Fitch affirms stable outlook on Kazakhstan’s foreign exchange market
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Fitch Ratings has affirmed Kazakhstan's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BBB' with a Stable Outlook.
“Kazakhstan's IDRs balance strong public and external balance sheets, underpinned by large government savings and a substantial sovereign net foreign asset position, against high commodity dependence, a weak banking sector, weak governance indicators and higher inflation compared with 'BBB' peers,” Fitch Ratings said in a message.
The adjustment of the country’s economy to the oil price shock of recent years continues, facilitated by greater exchange rate flexibility, monetary policy reforms, continued restructuring of the banking sector and fiscal stimulus, according to the agency.
“Kazakhstan’s real GDP growth rebounded to 4 percent in 2017, largely reflecting rising oil production as the Kashagan oil field production resumed. Economic diversification and promotion of the private sector remain high on the authorities' agenda, but Fitch sees diversification as a medium-term prospect. In the meantime, and given the expected rise in output in 2018-2022 associated with Kashagan and the Tengiz oil field expansion, commodity dependence will remain a weakness of Kazakhstan's sovereign credit profile,” the message said.
“This reflects the gradual strengthening of the central bank's monetary policy framework, but also a supportive oil price and production environment,” said the report.
Transmission channels of Kazakhstan’s monetary policy remain constrained given the level of dollarization and the weakness of banks' balance sheets, and the commitment to a floating exchange rate and inflation targeting policy remains to be tested if oil price volatility resumes.
Public finances remain a rating strength, despite the widening of the general government deficit to 6.6 percent of GDP in 2017, according to Fitch's estimates, as the recapitalization of Kazkommertsbank (KKB) absorbed around 4 percent of GDP.
Fitch projects the 2018 budget deficit to contract to around 2.2 percent of GDP (broadly in line with the 'BBB' median) as the Nurly Zhol stimulus program is phased out, and spending is constrained by the implementation of a new fiscal rule.
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