Fitch Upgrades Kazakhstan to 'BBB-'

The short-term foreign currency rating has been upgraded to 'F3' from 'B' and the Long-term local currency rating upgraded to 'BBB' from 'BBB-' (BBB minus). The Outlook on the Long-term ratings is stable.

The improvement in Kazakhstan's creditworthiness is underpinned by the development of its oil and gas sector and the spill-over of high oil prices. The economy is on track to record its fifth consecutive year of GDP growth above 9% and the authorities continue to manage oil revenues prudently.

Although social spending has increased, the consolidated general government fiscal position (including the National Fund) remains in surplus and the bulk of the oil windfall is being saved in the National Fund. Indeed, by the end of 2004, Fitch estimates that the Fund will hold more than USD5 billion, or 13.1% of GDP.

Government debt is low at 13.5% of GDP and the public sector has a net external creditor position equivalent to 24% of GDP. Gross external debt for the country as a whole is relatively high but more than 50% of the debt is inter-company liabilities related to oil and gas projects.

Despite efforts to encourage economic diversification, and a relatively strong performance by the non-oil sector in recent years, the fast growth of the hydrocarbons sector has ensured that it continues to dominate the economy. As such, Kazakhstan remains exposed to a sharp fall in oil prices. However, this is not an event that Fitch currently judges as likely over the near term and, even if an unexpected oil price adjustment did occur, the economy and the country's public finances are in a stronger position to cope with this sort of pressure now than at any time in the past.

Translated by Nataliya Shirinskikh