Azerbaijan, Baku, Aug. 22 / Trend E. Kosolapova/
Moody's Investors Service has changed the outlook on the Baa3 long-term issuer rating of the City of Astana in Kazakhstan to positive from stable. At the same time, Moody's also affirmed the rating.
The change of outlook follows the positive outlook assigned to Kazakhstan's Baa2 government bond rating and reflects the financial, economic and institutional linkages between the sovereign and sub-sovereign entities in the country.
The outlook change is also supported by the city's improving operating margins and financing surpluses, which are based on its dynamic and diversified economy. Astana´s low debt burden is an additional credit-positive factor supporting its rating.
Moody's notes that Astana's budgetary results for 2012 fiscal year are supportive for the rating levels. The city posted a strong operating surplus of around 21 percent of operating revenues in 2012 (2011: 22 percent), while its financing surplus remained at around 1 percent of total revenue. Astana's buoyant economic prospects -- with anticipated 6.5 percent economic growth in 2013 (estimated 2012: 7.9 percent) -- and stable fiscal framework provide solid foundations for sound municipal finances going forward. Noteworthy, the city's stable fiscal position is supported by the central government's substantial investment in the city's infrastructure projects, thanks to the city's status as Kazakhstan's capital.
The city's debt ratio remained modest and declined to 17.2 percent in 2012 from 23.3 percent in 2011. Its debt fully consists of interest-free loans that the central government provided to help improve Astana´s housing infrastructure. Given that the city is not planning to incur any market debt in the medium term, the debt will remain modest and intrinsically simple, with very limited refinancing risks.
Upward movement in Kazakhstan's government bond rating would be considered credit positive for Astana's issuer rating. Favourable changes in the tight national institutional framework towards greater fiscal autonomy for Astana, if coupled with its consistently strong operating balances and moderate debt burden, could also exert upward pressure on the rating.
Although unlikely, the ratings could come under downward pressure following adverse changes in Astana's fiscal policy towards high financing deficits and rapidly growing market debt. Any negative change in Kazakhstan's ratings would also be considered credit negative.
Astana is Kazakhstan's capital city and located in central Kazakhstan. Astana's population is around 800,000 and, according to the latest estimates, could exceed 900,000 by 2017. The city's gross regional product (GRP) is around 9 percent of national GDP. The city's economy is dominated by the trade and services sector and construction, while industrial production only represents a minor part of the city's GRP. Around 55 percent of the city's GRP is produced by small and medium enterprises, making the GRP structure diversified.