ACRA: rating of Kazakhstan

Kazakhstan emerged from the year of crisis with a moderate increase in public debt compared to many developed and emerging economies, an achievement made possible by its substantial buffer in the form of assets accumulated by the National Fund of the Republic of Kazakhstan (NFRK). In 2020, the policy of the National Bank of Kazakhstan (NBK) helped maintain lending to the economy and allowed the country to avoid a speed-up in inflation.

Kazakhstan’s credit rating is based on a relatively high level of economic wealth, moderate public debt, a reduced but still significant amount of liquid assets in the NFRK, and a sufficient amount of international reserves. The rating is constrained by the economy’s dependence on oil prices, a low level of export diversification, the risk of contingent liabilities materializing, and the poor quality of government institutions.

After GDP declined by 2.6% in 2020 (according to the Kazakh government’s preliminary data), ACRA expects Kazakhstan’s economic growth to recover to 3.8% in 2021. This recovery should be driven by higher oil prices, oil production gradually returning to it pre-crisis level, and a steady easing of the quarantine regime. The risks in this scenario are potential further waves of the coronavirus and a slow rate of vaccination of the population.

The continued dependence of the industrial sector, exports, and the country’s economy on mining firms reduces Kazakhstan’s economic resilience to external shocks, given this sector’s significant focus on exports and dependency on external prices. A considerable increase in economic diversification in the near future is unlikely as the lion’s share of investments are made in the oil and gas sector. From 2009 to 2020, this sector of the economy was the recipient of 36% of all direct investments on average per year.

ACRA expects inflation to return to the NBK’s target corridor of 4–6% in 2021. This will happen due to reduced pressure on the national currency as a result of higher oil prices and the exhaustion of the effect of the 2020 inflationary shock. Last year, the tenge depreciated by 8% on average against the US dollar, which was considerably lower than in the previous crisis (54% in 2016). A serious depreciation of the tenge was avoided in 2020 due to the NBK’s floating exchange rate policy, which it introduced in 2015, and also thanks to currency interventions by the NBK and an increase in the base interest rate by 2.75 percentage points to 12% in March 2020 and its subsequent reduction to 9% in July. ACRA assesses the NBK’s monetary policy measures as adequate in times of high uncertainty.

The Agency’s more positive forecast is related to ACRA’s higher oil price expectations for 2021.