Moody’s unifies Kazakhstan’s government ratings at Baa2, outlook negative

Moody’s Investors Service, New York, May 12, 09

Moody’s Investors Service has downgraded Kazakhstan’s local currency government rating to Baa2 from Baa1, the same as its foreign currency rating, and changed the outlook to negative. The rating action reflects continuing fragility in the Kazakh banking system because of its large short-term foreign currency debt obligations.

“The rating changes also take into account the weaknesses inherent in a macroeconomy that depends heavily on the export of commodities whose prices have collapsed sharply,” said Moody’s Vice President Jonathan Schiffer. “Moreover, the government’s financing gap may widen considerably because of overly optimistic forecasts for the budget outcome.”

He said shortfalls in government revenues connected with worsening growth prospects may come at a time of increasing stresses in the banking system, as non-performing loans grow rapidly.

“With two of the top four banks in default on their foreign currency obligations

and in government administration and with resolution of each bank’s problems and status far from certain, the health of the banking system may worsen,” said Schiffer. “If this combines with a worse-than-expected current account deficit, speculation against the currency may build alongside pressure for greater government financial intervention into both the financial system and real economy.”

All this, he cautioned, could lead to a substantial drawdown in Kazakhstan’s foreign exchange reserves.

In related rating actions, the foreign currency country ceiling for bonds was downgraded to Baa1 with a negative outlook from A2 and the local currency country ceilings for bonds and bank deposits both were also downgraded by one notch to A2 and A3, respectively. Also, the outlook on the Ba1 foreign currency country ceiling for bank deposits was changed to negative from table.

The last rating action taken with respect to the Government of Kazakhstan

was implemented on June 9, 2006, when Moody’s upgraded the foreign

currency government bond rating to Baa2 from Baa3 and the foreign

currency country ceiling for bonds and notes to A2 from Baa1.

The principal methodology used in rating Kazakhstan was Moody’s Sovereign Bond Rating methodology, published in September 2008 and available on in the Credit Policy & Methodologies directory, in the Ratings Methodologies sub-directory. Other methodologies and factors that may have been considered in the proces of rating this issuer can also be found in the Credit Policy & Methodologies directory on Moody’s website.

Rating actions on related issuers will follow this announcement in due course.


Pierre Cailleteau
Managing Director
Sovereign Risk Group
Moody’s Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

New York

Jonathan R. Schiffer
VP – Senior Credit Officer
Sovereign Risk Group
Moody’s Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653