MOODY'S UP KAZAKHSTAN'S FOREIGN CURRENCY BONDS TO BAA3

/REUTERS, London, September 19, 02, the following statement was released by the ratings agency/ - Moody's Investors Service today upgraded Kazakhstan's foreign currency ceiling for bonds and the rating of the government's foreign currency bonds to Baa3 from Ba2. Simultaneously, the credit rating agency upgraded the ceiling for foreign currency bank deposits in Kazakhstan to Ba1. The rating for the government's long-term local currency instruments has been raised to Baa1. All ratings have a "stable" outlook. Powered by its energy and non-ferrous metallurgy sectors, Kazakhstan is experiencing a surge of foreign direct investment and export growth, leading to strengthening of foreign currency reserves. Construction of new pipelines will dramatically improve market access for gas/oil exports such that volume growth in the medium-to-long term will more than compensate for price volatility. The economy will eventually diversify into pipeline and machinery production for the oil/gas and non-ferrous metallurgy sectors, followed by development of food processing and machinery for construction/infrastructure. Commodity prices, structural reforms in fiscal policy, and improved collection abilities have expanded budget revenues. Non-oil tax receipts are buoyant; there is a significant budget surplus (part of which is siphoned off into a "rainy day" National Fund for the Republic of Kazakhstan to fill any potential future budget deficits); a comprehensive pension reform has passed its difficult transition years (1998-1999) and with private pension funds expanding rapidly, local capital markets are developing well. The banking system is small but stable, with a deposit insurance scheme in place. Positive economic developments are supported by a stable political elite (of Kazakhs and Russians) that exhibits a united approach to orthodox fiscal and monetary policies and a desire to minimize currency appreciation to maintain competitiveness vis-a-vis Russia, the country's major competitor on export markets. Debt and debt servicing ratios are low. The country's geopolitical status is a positive factor in assessing its creditworthiness. Over the medium-to-long term, Moody's will monitor: 1. the country's progress on privatization of state assets and the development of an appropriate business environment to encourage continued foreign investment; 2. the ability of economic policy makers to withstand currency appreciation and the associated "Dutch disease" phenomenon; and 3. the government's approach to the growth of regional and income inequalities and the resultant pressures for greater social welfare payments that often characterize economic growth in raw material-based economies. (London Capital Markets +44 20 7542 7970, fax +44 20 7542 5285, jon.laycock@reuters.com) [2002-09-19]