ACRA has affirmed the following ratings to the Republic of Kazakhstan (hereinafter, Kazakhstan, or the country) under the international scale:
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Long-term foreign currency credit rating at ВВВ+ and local currency credit rating at ВВВ+;
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Short-term foreign currency credit rating at S2 and local currency credit rating at S2.
The outlook on the long-term foreign currency credit rating is Stable and local currency credit rating is Stable. The Stable outlook assumes that the rating will highly likely stay unchanged within the 12 to 18-month horizon.
Positive rating assessment factors
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Stable general economic dynamics, actual growth of the economy at the level of potential growth.
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Moderate volume and favorable structure of public debt.
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Sound monetary policy.
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Stronger values of institutional environment sub-factors.
Negative rating assessment factors
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Significant contingent liabilities of the quasi-public sector of the economy.
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Low diversification of the manufacturing sector.
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High dependence on the key product groups in foreign trade.
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High inflation.
credit rating rationale
Kazakhstan’s BBB+ sovereign credit rating is supported by the following fundamental factors: low public debt, a significant amount of liquid assets in the National Fund of the Republic of Kazakhstan (NFRK), and a sufficient amount of international reserves. The rating continues to be constrained by a low level of export diversification, the risk of contingent liabilities materializing, and the prolonged nature of the increased inflation.
Macroeconomics
After the recovery of Kazakhstan’s GDP dynamics in 2021–2022, ACRA expects significant growth by 4–5% in real terms this year. The Agency also notes a gradual increase in the diversification of the country’s industrial sector, while risks in logistics and the transportation of mineral exports in foreign trade that materialized in 2022 are declining partially.
ACRA assumes that Kazakhstan will experience higher inflation, tight monetary policy, and a slight weakening of the national currency in 2023–2024.
Public finance
The Agency expects the state budget deficit to be 2.7–2.5% of GDP in 2023–2024, while the public debt volume may amount to 22.5–23.1% of GDP (excluding the debt of the National Bank of Kazakhstan (NBK)) compared to 22.9% as of the end of 2022 (excluding the debt of the country’s monetary authorities). In the Agency’s view, public debt is moderate, which, in turn, means that Kazakhstan will still be able to apply countercyclical fiscal policy in the future. A new fiscal rule has been enshrined in the country’s fiscal code in terms of determining the size of the guaranteed transfer, which was aimed at strengthening countercyclicality. According to the rule, the size of the guaranteed transfer must not exceed the projected revenues directed to the NFRK at the cut-off price. This innovation broadens the room for fiscal maneuver, which increases the resilience of the economy to potential external shocks.
Transfers from the NFRK continue to play an important role in maintaining a balanced budget, however, there is a focus on reducing their use for budgetary purposes in the medium and long term. As of April 2023, NFRK assets amounted to 26% of 2022 GDP and covered about 110% of public debt (excluding NBK debt), thereby providing a reliable safety cushion for the country’s budget. At the same time, the Agency notes a long-term upward trend in the share of interest payments in the budget expenditure structure, which, coupled with the budget volatility risk, puts pressure on the credit rating outlook.
Some implementation risk is still associated with contingent liabilities of the quasi-public sector, while the sector itself is in the process of active transformation, which ACRA considers to be a positive trend.
External position
Positive dynamics of the current account, the financial account liability structure, which is mostly associated with direct investments, and a sufficient amount of international reserves ensure the stability of Kazakhstan’s external position: in 2022, the import coverage ratio reached almost 10 months. ACRA expects imports to grow slightly this year on the back of moderate economic activity, and, consequently, the import coverage ratio of international reserves should increase.
Institutional framework
The weakness of public institutions, low efficiency of government institutions and relatively low quality of public governance have a negative impact on Kazakhstan’s business climate. However, the Agency notes that public and government institutions have recently undergone a number of positive changes. ACRA notes stronger political competition, renewal of political institutions in 2022–2023, and the constitutional reforms of 2022. ACRA also positively assesses the creation of the Supreme Council for Reforms and the Agency for Strategic Planning and Reforms, as these measures demonstrate Kazakhstan’s commitment to reforming its system of public governance.
Reforms announced after the events of January 2022 proposed the introduction of a new investment policy concept, development of a program to increase the population’s income, a review of the approach to the quasi-state sector, comprehensive reform of public governance and inter-budgetary relationships, fine tuning of the state-owned asset privatization program, strengthening of import substitution, addressing the issues of commodity security, and the adoption of the Social Code. ACRA positively views the intermediate results of the reforms, and notes commitment to further reforms and improving the quality of public institutions.
SOVEREIGN MODEL APPLICATION RESULTS
Kazakhstan has been assigned a BBB- Indicative credit rating in accordance with the core part of ACRA’s sovereign model. A number of modifiers in the modifiers part of the model allow the Indicative credit rating to be increased. These include the following, which are determined by the Methodology for Credit Rating Assignment to Sovereign Entities under the International Scale:
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Potential economic growth;
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Sovereign funds;
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Exchange rate regime stability;
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Political instability and recent political decisions;
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External debt sustainability.
A negative adjustment has been made for the following modifier:
- Contingent liabilities and the risk of their implementation.
In view of the abovementioned modifiers, Kazakhstan’s Indicative credit rating has been raised. A Final credit rating of BBB+ has been assigned. There are no analytical adjustments and limitations that could result in an adjustment of the Final rating. In connection with this, the long-term foreign currency credit rating has been affirmed at BBB+.
potential outlook or rating change factors
A positive rating action may be prompted by:
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Political reforms that have a significant positive impact on the efficiency of public governance and the stability of government bodies in the long term.
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The adoption of systemic social and economic decisions that considerably improve the long-term stability of public finances and/or potential for economic growth.
A negative rating action may be prompted by:
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Material and sharp deterioration of the situation in the Kazakh banking sector.
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Significant and continued decline of economic activity.
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Sharp weakening of the national currency and increase of the cost of public debt.
regulatory disclosure
The sovereign credit ratings have been assigned to the Republic of Kazakhstan under the international scale based on the Methodology for Credit Rating Assignment to Sovereign Entities under the International Scale and the Key Concepts Used by the Analytical Credit Rating Agency Within the Scope of Its Rating Activities.
The sovereign credit ratings of the Republic of Kazakhstan were published by ACRA for the first time on September 24, 2019. The sovereign credit ratings and their outlooks are expected to be revised within 182 days following the publication date of this press release as per the Calendar of sovereign credit rating revisions and publications.
The sovereign credit ratings were assigned based on information from publicly available sources and ACRA’s own databases. The sovereign credit ratings are unsolicited. The government of the Republic of Kazakhstan participated in the sovereign credit rating assignment.
In assigning the sovereign credit ratings, ACRA used only information, the quality and reliability of which were, in ACRA’s opinion, appropriate and sufficient to apply the methodologies.
ACRA provided no additional services to the government of the Republic of Kazakhstan. No conflicts of interest were discovered in the course of the sovereign credit rating assignment.
