S&P lowers Kazakhstan's credit-rating outlook to Negative16 june 2014, 14:49
S&P named "deteriorating outlook for economic growth and the reduced effectiveness of monetary policy" as the main causes of the soured outlook. “The limitations on monetary policy effectiveness, in part resulting from the nationalization of the pension funds, as well as the tight exchange-rate management, were to result in the central bank being required to intervene heavily in the foreign exchange market,” the ratings agency elaborated about the "reduced effectiveness" of Kazakhstan's policies.
Kazakhstan merged all its privately-owned pension funds into a single state-run Pension Savings Fund in the latest swing of its pension reform. Explaining the decision, then-PM Serik Akhmetov said that “the service fee rates applied by the country’s pension funds have been reducing the people’s pension savings by 26%”.
As of December 1, 2012 there were 11 pension funds operating in Kazakhstan, with combined savings standing at around $21 billion. In August 2013 the Single Pension Fund managed by the central bank was launched. It took several months to engulf all the savings accounts from the private hands and become fully operational. Altogether, there are 9.7 million accounts in the Fund, with the overall savings amount standing at $21.3 billion now.
Continuing the financial spin in February this year the Kazakh Government devalued its national currency - the Tenge - by nearly 20% in one day. This helped the oil-exporting country improve the international standing of its exports and produce a growth rate of 6% for its oil-fueled economy, but dealt a heavy blow to the population, and damaged the international ratings of the country, as the cut outlook clearly shows.
Kashagan - the giant oil field notorious for its complexity, cost overruns and delay - that has always been considered a blessing for Kazakhstan, has turned out to be among the reasons why S&P is not looking at the country's economic growth prospects with favor anymore.
“Growth could remain below previous expectations for instance due either to prolonged delays of production at the Kashagan field or a lack of structural reform to support long-term sustainable and inclusive growth,” S&P said.
The Kazakhstani offshore oil field located in the shallow northern part of the Caspian Sea was supposed to finally start producing oil in September 2013, but was unexpectedly halted for an unspecified period of time after several gas leaks revealed a widespread H2S-driven corrosion of pipelines at the field. The project now requires a complete replacement of pipes with those made of a more H2S resistant and much more expensive alloy.
However, domestic factors fully or partly within the Kazakhstan government's control were not the only ones cited by S&P as the spawning ground for the credit-rating problems. Russia's falling out of favor with the West was among the citing causes. Russia is Kazakhstan's largest trade partner and the two countries share a staggering 7.5 thousand kilometers of border. So it is hard for Kazakhstan to remain completely economically and politically independent from Russia, but even more so, it is impossible for Kazakhstan to control the ambitions of its large neighbor.
In the meanwhile Kazakhstan’s sovereign long-term sovereign credit rating remains at BBB+. This is the third-lowest investment grade rating a country can have. This also means that unless Kazakhstan takes action, improves its monetary policies and gets the Kashagan project up and running, the country may end up outside investment opportunities after the next revision.
By Tatyana Kuzmina