Moody bullish on Kazakhstan despite credit boom

Kazakhstan's strong economy and public finances are sufficient to insure against surging foreign borrowing by banks and a property bubble, Moody's Investors Service said on Tuesday. In its annual report on the largest Central Asian state, Moody's said Kazakhstan's investment grade debt rating was justified by rapid economic growth, expanding oil exports and solid public finances.
Moody's has a Baa2 rating on Kazakhstan's foreign currency debt with a stable outlook. Lead analyst Jonathan Schiffer also told Reuters in an interview that concerns over the succession to President Nursultan Nazarbayev - who has been in power since Soviet times and has a mandate to rule until 2012 - should not be overdone.
Kazakhstan's total foreign debt surged to $73 billion, or 91 percent of gross domestic product at the end of 2006, from 76 percent a year earlier. Most of that has come from borrowing by second- and third-tier commercial banks, Moody's noted.
But from a macro perspective the borrowing spree does not threaten Kazakhstan's stability, as the state is virtually free of foreign debt and has built up a safety buffer by collecting windfall revenues in its National Oil Fund. "They have so much money that they could bail out all six of their top banks," Schiffer said by telephone from New York. Kazakhstan's central bank reserves totalled $21.4 billion at the latest count. But, including the National Oil Fund in that figure, its international reserves rise to $40 billion - or 50 percent of last year's GDP.
Kazakhstan's authorities have tried to crack down on foreign borrowing by banks, which have issued a raft of Eurobonds, but so far to little avail. Schiffer said the situation should correct itself if inflation cools, helping reduce the incentive for banks to seek cheaper funding abroad. Inflation rose last year to 8.6 percent from 7.6 percent in 2005.
But he also called a massive credit expansion, in particular to finance a real estate boom in the capital Astana and financial hub Almaty, the "major medium-term challenge" facing policy makers.
Addressing politics, Schiffer said Kazakhstan was stable but challenged descriptions of Nazarbayev's rule as authoritarian. "I've never thought that Kazakhstan is ruled by one person," he said. "I know he (Nazarbayev) doesn't intervene in economic policy unless and until there is a stalemate."
The opposition is poorly organised and lacks a social base in Kazakhstan, a country the size of western Europe whose 15.4 million population is largely rural and politically inactive, he added.