Fitch Affirms Kazakhstan ‘BBB’ Rating; Outlook Stable

NUR-SULTAN – Fitch Ratings affirmed Kazakhstan’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at BBB with a stable outlook on Friday, Aug. 13, reports the agency’s press service.

“Kazakhstan’s ‘BBB’ IDRs reflect strong fiscal and external balance sheets that have been resilient to the coronavirus and oil price shocks, and financing flexibility underpinned by accumulated oil revenue savings. Set against these strengths are its high dependence on commodities, higher inflation, lower but improving governance scores, and underdeveloped economic policy framework relative to ‘BBB’ peers,” said the agency in a press statement. 

Kazakhstan’s economy significantly benefits from external buffers from the National Fund that has been accumulating the country’s windfall oil revenues, and the National Bank of Kazakhstan. 

The agency estimated that the external assets at the National Fund and the National Bank declined to US$92 billion, or 47 percent of the country’s GDP at the end of the first half of this year, compared to US$94 billion at the end of 2020. 

“(External assets) have been resilient to the 2020 pandemic and oil price shocks, supported by the strong investment returns and gold prices,” said the report. 

The report also noted overall tenge flexibility, but weakness compared to rallying oil prices, and rising inflation “with a five-year average consumer price inflation rate of 6.8 percent in 2021 (current ‘BBB’ median: 2.5 percent), partially reflecting oil price volatility and the flexible exchange rate regime.”

Inflation is projected to average 8.5 percent in 2021 and 8.3 percent in 2022, before falling to 6.5 percent in 2023.

Fitch said it expects rising global food and energy prices, an issue raised by President Kassym-Jomart Tokayev. 

“In the near term, the government is using administrative controls and working at improving domestic food supply, and we believe monetary policy is unlikely to prevent inflation rising further from the National Bank’s 4-6 percent target in 2021-22 due to a relatively weak transmission mechanism,” said the agency. 

Fitch forecasts 3.5 percent economic growth in 2021 and 4 percent in 2022, driven by an expansion project at the Tengiz oil field and stronger oil prices. But the downward trend is also possible given the continuing spread of coronavirus infections and rising deaths. 

The report comes just a few days after Moody’s Investors Service (Moody’s) also upgraded Kazakhstan’s rating outlook to stable from positive.

At a government meeting last week, Kazakh Prime Minister Askar Mamin said the country’s economy is seeing an upward trend towards recovery. In the first seven months of 2021, GDP growth reached 2.7 percent, driven by growth in industry (+2.5 percent), construction (+11.1 percent), and agriculture (+2.4 percent).

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