RAM Ratings: Kazakhstan and DBK ratings not impacted by cross-border restrictions

Published on 24 March 2015

Recent decisions by the government of Kazakhstan to introduce a temporary ban on fuel imports from Russia and restrict certain forex transactions will not impact the rating of the sovereign, nor that of the Development Bank of Kazakhstan Joint-Stock Company (DBK). Though transferability and convertibility risk in our view has edged up, it still remains within our tolerable threshold. Increased clampdowns on cross-border capital movements are viewed to be unlikely, but RAM will monitor any further developments. Kazakhstan’s gBBB2(pi)/Stable global rating and AA2(pi)/Stable ratings on RAM’s ASEAN and Malaysia rating scales continue to be supported by its excellent government balance sheet and FDI inflows, which counterbalances soft crude oil prices and a moderation in economic activity. The DBK’s Sukuk Murabahah Programme of up to RM1.5 billion is equated to the sovereign’s rating, and hence also carries an AA2/Stable Malaysia–scale rating.

Government debt inched up minimally from 12.5% of GDP in 2013 to 14.8% in 2014, while the National Oil Fund – the government’s strongest buffer against shocks to the fiscal balance – grew from 36% of GDP to 43% in the same period. FDI inflows into the oil and gas sector also reached record highs in 2014, which will help soften the impact of falling crude oil prices on industrial activity and the current account.

Following official comments refuting reports that the government was planning to limit Russian imports, it announced a ban on fuel imports for 45 days beginning March 5th, citing the need to regulate demand which had jumped in early 2015 due to the continued decline of the ruble. The impact on private consumption should be muted, given that fuel prices are capped and regulated. Furthermore, the relative strength of the tenge vis-à-vis the ruble raises the purchasing power of the former, and will help reduce inflation, which had reached 7.5% in January 2015. On a related note, export trends point to a loss in price competitiveness against Russia, particularly with regard to trade with China – Kazakh oil exports saw a sharper decline in real terms in 2014, compared to Russian oil exports.

Meanwhile, dollarisation had jumped from 44% of total deposits in January 2014 to 65% in January 2015, indicating that the government’s year-old de-dollarisation initiative had not yielded the desired results. In a bid to stymie the increase in dollarization as well as to curb speculative activities, Samruk Kazyna – Kazakhstan’s sovereign wealth fund – had issued a directive to its subsidiaries to avoid forex transactions unless absolutely necessary. The loss of confidence in the tenge was largely driven by fears of a third round of devaluation in 6 years – which had proven to be unfounded. Banks had hedged against such an event, and this coupled with depositors’ preference for the dollar over the tenge, had created an artificially high demand for the USD. The central bank has attempted to allay fears by providing an assurance that there would not be a sharp devaluation in the currency, a statement that is supported by the continued inflow of FDI to the oil sector, which had lifted foreign reserves from 10% of GDP in 2013 to 13% in 2014.

Media contact
Barry Ooi
(603) 7628 1106
barry@ram.com.my