ASTANA — The international rating agency Moody’s upgraded the Kazakh government’s long-term local and foreign currency issuer ratings to Baa1 from Baa2 and changed the outlook to stable from positive on Sept. 9.
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Concurrently, Moody’s has upgraded the foreign currency senior unsecured debt and MTN program ratings to Baa1 and (P)Baa1 from Baa2 and (P)Baa2, respectively.
“The decision to upgrade the rating is driven by our assessment that ongoing enhancements to the institutional and policy framework, combined with sustained momentum in economic diversification away from hydrocarbons have and will continue to enhance Kazakhstan’s resilience to shocks, thereby strengthening the credit profile to be consistent with peers at the Baa1 level. Given continued commitment to economic and institutional reforms, we expect such improvements to be sustained and credit resilience to continue to improve,” according to Moody’s.
The stable outlook reflects balanced risks. On the upside, ongoing institutional and economic reforms may raise Kazakhstan’s attractiveness as an investment destination and accelerate the progress of economic diversification beyond Moody’s current expectations. In turn, the higher growth potential of the economy and increased diversity of growth drivers will strengthen Kazakhstan’s credit profile further. On the downside, a significant deterioration in regional geopolitics and the potential for secondary sanctions remain key risks.
The re-emergence of domestic political risks, which would negatively impact the government’s institutional effectiveness or reform agenda, or the re-emergence of social unrest, which would dampen foreign investment and longer-term economic prospects, would also likely exert downward pressure on the rating.
Kazakhstan’s local and foreign currency country ceilings have been raised to A2 and A3 from A3 and Baa1, respectively. The two-notch gap between the local currency ceiling and the sovereign rating balances the economy’s exposure to a key revenue source and the still relatively large domestic footprint of the government through its holding companies against the country’s stable external position given its net creditor status and increasingly predictable and transparent policies.
The one-notch gap between the foreign currency ceiling and local currency ceiling takes into consideration the authorities’ commitment to flexible exchange rates and open capital accounts, supported by the large pool of foreign assets that reduces the risk of transfer and convertibility restrictions.
“Having increased from around three-quarters to around 84% of the economy in the past decade, we expect the non-oil sector to materially lessen Kazakhstan’s economic dependence on hydrocarbons. Over the past year, non-oil sectors continued to underpin growth with notable performance from the ICT, transport and manufacturing sectors. Such progress in diversification fosters greater resilience to fluctuations in oil prices and production, which has been effective in maintaining economic and financial stability through recent shocks. Developments in the transportation and logistics sector continue to be one of the key drivers of growth and diversification, driven by rapid growth in cargo transit activity across the Trans-Caspian International Trade Route,” the statement reads.
Meanwhile, the government continues advancing efforts to improve the business climate and attract investments. The government of Kazakhstan outlined several measures in its National Investment Policy aimed at fostering a favorable ecosystem, including tax and non-tax benefits, the depreciation of bureaucratic barriers and the revision of outdated legislation.
A National Digital Investment Platform was also created and is expected to launch by the end of the year. The platform, managed by the Investment Committee seated within the Ministry of Foreign Affairs, allows investors to identify challenges and, according to Moody’s, helps expedite administrative processes related to their investments.
