Kazakhstan's Credit Rating Maintained with a Positive Perspective despite Fiscal Pressure, according to S&P
Kazakhstan Maintains Stable Sovereign Credit Rating Despite Fiscal Pressures
ASTANA - Despite rising fiscal pressures, S&P Global Ratings has affirmed Kazakhstan's long-term sovereign credit rating at 'BBB-' and short-term rating at 'A-3,' with a stable outlook.
According to a statement issued on February 21, the rating reflects Kazakhstan's robust fiscal and external balance sheets. Analysts explained that these factors provide a strong cushion against external shocks.
Despite the positive outlook, S&P cautioned about potential risks due to rising domestic debt and the reliance on the National Fund to plug budget gaps. The fund, established in 2000 to accumulate windfall hydrocarbon revenues, could strain the country's fiscal framework over the medium term.
Notably, the agency foresees net government debt reaching 12% of GDP by 2028, a significant increase from a nearly net asset position in 2022. However, the government plans to implement additional limits on the fiscal usage of the National Fund funds from 2026, which may mitigate these concerns.
Analysts project Kazakhstan's economy remained resilient in 2024, driven by higher government spending. The GDP growth is forecasted to reach 4.9% in 2025, buoyed by ongoing fiscal expansion and increased oil production from the Tengiz oil field.
OPEC+ production quotas are not expected to significantly impact total oil production. The authorities estimate that production could reach 96 million tons per year in 2025 and 106 million tons in 2027, up from nearly 88 million in 2024.
However, the article notes hydrocarbons remain a cornerstone of the economy, accounting for nearly 20% of GDP, over 30% of government revenue, and more than half of exports. The vulnerabilities associated with this dependence include fluctuating oil prices and geopolitical complexities surrounding Kazakhstan's primary oil export route, the Caspian Pipeline Consortium (CPC).
S&P highlights the reliance on the CPC pipeline, which channels 80% of Kazakhstan's oil exports through Russia to European markets, as a critical vulnerability. While efforts to diversify export routes are underway via the Baku-Tbilisi-Ceyhan (BTC) pipeline, volumes remain limited, and logistical challenges persist.
In addition, disruptions to the CPC pipeline, such as those caused by recent drone attacks, could pose some risks to targeted oil production and export volumes for the year.
Medium-term growth prospects will likely moderate after 2025, with domestic demand and investment expected to soften as government spending growth slows. The government plans to diversify the economy through the National Infrastructure Plan, focusing on projects in the utilities, transport, water supply, and waste-water sectors.
Revenue shortfalls in 2024 caused by weaker oil prices, widespread tax exemptions, and weak budgetary forecasting have resulted in widened fiscal deficits. The agency estimates the general government deficit reached 4.3% of GDP in 2024, surpassing the official figure of 2.7% due to the exclusion of National Fund transfers from revenue calculations.
To compensate for tax revenue shortfalls, the National Fund of Kazakhstan provided one-time exceptional transfers to the government, channeled through dividends from Samruk Kazyna, the sovereign wealth fund. This was in addition to guaranteed and targeted transfers in the budget.
The Kazakhstan fiscal path over the medium term will depend on the effective implementation of fiscal rules. The government aims to reduce the fiscal deficit to 3.7% over 2025-2028 by lowering spending growth, broadening the tax base, and limiting additional National Fund transfers. The government plans measures to abolish exceptional transfers from the National Fund and limit the size of targeted transfers, in addition to current limits on guaranteed transfers.
The stable credit rating of Kazakhstan, despite fiscal pressures, is attributed to its robust fiscal and external balance sheets in the industry, which provide a strong cushion against external shocks. Analysts project Kazakhstan's economy will remain resilient in the coming years, with business expansion expected in various sectors, including utilities, transport, water supply, and waste-water, thanks to the National Infrastructure Plan. However, the vulnerabilities associated with Kazakhstan's economy relying heavily on hydrocarbons and the CPC pipeline pose potential risks in the finance sector, particularly if oil prices fluctuate significantly or disruptions to the CPC pipeline occur.
