ACRA has affirmed the following ratings to the Government of 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.
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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Strengthening of sub-factors including institutional environment, reforms in the public sector and economic policy.
Negative rating assessment factors
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Low industrial diversification, dependence on raw materials for industrial production and commodity exports.
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High inflation over more than two years, which led to an extended period of high interest rates in the economy.
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Higher interest payments as part of government budget expenditures.
credit rating rationale
Kazakhstan’s sovereign credit rating (BBB+) is supported by the following fundamental factors: moderate public debt, a significant amount of liquid assets in the National Fund of the Republic of Kazakhstan (NFRK), growth of international reserves of the National Bank of Kazakhstan (NBK), and stable economic growth rates in real terms. The rating continues to be constrained by a low level of export diversification, the risk of contingent liabilities materializing, high inflation, and high interest rates on sovereign debt obligations, which puts pressure on interest expenditures.
Macroeconomics
ACRA notes Kazakhstan’s significant economic growth in 2023 (5.1% in real terms), and expects growth to be more moderate this year. The Agency also notes a gradual increase in the diversification of the industrial sector: oil and natural gas production accounted for 32.8% of total industrial production in January to October 2024 (vs. 34.2% in 2023 and 39.7% in 2022). In 2025, as oil production expands, the process of increasing diversification will be less noticeable, which, however, will not affect active growth in the manufacturing industries. At the same time, risks in logistics and the transportation of mineral exports in foreign trade that materialized in 2022–2023 are declining to some extent.
In the Agency’s opinion, Kazakhstan will experience heightened, but gradually declining inflation, moderately tight monetary policy, and higher real wages and total household incomes in 2024–2025.
Public finance
ACRA expects the state budget deficit to be 2.9–3.0% of GDP in 2024–2025, while public debt, excluding the debt of the NBK, may amount to 22–23% of GDP, which hardly differs from the current indicators. In the Agency’s view, public debt is moderate, and therefore Kazakhstan is still able to apply countercyclical fiscal policy in the future, while the introduced fiscal rule tied to the cut-off price of the country’s main export product broadens the room for fiscal maneuver, which strengthens the resilience of the economy to potential shocks. At the same time, the Agency notes a long-term upward trend in the share of interest payments in budget expenditures, as well as growing volatility in budget revenues.
Transfers from the NFRK continue to play an important role in maintaining a balanced budget, while the acquisition of stakes in state-owned corporations using NFRK funds in 2023 and 2024 (a 9.71% stake in KazMunayGas was purchased for KZT 1.3 tln at the end of 2023 and a 15.44% stake in Kazatomprom was purchased for KZT 467 mln in mid-2024) increases the dependence of the state budget on raw material revenues from the public sector. ACRA notes that such tranches replenish the country’s budget, but are not recorded in statistics as the use of sovereign reserves, and will monitor for similar purchases in the future in order to analyze a possible deterioration in the sovereign reserve factor.
As of October 2024, the NFRK’s foreign currency assets amounted to 21% of projected GDP and covered 97% of public debt (excluding NBK debt), thereby providing a reliable safety cushion for the national budget.
External position
Kazakhstan’s balance of payments remains prone to risks associated with both the sectoral structure of foreign trade and the dynamics of payment of primary earnings, the volume of which is similar to the country’s net exports. At the same time, the external position remains sustainable thanks to the structure of liabilities for the financial account and investment inflow dynamics. ACRA also views as positive factors the stability of the foreign currency regime and a significant amount of international reserves, which for January to October 2024 grew by 28%. As a result, the coverage ratio for imports of goods and services was seven and a half months as of October 2024. The Agency expects moderate and proportionate growth in imports and reserves on the back of stable economic activity, and, consequently, the import coverage ratio of international reserves should remain largely unchanged in 2025.
Institutional framework
Weak public institutions, insufficient efficiency of government institutions and limited quality of public governance have a negative impact on Kazakhstan’s business climate. However, the Agency notes that public and government institutions have undergone a number of positive changes: stronger political competition, renewal of political institutions in 2022–2023, the constitutional reforms of 2022, and a strengthening of dialog between the state and society. In addition, ACRA positively assesses the reforms in the financial sector, including digitalization, which involves the trend of developing a digital tenge, and active development of the competitive environment (including the Directive of the President of the Republic of Kazakhstan On Measures to Liberalize the Economy).
The quality of Kazakhstan’s human capital that determines the long-term basis for economic development is 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.
A negative adjustment has been made for the following modifiers:
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Quality and sustainability of economic growth;
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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
The Stable outlook assumes that the rating will highly likely stay unchanged within the 12 to 18-month horizon.
A positive rating action may be prompted by:
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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 industrial production and goods exports thanks to active development of industries and services that are not associated with commodities, growth of net exports of goods and services, and replenishment of international reserves.
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Adoption of the decisions that considerably improve the long-term stability of public finances and lower dependence of the country’s budget on transfers of funds from the NFRK.
A negative rating action may be prompted by:
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Significant and protracted economic slowdown.
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Weakening of the inflow of foreign investments and/or a sharp increase of payments for primary and secondary current account revenues, and destabilization of the currency regime.
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Significant decline in national reserves and increase in the public and quasi-public debt costs, further growth of the ratio of debt service to budget revenues and the country’s GDP.
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.
