Moody’s: Ongoing economic recovery supports Kazakhstan’s Baa2 rating and stable outlook
Jan 11. The FINANCIAL
Moody’s Investors Service has published its 2011 sovereign report on Kazakhstan, which provides a methodological assessment of the country’s Baa2 foreign- and local-currency issuer rating and stable outlook.
The main considerations for the rating rationale are:
1. Kazakhstan’s resource rich economy is on a two-track recovery characterized by strong activity in the oil and gas sectors. However, over the near-term, continued weakness in the banking system will weigh on the full scope of the recovery; and in the medium-term, economic diversification and capital market deepening will become more important drivers for the rating.
2. The crisis management program has successfully stabilized the economy and protected the sovereign’s balance sheet, but it has been accompanied by sizable restructuring of bank debt and its long-term impact on institutional predictability is unclear.
3. The government’s debt metrics are strong, but a ring-fenced budget cannot indefinitely co-exist with high private external debt.
4. Financial system weaknesses and the large share of foreign currency deposits heighten susceptibility to external terms of trade or capital account shocks; however domestic politics and external relations are stable and will likely not weigh on the policy framework.
“The outlook is stable and is supported by the referenced economic stabilization, and ongoing administrative and financial supervision reforms to reduce the underlying governance and institutional shortcomings which contributed to the financial crisis,” says Aninda Mitra, a Moody’s Vice President and Senior Analyst.
Mr. Mitra was speaking on the release of the annual sovereign report on Kazakhstan on January 11, 2011.
He added, “reforms that result in deleveraging in and normalization of the banking system, develop the domestic capital markets, and diversify the economy would be credit supportive. The alternative would be either a politically difficult acceptance of a growing divide between the oil and non-oil sectors of the economy, or the government’s heretofore sound balance sheet, or those of the National Oil fund, could become much more encumbered by banking fragilities and external weaknesses.”
What Could Change the Rating – Up
Further institutional strengthening, in particular tighter banking sector supervision and regulation, successful restructuring of the ailing banking sector, the further expansion of the foreign reserve and oil fund cushion or successful economic diversification away from the energy sector would place upward pressure on the ratings.
What Could Change the Rating – Down
Downward pressure could come from a significant depletion of foreign currency reserves and savings in the National Oil Fund coupled with dim prospects for rebuilding those buffers in the medium term, or from a deterioration in the banking system which impedes economic recovery.