Kazakhstan’s oil fund reforms and constitutional amendments support rating
KUALA LUMPUR: Malaysian ratings house RAM Ratings has reaffirmed Kazakhstan’s respective global and ASEAN-scale sovereign ratings of gBBB2(pi)/stable and seaAA3(pi)/stable, respectively.
The ratings remained anchored by the country’s ample reserves which provide significant fiscal flexibility.
The ratings also reflect a pick-up in growth following an increase in oil and gas sector activity and subsequent to the sudden change in domestic monetary policy in 2015, the effects of which are tapering off.
“That said, Kazakhstan’s fragile banking sector continues to weigh on its ratings,” it said in a report. “Fiscal reserves in the National Fund of the Republic of Kazakhstan (NFRK) amounted to 43.3 per cent of GDP as at end-2016 and remain larger than the Government’s debt burden of 25.7 per cent of GDP.
“The availability of sizeable reserves distinguishes Kazakhstan from immediate peers and anchors its ratings. In this regard, proposed amendments to the NFRK’s operational guidelines, including setting a minimum fund size of 30 per cent of GDP and reducing the guaranteed contribution to the state, will take effect in 2018.
“These are expected to improve the sustainability of the country’s fiscal reserves and are a positive development for its ratings.”
Meanwhile, Kazakhstan’s economy grew at a faster-than-anticipated pace of 1.0 per cent in 2016 on the back of a sizeable fiscal stimulus – equivalent to 3.7 per cent of GDP – despite weak global oil prices and significant currency depreciation.
RAM said growth is expected to accelerate to 2.7 per cent in 2017 following the commencement of operations in the Kashagan oil field and increased investments in existing fields.
Economic activity is also supported by an ongoing fiscal stimulus for housing development and a oneoff spike in tourism activity owing to Expo 2017, which the Kazakh capital will host, it added.
“That said, Kazakhstan’s banking system remains fragile and laden with debt,” it forewarned. “Non-performing loans (NPLs) are estimated at 40 per cent of total loans and have slowed banking sector activity. Notably, loans grew a marginal 0.3 per cent in 2016 compared to 11.1 per cent on average from 2011-2015.
“A recent fiscal recapitalisation of the country’s Problem Loan Fund, amounting to 4 per cent of GDP, is expected to pave the way for the consolidation of a troubled systemically important bank.
“However, a near-term revival of the banking system is unlikely due to a possible lack of institutional capacity, given the persistent nature of the system’s NPL issues.”
Elsewhere, RAM saw that amendments to Kazakhstan’s constitution, announced in February 2017, should improve institutional checks and balances.
While viewed positively, the im- pact in the near term will be limited as the close alignment between the various branches of government reduces the effectiveness of increased policy oversight.
“Kazakhstan’s ratings may be revised upwards if there is clear evidence of diversification away from the energy sector, which would make the country more resilient to oil-price shocks, without the use of reserves.
“Correspondingly, the ratings could come under pressure if banking sector fragilities cause severe and persistent deterioration in the country’s fiscal position or growth trajectory.”