S&P affirmes ratings on Kazakhstan at ‘BBB+/A-2’; outlook stable

Dec. 13. Trend

By Elena Kosolapova

S&P affirmes ratings on Kazakhstan at 'BBB+/A-2'; outlook stableStandard & Poor’s Ratings Services affirmed its ‘BBB+/A-2’ long- and short-term foreign and local currency sovereign credit ratings on the Republic of Kazakhstan, the agency reported on Dec. 13. The outlook is stable.

The agency also affirmed the long-term national scale rating at ‘kzAAA’.

“The ratings on Kazakhstan are supported by its large natural resource endowment, which drives its strong fiscal surpluses and the government’s netasset position; the country’s strengthening net external asset position; and above-average GDP per capita growth over the past decade. The ratings remain constrained by our view of Kazakhstan’s limited institutional and governance effectiveness. This is due to a highly centralized political environment characterized by a lack of transparency and little clarity about eventual presidential succession. The moderate level of economic development (GDP per capita is just below $13,000 in 2013), limited monetary policy flexibility, and the high dependence on oil also constrain the ratings,” the agency said.

The agency’s forecasts assume that Kazakhstan will remain politically stable. S&P views a challenge to the government of President Nursultan Nazarbayev as unlikely, either from an elite-level internal struggle or from popular discontent. That said, S&P believes institutional risks remain high given the lack of clarity concerning the eventual presidential succession and the corresponding policy implications. Policymaking is highly centralized. Typically, the president decrees a broad strategy, and then legislation and specific decision-making follows.

The stable outlook reflects S&P view that risks to the ratings are balanced. The agency could consider lowering the ratings if it foresaw a slowdown in Kazakhstan’s trend GDP per capita growth, or a sustained deterioration in the external and fiscal 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 increased.

S&P could consider an upgrade if policymaking became more transparent and predictable, and if the political institutional framework strengthened. The agency would also view an enhanced structural reform and diversification agenda, as well as efforts to increase monetary policy flexibility, as positive for the ratings.