Moody's published comments to credit ratings of capital of Kazakhstan

/IRBIS, July 12.07.02, REUTERS and Moody's Investors Service release/ - On July 11 international rating agency Moody's Investors Service published its comments to credit ratings of the capital of Kazakhstan - Astana city, made within the framework of annual review and shown by REUTERS agency. It is said in the comments that Astana rating as an issuer - "Ba3" with stable outlook - reflects the low level of indebtedness of the city, higher share of tax collections relative to other regions of Kazakhstan, high level of Government control over local executive bodies of republic, and also priorities received by Astana as Kazakhstan capital. However, rating also considers limited internal economic base of Astana, changeability of revenues structure of the city and continuous development system of local executive authorities, where the capital is functioning, believe Moody's experts. Decision about moving the national capital to Astana, which was put into force in October 1997, made significant changes into development of city economy due to both President initiative and private sector development process. "However, economic base of the city remain limited and is based on food industry and public utilities offering", - explains Elizabeth Rudman, Vice-president, Chief analyst and co-author of Moody's report. At the same time, one of the main achievements of the city became a growth of small and medium enterprises, as well as construction industry. "New status of Astana leaded to quick population growth, which required increase of volumes of lodging construction, building of scholls and hospitals, and caused expanding of tax base", - writes Moody's. Priority financing from the side of the state and investment flow direction to Astana allowed the city to avoid large increase of external debt volume. Revenues structure of Astana underwent a change last years, which is typical for all Kazakhstan regions. Moody's accents on insufficient stability of financial flows and high possibility of changes in executive authorities staff of the city. "However, the city has an advantage, that is it has a possibility to preserve large share of tax inflows relative to other regions, through concentration of the city financing as the capital of the state," - said Dmitry Popov, Senior officer and co-author of Moody's report. In spite of these advantages, a possibility of Astana for tax-raising remains limited due to not flexible system of tax rates, added he. Below is the original text of the REUTERS announcement in English. NEW YORK, July 11 - The City of Astana's Ba3 issuer rating, with stable outlook, reflects the city's low debt levels, a larger share of tax revenues than other regions, the high level of central oversight of local governments in Kazakhstan and the priority given to the city's development as the country's capital, Moody's Investors Service says in a new municipal credit report. However, the rating also takes into account Astana's limited local economic base, the frequent changes in the city's revenue structure and the continually evolving local government system in which it operates, Moody's adds. The decision to transfer the national capital to Astana, which took formal effect in October 1997, prompted significant changes in the city's economic development, both as a result of initiatives driven by the president and from follow-on growth in the private sector. "However, the city's economic base remains relatively limited, with its core industrial output stemming from food processing and utilities," explains Elisabeth Rudman, Vice President/Senior Analyst and a co-author of the report. Nonetheless, one major development has been the growth in small- and medium-sized enterprises, as well as in the construction sector. Astana's new status has also prompted rapid population growth, leading to an increase in requirements for housing, schools and hospitals, but also in the city's tax base, Moody's notes. However, various central government-financed priority development plans have met all necessary costs, with the high levels of investment limiting the city's requirements for raising external debt. As with all Kazakh regions, Astana's revenue structure has undergone several changes in recent years. Moody's views this lack of funding stability as a weakness of the system and notes that further changes to the local government system are also possible. "However, the city has benefited from being able to retain a higher proportion of tax revenues than other regions due to the focus on funding its development as the country's capital," says Dimitri Popov, Senior Associate and co-author. Despite this advantage, Astana's tax-raising ability remains limited and it has no flexibility as regards setting rates, he adds. The City of Astana is located in northern Kazakhstan. It has an estimated population of around 500,000 and has been the Kazakh capital since 1997. The issuance of this credit report by Moody's Investors Service is an annual update to the markets and is not a formal action to alter the credit rating of the issuer. [2002-07-12]