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Moody’s Assigns Ba1 Issuer Ratings to City of Almaty

January 12, 2005 | Reuters

Moody's has assigned first time domestic and foreign currency issuer ratings of Ba1, with positive outlook, to the City of Almaty. The ratings are supported by the city's economic strength, good budgetary performance and low debt profile. They also reflect very limited revenue and expenditure autonomy, exposure to confiscatory withdrawals by the central government, and an infrastructure development plan which they only began to implement and which may give rise to long-term liabilities. The positive outlook is based on the city's close financial ties to the central government and Moody's positive outlook on the country.
The City of Almaty benefits from a stable political leadership and enjoys close relations with the national administration. Its economic composition and strength are comparable to those of other major cities in the Commonwealth of Independent States (CIS). Almaty is a net contributor to Kazakhstan's national budget, accounting for over 20% of the country's treasury receipts. The City also boasts a strong and diversified gross regional product (GRP) which has grown rapidly, at an average of 20% over the past three years, and is dominated by trade and services. "Moreover, Almaty has implemented policies to stimulate the creation of small- and medium-sized enterprises (SMEs), accounting for approximately one-third of the national total registered within Kazakhstan," Trabocco adds.

Moody's also observes that positive demographic indicators bolster Almaty's economic dynamism. Its status as a major business and cultural capital has resulted in positive net migration over recent years, attracting over 15,000 new residents in 2003, thus distinguishing the City from many of its regional peers which face net outmigration and ageing populations.

At the same time Almaty exhibits a high degree of revenue and expenditure rigidity, stemming from controls exercised by the central government. Moody's notes that the central government has the power to withdraw substantial sums from the City budget through a fiscal equalization mechanism (although experience shows that the City has retained very strong balances). Moreover, the infrastructure development plans could give rise to long-term borrowing-related liabilities. This plan includes the development of Almaty's energy generation capabilities and its public transportation system -- including regional and international air and rail links.

The rating agency also notes that, although relocation of the central government operations to the City of Astana has not significantly diminished Almaty's profile as Kazakhstan's first city, Almaty's administration believes that it must continue developing in order to maintain and solidify this status as Astana progresses along its own growth trajectory, thus increasingly competing for investment.
The City of Almaty is the former capital of the Republic of Kazakhstan but remains the country's strongest urban area and the main cultural and commercial centre of Kazakhstan. With a population of 1.1 million (or approximately 7% of the national population), the City generates approximately 20% of Kazakhstan's GDP.


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