S&P affirmed Kazakhstan's long- and short-term foreign and local currency ratings at BBB+/A-2. The outlook is stable. At the same time, S&P affirmed long-term national scale rating at kzAAA.The ratings are supported by the country's strong fiscal and external surpluses and above-average GDP per capita growth generating by natural resources deposits development. S&P noted that the rating is supported by the government's net asset position.
On the other side, the ratings remain constrained by political risks which stem from centralised political environment and little clarity about presidential succession. The other factor is limited monetary policy flexibility as well as moderate level of economic development and the high dependence on oil. Besides, S&P estimated GDP per capita to reach USD 13,000 this year while long-term GDP growth is seen at 4.4% y/y in 2007-2016. Downside risks are related to weaker external demand and lower oil prices.
The agency also noted that fiscal balance sheet of Kazakhstan remains strong. S&P also positively assesses the government's plans to transfer a limited sum from the National Oil Fund to the budget as the fund is seen as an important fiscal buffer against external shocks possibly stemming from changes on commodity prices.
S&P also commented on the ongoing reform of pension system. The agency considers that the government's plan to consolidate and nationalise private pension funds under the management of National Bank of Kazakhstan could hamper capital market developments. The reform was also criticised by the head of NBK Grigory Marchenko and there are rumours on the market that the issue became a bone of contention between him and the government and President Nursultan Nazarbayev who ordered the reform.
In terms of political system on the economy, S&P considers that under the current state-dominated economic and political environment, there are limited prospects for significant economic diversification and the economy's dependence on oil will remain high. At the same time, however the agency noted that the stable outlook on the ratings remain that the risks are balanced. The agency will consider possible upgrade of the rating if the political environment improved such threat policymaking became more transparent and predictable and the political institutional framework strengthened. More aggressive reform and diversification agenda as well as efforts to increase monetary policy flexibility will also have positive impact on the ratings.
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