Standard & Poor's affirms Kazakhstan's credit rating at BBB21 september 2015, 20:32
According to S&P’s most recent report, Kazakhstan’s ratings continue to be supported by its position as a net creditor country, resulting from recent years of fiscal and external surpluses. At the same time, according to the agency, the ratings remain constrained by Kazakhstan's limited institutional and governance efficiency due to the highly centralized political environment, moderate level of economic development, limited monetary policy flexibility, and high dependence on oil and gas.
Since mid-2014, the falling oil prices have negatively affected the growth prospects of oil-dependent Kazakhstan. Due to the adverse effects of oil market prices, Kazakhstan economy’s GDP growth slowed from 6.0% in 2013 to 4.3% in 2014. In the next few years, the agency expects the GDP growth to slow even further based on the country's flat oil production forecast, unless the Kashagan oil field resumes production before 2018. Kashagan is a complex industrial project - a gigantic oil field in Kazakhstan's sector of the Caspian Sea shelf - that was supposed to start bringing profit in 2013, but the production was halted after gas leaks were detected in the pipeline system.
S&P believes that Kazakh National Bank’s ability to influence the situation on the domestic monetary market will be limited by the increasing dollarization of the Kazakhstan’s financial system. According to S&P, the share of foreign currency deposits continues to be persistently high - at over 50 percent amid distrust to the national currency - the tenge, compared to less than 40 percent two years ago.
Additionally, the agency believes the degree of dollarization of Kazakhstan's financial system will increase with the recent devaluation of tenge. On August 20, Kazakhstan’s National Bank and government authorities announced a shift to inflation targeting and a more flexible exchange rate policy, which was followed by a 26 percent devaluation of the tenge against the U.S. dollar. “Although the announced shift to a more flexible exchange rate policy under the inflation-targeting framework could potentially increase monetary policy flexibility and Kazakhstan's capacity to deal with external shocks, the ability and commitment of the Kazakh National Bank to follow the new monetary policy regime remains to be tested,” says the agency’s report.
Moreover, the experts expect the number of nonperforming loans in Kazakh banks to increase in the second half of 2015 and in 2016. According to the agency, the increase will be stimulated by economic slowdown, tenge devaluation and seasoning of loans disbursed by banks during the last four years.
According to the report, the negative outlook on the long term ratings follows from the agency's view on risks to Kazakhstan's external, fiscal, and monetary profiles. The agency might even consider lowering Kazakhstan's long term ratings if the country's external and fiscal positions weaken more than the agency expects. "The ratings could also come under pressure if we came to the conclusion that the National Bank of Kazakhstan had stepped back from its commitment to a flexible tenge exchange rate and inflation targeting," concludes the agency.
By Indira Urazova