Standard & Poor's affirms stable outlook for Kazakhstan
Standard & Poor's Rating Services affirmed its 'BBB+/A-2' long-
and short-term foreign and local currency sovereign ratings on the
Republic of Kazakhstan. The outlook is stable. The long-term
national scale rating was affirmed at 'kzAAA', the agency reported
on Friday.
"The ratings on Kazakhstan are supported by its strong fiscal and
external
surpluses and above-average GDP per capita growth, which come from
the
country's large natural resources endowment. The ratings are also
supported by
the government's net asset position," Standard & Poor's said.
However, according to the agency, the ratings remain constrained by
political risks--the political environment is highly centralized
with little clarity about eventual presidential succession--and by
limited monetary policy flexibility. The moderate level of economic
development (GDP per capitais just over $13,000 in 2013) and the
high dependence on oil also constrain the ratings.
Standard & Poor's forecasts GDP growth in Kazakhstan in 2013 at
just above 5 percent, based on an expected modest boost in oil
production volumes (82 million tons compared with 79 million tons
in 2012); an average oil price in line with 2012 levels; continued
weak external demand for metals; and an average agricultural
harvest.
"We believe a more-pronounced boost will come from the offshore
Kashagan oil field when it comes online after 2014; however, we do
not expect growth to return to above 6 percent over our forecast
horizon(2014-2016)," the agency said.
Standard & Poor's estimates Kazakhstan's GDP per capita at just
over $13,000 in 2013, and long-term GDP per capita growth averaging
4.4 percent over 2007-2016.
"Downside risks to our base-case assumptions are primarily related
to weaker external demand and lower oil prices," the agency
said.
According to Standard & Poor's, Kazakhstan's government plans to
transfer a limited sum from the National Fund to the budget each
year, which may be an important fiscal buffer against external
shocks given the high dependence on commodity exports.
"The government meanwhile is borrowing to fund the "deficit" (the
gap not covered by the transfer from the National Fund)
predominantly on the domestic capital market, and we estimate that
the annual change in general government debt will average 1.8
percent of GDP over 2013-2016. Under our base-case assumption that
the transfer from the NFRK to the budget will remain within the
current annual maximum allowance of $9.2 billion, we estimate the
government's net asset position will strengthen to 26 percent of
GDP in 2013," the agency said.
Kazakhstan's net external liability position declined to an
estimated 24 percent of current account receipts (CARs) in 2012,
from 80 percent in 2009. External liquid assets currently exceed
external debt. Kazakhstan's gross external financing needs
increased to 95 percent of CARs in 2012, but were still down from
the 2007 peak of 115 percent. Standard & Poor's expects gross
external financing needs will increase further over our rating
horizon.
"We project the reported current account will remain in surplus,
albeit narrower than 2011, buoyed by a large trade surplus. This is
despite our expectation of increasing FDI-related and demand-driven
imports," the agency said.
Standard & Poor's could consider lowering the ratings if there were
a sustained slowdown in growth or a significant deterioration in
the fiscal and external balance sheets. The ratings could also come
under pressure if the political environment deteriorated, either
due to policies that did not support sustainable medium-term
economic growth, or if risks surrounding the transition of power
were to increase.
Standard & Poor's could consider an upgrade if the political
environment improved such that policymaking became much more
transparent and predictable, and the political institutional
framework strengthened. The agency would also view a more
aggressive reform and diversification agenda, as well as efforts to
increase monetary policy flexibility, as positive for the
ratings.