ACRA has affirmed the following ratings to the Republic of Kazakhstan (hereinafter, Kazakhstan) 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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Active growth of the economy supported by a wide range of industries.
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Moderate volume and favorable structure of public debt.
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Sound monetary policy.
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Stronger sub-factors including institutional environment, reforms in public sector and economic policy.
Negative rating assessment factors
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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 increased inflation.
Macroeconomics
After the recovery of Kazakhstan’s GDP dynamics in 2021–2022, ACRA expects a significant economic growth by 4.5–5% in real terms this year. The Agency notes a gradual increase in the diversification of the industrial sector, while risks in logistics and the transportation of mineral exports in foreign trade that materialized in 2022 are declining to some extent.
ACRA assumes that in 2024–2025, Kazakhstan will experience an heightened inflation, although declining gradually to the inflation target, moderately tight monetary policy, and a slight weakening of the national currency.
Public finance
The Agency expects the state budget deficit at 2.5–2.6% of GDP in 2023–2024, while the public debt, excluding the debt of the National Bank of Kazakhstan (NBK), may amount to 21–22% of GDP compared to 22.3% as of the end of 2022. In the Agency’s view, the public debt is moderate, which, in turn, means that Kazakhstan will still be able to apply countercyclical fiscal policy in the future, while the newly introduced fiscal rule broadens the room for fiscal maneuver, which increases the resilience of the economy to potential shocks.
Transfers from the NFRK continue to play an important role in maintaining a balanced budget, although there is a focus on reducing their use for budgetary purposes in the medium and long term. As of October 2023, NFRK’s foreign currency assets amounted to 25% of the 2022 GDP and covered about 100% of public debt (excluding NBK debt), thereby providing a reliable safety cushion for the national budget. At the same time, the Agency notes a long-term upward trend in the share of interest payments in budget expenditures, which, coupled with the budget volatility risk, puts pressure on the credit rating outlook.
Certain 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
Kazakhstan’s balance of payments is still prone to the risks associated with both the sectoral structure of foreign trade and the payment of primary earnings. Nonetheless, the external position remains sustainable thanks to the structure of liabilities on the financial account, which is mostly associated with direct investments. Positive factors also include the stability of foreign currency regime and a significant amount of international reserves: in 2022, the import coverage ratio reached almost 10 months. ACRA expects imports to grow slightly by the end of this year on the back of rather high economic activity, and, consequently, the import coverage ratio of international reserves should decrease.
Institutional framework
Weak 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 current reforms in the financial sector, including digitalization and active development of the competitive environment.
The quality of Kazakhstan’s human capital that determines the long-term basis for economic development is still assessed as relatively high. 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.
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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Much lower dependence of the economy on commodities in both the manufacturing sector and exports thanks to an active development of the industries and services that are not associated with commodities, as well as non-materialization of the risks concerning export earnings and replenishment of international reserves;
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Adoption of the decisions that considerably improve the long-term stability of public finances, in particular, interest payments.
A negative rating action may be prompted by:
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Significant and continued economic slowdown;
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Sharp weakening of the national currency and destabilization of the currency regime;
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Shrink in the volume of national reserves and increase in the public and quasi-public debt costs.
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.
