Fitch affirms Kazakhstan at 'BBB'; Outlook Stable

16:00, 31 October 2016

BAKU. KAZINFORM Fitch Ratings has affirmed Kazakhstan's Long-Term Foreign and Local Currency Issuer Default Ratings at 'BBB' with a Stable Outlook, the agency said October 31.

The issue ratings on Kazakhstan's senior unsecured foreign currency bonds are also affirmed at 'BBB'. The Country Ceiling is affirmed at 'BBB+' and the Short-Term Foreign-Currency and Local-Currency IDRs at 'F2'.

“The economy is gradually adjusting to a significant shock caused by lower oil prices and weaker demand in key trading partners,” the agency said. “Economic growth is resuming and the erosion of the strong sovereign balance sheet, which underpins the ratings, is slowing. The banking sector is a significant weakness compared with peers.”

According to Fitch, greater exchange rate flexibility is supporting the adjustment of the balance of payments, with official reserves rising $3.5bn over the first nine months of 2016, to $31.4bn.

The current account deficit is forecast to narrow to 2.3 percent of GDP in 2016, from 3.2 percent in 2015, and will be fully financed by net foreign direct investment inflows. Rising oil and metals prices are forecast to return the current account to a small surplus in 2017.

According to Fitch, economic growth is set to pick up modestly from 0.4 percent year-on-year in the first three quarters of 2016. Lower real incomes, tougher credit conditions, a weak external environment, falling oil production and the adjustment to the external shock have depressed growth, with government capex and agricultural output providing the main positive dynamic.

Growth is forecast to rise to 2 percent in 2017 as production at the Kashagan oil field is ramped up, new mining projects come on stream and private consumption picks up.

Large investment in the energy sector will support medium- term growth. Nonetheless, average growth for 2016-2018 of 1.9 percent will be well below the average of the previous decade (5.6 percent) and the 2.9 percent peer median.

Inflation should fall to high single digits by end-2016 as the impact of the devaluation drops out, from 16.6 percent in September, but will stay at a five-year average (to end-2016) of 7.9 percent, compared with a 2.7 percent peer median.