Standard & Poor’s (S&P) has confirmed Kazakhstan’s long-term sovereign credit rating in foreign currency at BBB- and in the national currency at BBB but changed their outlook from stable to negative. Kazakhstan’s short-term ratings were confirmed at A-3 both in the national and foreign currency. The agency affirmed Kazakhstan’s kzAAA national scale rating and its transfer and convertibility assessment for non-sovereign borrowers at BBB. Standard &Poor’s also changed outlooks of ratings of some state-run companies (KazMunayGaz, KazMunayGaz Exploration & Production, KazTransGas, the Development Bank of Kazakhstan, the Agrarian Credit Corporation, the Kazakh Fund for Guaranteeing Mortgages and KazPost) from stable to negative because their ratings are tied to Kazakhstan’s sovereign ratings.
The review of outlook from stable to negative reflects the increased risk that the deterioration of the quality of assets of Kazakhstan’s banks and the credit squeeze would lead to the worsening of budgetary and foreign trade indicators and would negatively affect the country’s financial standing and economic growth prospects, Standard & Poor’s said. It believes that the global financial crisis has intensified and will last longer than was expected in October 2007 when Kazakhstan’ long-term foreign currency credit rating was downgraded from BBB to BBB-. The agency expects that payments of Kazakh banks on the bulk of foreign debts will be $14bn in 2008 and most of these debts will not be refinanced due to a growth in interest rates and problems on the global financial markets. This will slow down a growth in domestic funding despite a government programme to provide short-term loans to partially solve problems with foreign funds, the agency said. As a result, economic growth will slow down drastically in 2008 and will be less than 4% which will decrease in the quality of banks’ assets, it added. This forecast is lower than the 5% economic growth envisaged by the government for 2008. The agency expressed concern about a recession in the property sector and a fall in property prices.
Standard & Poor’s forecasts a small current account surplus in 2008 due to a significant fall in demand for imports and growth in exports thanks to high oil prices. The current account deficit was 7% in 2007. The surplus will soften the deterioration of Kazakhstan’s financial indicators, the agency said. If liquidity problems will be greater than the agency estimates, it expects the government to take action to prevent the devaluation of the national currency which may create further problems for Kazakh banks. Kazakhstan’s foreign reserves and foreign trade indicators partially offset the impact of liquidity problems, allowing the government to help banks, S&P said. The agency added that it might lower Kazakhstan’s sovereign ratings further if the reserves of the National Fund are used to recapitalize banks and problems with obtaining foreign funds persist. The agency will upgrade the outlook on Kazakhstan’s sovereign credit ratings to stable if problems in the financial sector have a limited impact on the economy and the public sector. The decision on lowering or confirming Kazakhstan’s rating will be taken within 12 to18 months, the agency expects.
Problems in the Kazakh economy have forced the government to consider sequestering the central budget due to lower than expected economic growth and corporate tax collections. Finance Minister Bolat Zhamishev told the Kazakh parliament on 30 April that the government would cut budget spending by KZT84bn ($700m) by the end of the year.
Earlier the country’s leadership said that an economic slowdown would have no impact on social spending but long-term investment and infrastructure projects. Until the liquidity squeeze the government had been increasing budget spending in the second half-year in previous years, but this year’s move to sequester budget spending points to the government’s concern about maintaining financial stability. We believe that this move will help the country stay afloat in the short term, but many sectors of the economy which need funding may stagnate in the long-term.
