Kazakhstan prospers outside of Western conventional wisdom
January 11. Central Asia Newswire
By Martin Sieff
Kazakhstan starts the New Year with a huge financial gift. Standard & Poor’s recently lifted the Central Asian nation’s sovereign foreign currency credit rating to BBB from BBB-minus.
The move was expected in international and U.S. financial circles, but it flies in the face of much conventional wisdom about the indispensability of developing full democracies and free markets for long-term economic growth.
Kazakhstan’s parliament, for example, approved last year legislation making President Nursultan Nazarbayev the nation’s leader for life. And just last week it approved a referendum to keep Nazarbayev in office without elections until 2020.
Kazakhstan was also a founding member of a customs union with high tariffs last July along with Russia and Belarus. And at the beginning of this year, the country doubled its oil export tariff to $40 per 1.1 ton.
However, there has been no sign that any of these moves will damage Kazakhstan’s international financial standing. On the contrary, Standard and Poor’s assessment published on December 23 suggests that these political and economic policy moves will strengthen rather than weaken Kazakhstan’s financial position.
International markets welcome the prospect that President Nazarbayev, who has wooed at least $120 billion in foreign direct investment (FDI) to Kazakhstan, will stay on as president in perpetuity. That’s because international investors value, above all else, predictability and stability in a developing country’s economic climate.
“The stable outlook on Kazakhstan reflects our expectation that the Kazakh government will continue to manage its economic and related financial sector challenges without impairing its own fiscal or external positions,” Standard and Poor’s stated.
Standard and Poor’s is not alone in its optimistic assessment about Kazakhstan’s stability. Moody’s Investors Service gives Kazakhstan an equivalent-level Baa2 credit rating. Fitch Ratings is only slightly lower at BBB-minus. There has been no indication that Moody’s or Fitch is considering lowering its ratings.
Also far from weakening international confidence in Kazakhstan, the country’s action in doubling its oil export tariff is likely to strengthen its economy by bringing in an additional $1 billion per year in state revenues. The international oil market looks robust enough to absorb the extra cost without depressing demand, or even driving down Kazakhstan’s market share.
The Energy Information Administration (EIA) of the U.S. Department of Energy in a report late last year even predicted that by the end of this decade, Kazakhstan will become one of the world’s top five petroleum producers.
Standard and Poor’s assessment is also significant since it comes as Kazakhstan is increasingly moving away from financial institutions in London to seek investment financing in East Asia. Kazakhstan won approval last year to list its major companies on the Hong Kong Stock Exchange, the second-largest in capitalization in all of Asia after Tokyo’s, and the largest in capitalization in mainland Asia. A similar approval is expected in the next year or so from the authorities running the Singapore Stock Exchange.
Standard and Poor’s bullish upgrade of Kazakhstan’s credit rating, therefore, is based on more than just the country’s robust global prospects for oil, natural gas and uranium exports.
It also reflects a recognition that a developing country with an increasingly protectionist tariff policy and a strong, centralized – though tolerant – government can generate more confidence among international investors, than more unstable, and therefore more unpredictable, democratic systems.
Indeed, by giving Kazakhstan a vote of confidence on the new policies it is pursuing to raise financing in East Asia and through imposing energy taxes, the Standard and Poor’s credit upgrade is likely to encourage the Kazakhs to stick with them and intensify them.
These policies fly in the face of the deregulation, unlimited free trade and other orthodoxies of the Financial Times of London and the Wall Street Journal of New York. But the international markets like them.