Fitch Ratings affirmed Kazakhstan's long-term foreign-currency issuer default ratings (IDRs) at 'BBB', with a stable outlook. This rating reflects the nation's strong sovereign external and fiscal balance sheets, supported by substantial oil revenue savings. Challenges include dependence on commodities, high inflation, and weaker governance indicators relative to 'BBB' peers.
Kazakhstan's official international reserves increased by $1.6 bn over the year to the end of March, reaching $37.8 bn. The foreign-currency assets of the National Fund of the Republic of Kazakhstan (NFRK) rose by $2.3 bn to $60.7 bn, totalling 36% of GDP. The current account deficit was 3.3% of GDP in 2023 due to less favourable terms of trade and strong import growth. Kazakhstan's sovereign net foreign asset position stands at 30% of GDP. The external liquidity ratio is 187%, higher than the 'BBB' median of 128%.
Fitch projects the current account deficit to narrow to 2.5% of GDP by 2025. This is expected due to moderating import growth and increased oil production, despite a forecasted lower oil price of $70 per barrel. The Tengiz oil field expansion is anticipated to boost annual oil production by 12 mn tons by the second half of 2025. FX reserves are projected to rise to 10.4 months of current external payments by the end of 2025, from 8.9 months at the end of 2023, above the projected 'BB' median of 4.9 months.
Kazakhstan's economy remains dependent on oil, which constitutes 53% of exports and about one-third of fiscal revenues. Approximately 80% of Kazakh crude oil is exported through the Caspian Pipeline Consortium (CPC) via Russia, presenting geopolitical risks. CPC remains the primary export route due to cost advantages.
Relations with Russia improved since disruptions to CPC operations in 2022. Fitch's forecast assumes no significant politically motivated interruptions to pipeline flows. Kazakhstan is considered at low risk of broad-based secondary Western sanctions, given its cooperation on re-export measures and banking sector sanctions. Domestically, President Tokayev consolidated power following public unrest in 2022, with a new Prime Minister and key ministers appointed in February.
Fitch projects the general government deficit to widen to 1.9% of GDP in 2024 and 2% in 2025. The government plans to reduce transfers from the NFRK from KZT 4 trillion or $9 bn (3.3% of GDP) in 2023 to KZT 3.6 trillion ($8.1 bn) in 2024 and KZT 2 trillion ($4.5 bn) after that. Fiscal rules reintroduced this year aim to limit expenditure growth and cap guaranteed transfers from the NFRK.
Kazakhstan's government debt is forecasted to rise to 23.4% of GDP by end-2025 from 22.4% at end-2023, remaining below the 'BBB' median of 56.9%. The banking sector is expected to absorb increased public debt issuance, supported by deposit growth and liquidity.
Privatizations included the 10% IPO of Air Astana in February and the planned sale of Bereke Bank. State-owned enterprises (SOEs) continue to dominate many sectors. Utility tariff reductions aim to stimulate private sector investment.
The National Bank of Kazakhstan (NBK) improved monetary policy transmission by phasing out direct subsidies and reducing the deposit dollarization ratio. Inflation remains above peers, with Fitch forecasting average inflation of 8.6% in 2024 and 7.5% in 2025. The replacement of the NBK governor in September raised concerns about central bank independence.
Fitch forecasts GDP growth to slow to 3.8% in 2024 from 5.1% in 2023 due to cooling investment, construction, credit growth, and mild impact from recent flooding. Growth is expected to accelerate to 5% in 2025, driven by higher oil production and economic diversification efforts.
Kazakhstan's ESG Relevance Scores for Political Stability and Rights, Rule of Law, Institutional and Regulatory Quality, and Control of Corruption are '5', indicating these factors significantly influence the rating. The nation also scores '4' for Human Rights and Political Freedoms and '4[+]' for Creditor Rights.
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