during the interview on the sidelines of a Kazakhstan investment conference in London. Kazakhstan's banking sector was among the hardest hit in the global financial crisis due to high external borrowing and bloated real estate markets. It is still recovering. The IMF last week cuts its growth forecast for the country to 5 percent from a previous 5.2 percent, citing concern about bad loans.
Kelimbetov said non-performing loans currently made up 36 percent of the banks' loan portfolio. On the transfer of pension fund assets, he said that would be delayed until next year because the central bank needed time to make an effective technological transfer of the assets, which total more than $33 billion. "We started to talk with the first private fund last month, we think we will finalise everything in the middle of next year," he said.
President Nursultan Nazarbayev in January ordered the assets of 10 Kazakh private pension funds to be transferred into a state fund called GNPF and charged the central bank with managing the assets. Kazakhstan's current private pension system, which is similar to the Chilean pension model, allows citizens to make savings in funds of their choice. But analysts told the conference that Kazakh capital markets were not sufficiently deep or liquid to sustain this model. The government had originally planned to complete the transfer by July 1, but missed the deadline, and the president then set a new deadline for the end of this year.
Other emerging economies such as Hungary and Poland have also looked to transfer private pension funds to the state. Kelimbetov, formerly deputy prime minister, took the role of central bank governor following the sudden resignation of Grigory Marchenko, an architect of the private pension scheme.
Marchenko said in September that the transfer of pension fund assets had been delayed partly due to difficult talks between the government, represented by sovereign wealth fund Samruk-Kazyna, and some local banks, which have pension funds of their own and are keen to get a maximum price for them. Kelimbetov also said that inflation was likely to move back up to the lower end of the central bank's 6-8 percent target range by the end of this year and in 2014.
The central bank has kept interest rates at a record low 5.5 percent since August 2012, but annual inflation is running below the bank's 6 to 8 percent target, at 4.9 percent. "We expect it will be around 6 percent (this year)," Kelimbetov said, adding that seasonal factors should lift inflation towards the end of the year, and that the central bank also expected 6 percent inflation next year. Kelimbetov said economic growth was likely to be within the 5-6 percent range this year, and reach 6 percent in 2014, but external factors would play a large part. The IMF forecasts 5.2 percent growth next year. "Let's see what will happen with our big partners, from Europe and from Russia and China," Kelimbetov said.