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Standard & Poor’s lowers Kazakhstan long-term ratings

11 february 2015, 01:00
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Standard & Poor's (S&P) has downgraded the long-term ratings of Kazakhstan amid falling oil prices, Tengrinews reports citing the agency's website.

Since mid-2014, world oil prices have fallen by more than 50 percent and have greatly affected the growth prospects of Kazakhstan. S&P has downgraded the country's foreign and local currency sovereign credit ratings from "BBB+" to "BBB" with a negative outlook, dangerously close to the junk territory.

According to the agency, the fall in the oil prices will have a significant effect on the economic growth prospects, external balance and fiscal performance of Kazakhstan, given the high dependence of its economy on oil revenues. Other oil-dependent nations - Bahrain, Oman and Venezuela - have also seen their ratings downgraded.

Standard & Poor's expects the real GDP growth of Kazakhstan to slow down to 1.5 percent in 2015, and the growth rate of GDP per capita to average 1.6 percent during the period of 2015-2018. 

The agency’s experts also expect Kazakhstan's oil production to reduce slightly from 81.8 million tons to 80.5 million tons a year in 2015-2016. They also do not expect any significant oil production from the long-troubled Kashagan oil field in Kazakhstan's sector of the Caspian Sea until 2018. They are not even certain whether the operation of the field will resume at all and whether it will be possible to exploit it to capacity during the first stage of the operation.

Kashagan was one of the largest oil discoveries of the last 40 years and is also one of the most complex industrial projects being developed anywhere in the world. After years of delays it was supposed to start bringing profit back in 2013 but the production was suspended after hardly even starting because gas leaks were detected. Now, it appears that the entire pipeline system has to be replaced at the field. Given the current oil prices, the entire project of Kashagan is edging on unfeasibility. Sauat Mynbayev, Chairman of Kazakhstan national oil and gas company KazMunaiGas, said that the oil field was economically viable only with oil prices at $100 per barrel or higher.

Standard & Poor's also predict complications for the National Bank of Kazakhstan. On the one hand, it will have to maintain financial support to the Kazakh government's measures on helping out the banks with the bad loans that constitute a sizeable portion of their loan portfolios. On the other hand, the National Bank may have to respond to the external economic imbalances by adjusting the rate of the national currency, the tenge.

According to experts of Standard & Poor's, the National Bank would not want to confront the countercyclical fiscal policy of the government, but will be forced to pursue a tight monetary policy in order to maintain the tenge exchange rate. "After the changes to the pension system of Kazakhstan in 2014 (a dozen pension funds were merged into one state-run fund), the National Bank conducts operations in a much less liquid bond market, which reduces its ability to operate in the open market," the experts of S&P said.

Nevertheless, Deputy Head of Monetary Operations and Asset Management at the National Bank of Kazakhstan Zhaslan Madiyev assured that the National Bank of Kazakhstan did not expect the latest downgrade to have a direct negative impact on the exchange rate of the tenge, RIA Novosti reported. He reminded that the central bank had accumulated substantial foreign reserves and had low public debt, and said that these were signifiers of Kazakhstan’s creditworthiness.

Writing by Dinara Urazova, editing by Tatyana Kuzmina


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