(The following statement was released by the rating agency)
LONDON, November 14 (Fitch) Fitch Ratings has affirmed Kazakhstan's Long-term
foreign and local currency IDRs at 'BBB+' and 'A-' respectively. The Outlooks on
the Long-term IDRs are Stable. The Country Ceiling is affirmed at 'A-' and the
Short-term foreign currency IDR at 'F2'.
KEY RATING DRIVERS
Kazakhstan's ratings reflect the following key rating drivers:-
-Kazakhstan has a strong sovereign balance sheet, with low debt and the
third-highest net sovereign foreign assets in the 'BBB' category, estimated at
42% of GDP. The main sovereign wealth fund, The National Fund of the Republic of
Kazakhstan (NFRK), added USD10.9bn between January and October 2013, putting it
on course to surpass USD100bn by end-2015.
-Fitch expects the public finances to stay in surplus in 2014-2016, even under
its assumption that oil prices will soften to an average of USD100/b in
2014-2015 from an average of USD105/b in 2013. The draft three year budget
targets a state budget deficit of 2.2% of GDP in 2014 at an oil price assumption
of USD90/b, while the consolidated budget (including NFRK) will run a surplus.
-Kazakhstan is growing faster than the 'BBB' median. Although domestic demand is
slowing, Fitch expects the economy to grow by around 5% in 2013-2014, rising to
6% in 2015, boosted by higher oil output as the long-delayed Kashagan oilfield
reaches commercial production levels. Kashagan started production in September
2013 before output was halted by technical problems. It will resume in 2014.
-The tenge, which trades in a narrow range against the US dollar, has
depreciated 2% so far in 2013 on balance of payments weakness, triggering
sizeable National Bank intervention to support it. Following September's switch
away from the US dollar to a currency basket as the reference for the tenge, the
National Bank may allow greater exchange rate flexibility from 2014. If
well-managed, Fitch would consider this credit-positive, as it would help the
economy to absorb terms of trade shocks, make monetary policy more effective and
help lower inflation.
-The current account surplus (CAB) is in decline. The National Bank revised down
the CAB surplus estimate for 2012 to 0.3% of GDP (down from 3.7%). Fitch expects
the current account to be near balance in 2014-2015. The balance of payments
impact of Kashagan will be limited as external debt repayments and profit
repatriation are expected to increase along with exports.
-The banking system is still a rating weakness, and continues to make slow
progress in resolving the large stock of non-performing loans (NPLs), which are
concentrated at a handful of lenders. Nevertheless, bank lending growth
accelerated to 14.7% year on year in September 2013, with consumer lending and
SME lending growing even faster.
-Governance indicators continue to lag the 'BBB' median, while human development
is broadly in line. Efforts to improve the business environment are paying off
with a steady climb in the World Bank Doing Business ranking to 50th place.
-Commodity dependence is high. Oil and gas account for 70% of goods exports.
Including metals and ores, commodities account for at least 90% of exports.
The Stable Outlook reflects Fitch's assessment that upside and downside risks to
the rating are currently well balanced. The main factors that individually or
collectively might lead to rating action are as follows:
-Positive rating action may result from substantial strengthening of the
sovereign and external balance sheets over the medium term. Larger sovereign
assets would provide greater buffers against commodity price shocks
-Entrenching low and stable inflation under a more flexible exchange rate regime
-An effective restructuring of bank balance sheets would address a weakness
relative to the peer group and alleviate an ongoing contingent liability to the
-A departure from prudent policy that leads to a sustained decline in sovereign
-A severe, sustained commodity price shock would negatively impact the balance
of payments and public finances
-Excessive lending growth and inadequate risk management in the banking sector
-Fitch assumes average oil prices of USD100/b in 2014-2015
-President Nazarbayev is secure in power and largely unchallenged, but
Kazakhstan has not experienced a change of leadership since independence and the
long-term issue of succession is not settled. While Kazakhstan's rating factors
in below-average governance indicators, Fitch assumes that constitutional
mechanisms would operate in the event of a transfer of power.
-Fitch assumes broad policy continuity in the long-term management of oil
-Fitch's forecasts assume that the Kashagan oilfield will restart in 2014 and
reach commercial production levels in 2015, although there are downside risks.
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Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email:
Additional information is available on www.fitchratings.com
Applicable criteria, 'Sovereign Rating Criteria' dated 13 August 2012 and
'Country Ceilings' dated 9 August 2013, are available at www.fitchratings.com.
Applicable Criteria and Related Research:
Sovereign Rating Criteria
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