Authors

Discussion

The main objectives of any Natural Resource Fund (NRF) are to use accumulated resource revenues to maintain budget stability when resource prices are low and to set aside excess revenue for future generations. According to their mission statements, the State Oil Fund of Azerbaijan (SOFAZ) and the National Fund of the Republic of Kazakhstan (NFRK) are tasked with implementing exactly these objectives. However, there are compelling arguments suggesting that the institutional and governance weaknesses in such developing exporters, who are mostly authoritarian in nature, can hinder the effectiveness of their NRFs in protecting accumulated revenues. At first glance, neither of these funds seems to have escaped this fate, with the annual transfers from SOFAZ and NFRK being routinely used to cover significant budget deficits. Moreover, the withdrawal rules and regulations adopted in both countries have, at most times, been ambiguous and ineffective.

However, as this paper argues, a closer look reveals a growing divergence between Azerbaijan and Kazakhstan in terms of saved revenues since the 2015 oil price collapse. Azerbaijan has sought to reduce its spending from SOFAZ, while Kazakhstan has significantly increased its withdrawals from the NFRK. Drawing on insights from interviews with government officials and experts from both countries, this paper highlights how factors such as political stability, the legitimacy of leadership, the historical background of the funds' creation, and the volume of remaining oil reserves have all influenced the emergence of this differing trajectory. The paper demonstrates that Azerbaijan's politically more secure and consolidated regime, as well as its surprisingly more transparent fund, has been able to lower withdrawals from the fund even in the face of reduced public spending. In contrast, the lessening political stability in Kazakhstan, particularly following January 2022, has led to a rise in populist public spending financed by transfers from the NFRK. As this paper argues, in the near future, each country faces different sets of challenges, with Azerbaijan needing to further lower its withdrawals from the fund in the face of the structural decline of oil production, while Kazakhstan urgently needs to address the potential issue of the depletion of the NFRK. The ability to address these challenges will be crucial in determining the future survival of the NRFs in both countries.