A practical approach to oil wealth management: Application to the case of Kazakhstan

- A country's oil production strategy should take a conservative course in an uncertain market environment.
- Transition to a non-oil economy should be planned while a country is still at its peak of oil production.
- Transfers in and out of an oil fund should be based on clear fiscal rules.

This study presents a practical approach to oil wealth management by bringing together various dimensions (oil production and sustainability of oil reserves, impact on the economy and the balance of trade, and the impact on the fiscal balance, government debt, and the national oil fund) within a long-term planning framework. The study provides a quantitative depiction of the above dimensions to 2050 for the case of Kazakhstan where the country's oil output has grown from about 0.6 million barrels/day (mb/d) in the late 1990s to 1.8 (mb/d) in 2013, and it is expected to reach a peak of 3.5 mb/d by 2035. The analysis of this study indicates that within the limits of proven oil reserves, Kazakhstan's oil production capacity would collapse to negligible amounts after the peak period of 2035. This envisaged scenario will have undesirable impacts on the economy, balance of trade and fiscal balance both prior and after 2035. To avoid these erratic impacts, the study examines an alternative “conservative” production scenario that would enable the country to maintain its level of oil production until 2050, and to manage better the transition to a non-oil economy.