World Economy

Kazak GDP to Shrink by 1%

Kazak GDP to Shrink by 1%Kazak GDP to Shrink by 1%

Kazakhstan’s credit grade was cut one level by Fitch Ratings, which cited the effect of depressed oil prices on Central Asia’s biggest energy exporter’s economy.

Fitch cut Kazakhstan to BBB, its second-lowest investment grade, from BBB+, according to a statement on Friday. That marked the country’s third downgrade in three months after the Kazakh tenge plummeted to a record low in January amid slumping oil prices. The nation’s economy will probably contract by 1% in 2016, the ratings firm said, Bloomberg reported.

“Buffers are being drawn down to finance wider fiscal deficits,” Fitch analysts including Carmen Altenkirch and Richard Grieveson said.

The government’s off-balance sheet funding of infrastructure investments through the nation’s oil fund means the budget deficit widened sharply to 5% of gross domestic product in 2015 compared with a surplus of 3.5% over prior five years, they said.

Kazakhstan, the second-largest energy producer in the former Soviet Union, is grappling with a slump in the tenge and oil selling for half its five-year average and currency weakness in neighboring Russia and China. While the tenge pulled back from its January low, the Kazakh economy has been pummeled by the drop in commodities, which account for 90% of its revenue.

Fitch expects the national oil fund reserves to fall to around $59 billion by year-end from $63.5 billion in 2015. Moody’s Investors Service reduced the country’s rating to Baa3 on April 22, its lowest investment grade rating. S&P Global Ratings lowered to BBB- on Feb. 17, also one step above junk.