Baku, Azerbaijan, September 9
By Nargiz Sadikhova – Trend:
Fitch Ratings has affirmed Kazakhstan's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BBB' with a Stable Outlook, Trend reports with reference to the report of the agency.
“Kazakhstan's 'BBB' 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, and lower World Bank governance indicators and GDP per capita than the 'BBB' median and higher inflation than peers,” the report said. .
Fitch expects the general government budget to record a small surplus of 0.3 percent of GDP in 2019 from 2.6 percent in 2018 and to turn into a deficit in 2020-2021 reflecting lower forecast oil prices and a more expansionary fiscal stance in line with the government's policy priorities.
“Expenditure will rise by 1.4 pp of GDP in 2019, reflecting an increase in minimum and public sector wages and in social benefits, cut in personal income tax and adoption of a debt relief program for low income borrowers,” the report said.
Fitch views that the revised national budget for 2019-2021 and latest macro framework for 2020-2022 provide for a widening of the non-oil fiscal deficit to 7.4 percent of GDP.
“Transfers from the National Fund of Kazakhstan to the budget will be increased to 3.07 trillion tenge in 2019 and to 2.7 trillion tenge over 2020-2021, compared with a planned cut to 2 trillion tenge by 2020,” said in the report.
According to Fitch, the agreement signed between the government and the National Bank of Kazakhstan in March reiterates bank’s policy priorities of lowering inflation and preserving financial stability, but amends the reduction of the inflation target rate to 3-5 percent in 2022 from close to 4 percent by 2020 previously, and provides for liquidity support to the banking sector by the National Bank to foster financing of government economic projects and consumer credit.
“Inflation is projected at 5.7 percent in 2019, above the current 'BBB' median of 2.7 percent. We expect inflation to moderate to five percent in 2020 and 4.4 percent in 2021,” the statement said.
The Fitch further noted that Kazakhstan's sovereign external balance sheet remains a key rating strength with sovereign net foreign assets at 45 percent of GDP at end-2018, versus 2.6 percent percent for the 'BBB' median.
“We expect National Fund’s assets to reach $63 billion (33.3 percent of GDP) by 2021, from a forecast $58.5 billion (35.3 percent of GDP) in 2019. International reserves will recover to $32.2 billion in 2019,” Fitch noted.
Fitch expects the current account deficit to widen slightly to 0.5 percent of GDP in 2019 from zero in 2018.
“The deficit will widen further, to an average 0.8 percent of GDP in 2020-2021 as lower forecast oil prices weigh on export receipts and large investment in the energy and mining sectors put pressure on imports. However, a smaller trade surplus will partly be offset by a narrowing deficit on the primary income account as lower commodity prices lead to a smaller pay out,” the report said.
According to the agency, the economy grew at 4.1 percent in 1H2019, supported by solid growth in the manufacturing, construction and service sectors.
“We expect growth to reach 3.8 percent in 2019, compared with a five-year average of 2.9 percent and a current 'BBB' median of 3.3 percent, boosted by robust domestic demand, fostered by government social measures and infrastructure projects in the construction, housing and transportation sectors. Net exports contribution to growth will be lower in 2019 as oil production is dampened by maintenance work in the country major oil field and OPEC limits. Fitch forecasts a moderate acceleration in growth to 3.9 percent and 4 percent in 2020 and 2021, helped by the planned expansion of the Tengiz oil field,” the statement said.
(1 USD = 387.82 KZT on September 9)
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