Fitch Remains Optimistic, Forecasts Kazakhstan’s Budget Deficit to Narrow in 2021

NUR-SULTAN – Kazakhstan’s fiscal deficit is expected to narrow to 2.1 percent of the country’s gross domestic product from the current 6.4 percent, said Fitch Rating analysts in their latest report devoted to the recent parliamentary elections in Kazakhstan. 

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The forecast along with a balanced budget, they explained, is due to the “tapering down of pandemic-response measures and a rebound in revenue.”

Steadily recovering oil prices supported by the oil production cuts under the OPEC agreement and moderately increased oil production for Kazakhstan will maintain government revenue. 

“We forecast debt-to-GDP to fall by around two percentage points in 2021-2022 to 21.6 percent, and although this would still be higher than in 2019 (18.5 percent), it is well below regional and peer medians. Fiscal policy was not well-anchored prior to the Covid-19 crisis in our view, and an emphasis on social spending that predates the pandemic is a risk to our fiscal forecasts,” said Fitch. 

The report also noted the success of Kazakhstan’s flexible exchange rate regime, to which the country switched back to in 2015

“The country’s more flexible exchange rate regime, which dates back to 2015, has passed its biggest test to date under President Tokayev, cushioning the external balance sheet from the sharp fall in oil prices last year, and preserving reserves. This was accompanied by some interventions to support supply in the local foreign-exchange market during periods of heightened volatility,” said the report. 

Prospects for Kazakhstan’s privatisation plan and pension reforms also remain contingent upon the pandemic. 

In August 2020, Fitch affirmed Kazakhstan’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at the BBB level with a stable outlook noting that the country has managed to maintain a low level of public debt that can cushion the country from external shocks thanks to fiscal buffers.

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