FITCH INCREASED LONG-TERM RATING OF KAZAKHSTAN

/IRBIS, July 12, 01/ - According to REUTERS, FITCH rating agency increased long-term foreign exchange rating of Kazakhstan from "BB-" to "BB", domestics rating was unchanged on the "B". The outlook for all ratings is stable. The full text of FITCH release is presented below: LONDON, July 12 (Fitch) - Fitch, the international rating agency, has today upgraded the Sovereign ratings of the Republic of Kazakhstan. The Long- term foreign currency rating has been lifted to 'BB' from 'BB-' (BB Minus) and the Long-term local rating has been raised one notch to 'BB+'. The Short- term rating is affirmed at 'B', and the Outlook on the ratings is Stable. Credit developments during the past six months have been encouraging, building on the achievements of 2000 and allowing for considerable improvement in the country's economic fundamentals. Macroeconomic developments remain favourable as oil output has increased and prices remained firm, and while some fiscal deterioration is expected for 2001, the outlook for public finances is promising. The government continues to reduce its foreign debt exposure, while total public debt is forecast at a manageable 24% of GDP in 2001, well below the peer group average. The external debt- servicing burden over the coming years is comfortable, following a large early repayment of private obligations in 2000. Meanwhile, a fall in short-term external liabilities has raised the external liquidity ratio to a forecast 85% in 2001. The upgrade is supported by recent developments with the National Oil Fund (the Fund). Clear legal and investment guidelines have now been established, and the proceeds of the Fund have been invested abroad, thus bolstering the public sector's foreign assets and reducing net external debt. Approximately USD1bln had been channelled into the Fund by early July, and this should rise steadily through the rest of the year. The entire Fund will be invested abroad, but there is a function that may be used for future fiscal purposes, so it should also offer some support to public finances. The support function is triggered when oil prices fall below an indicative price. It will be important, however, for fiscal support from the Fund to be conducted in a prudent and transparent manner as set out in the legal and operational guidelines. Investment in the oil sector remains strong, and the discovery in 2000 of vast offshore oil reserves in the Kashagan field in the northern Caspian Sea has significantly improved medium-term prospects. Conservative estimates suggest that oil production could more than triple by 2005. This will guarantee sizeable future export revenues and should underpin solid foreign direct investment inflows for the foreseeable future. More immediate support should also be generated by the recent completion of the Caspian Pipeline Consortium (CPC) project. The pipeline will bolster Kazakhstan's oil export infrastructure, and should allow for sizeable increases in production/export volume. The probability of construction of the Baku-Tbilisi-Ceyhan (BTC) pipeline has also increased in recent months, which if successful, should benefit Kazakhstan. Despite these improvements, a number of factors still constrain the ratings. Further progress in broadening the tax base, reducing subsidies and accelerating the privatisation programme will be necessary in order to achieve fiscal sustainability over the medium term. The government has started to move on some of these issues, albeit slowly, and is now targeting corporate restructuring and privatisation. A new investment law is also under consideration. Economic diversification will also be necessary to reduce exposure to oil and gas price fluctuations. Greater transparency - both of data and policy implementation is also desirable, and further reductions in bureaucracy may be needed to support investment inflows into the non-oil sectors of the economy. Continued prudent and transparent management of the National Oil Fund is vital, while business-friendly changes to the legal and regulatory environment (outside oil and gas) are also necessary. (Moscow office of REUTERS +7 095 941 85 20/21, moscow.newsroom@reuters.com)