* Fitch upgrades Kazakhstan to BBB, outlook positive
* Cites strong balance sheet, GDP growth, oil growth
* Second ratings upgrade for Kazakhstan in Nov
* Analyst forecast more upgrades possible
By Robin Paxton
ALMATY, Nov 21 Fitch Ratings upgraded Kazakhstan's sovereign credit rating to BBB on Monday, the second upgrade this month for Central Asia's largest economy, where expanding oil and metals production are creating a widening buffer against economic shocks.
The Fitch upgrade takes Kazakhstan's long-term rating a second notch into investment-grade territory and carries a positive outlook based on projected annual GDP growth of 6 percent until 2013. Analysts forecast another upgrade soon.
"Kazakhstan's sovereign balance sheet has strengthened, with sovereign net foreign assets affording a growing cushion against revenue shocks," Charles Seville, director in Fitch's sovereign team, said in a statement.
Kazakhstan's economy, at more than $150 billion, is the largest among the ex-Soviet republics of Central Asia. In 20 years of independence, the country has attracted more than $120 billion in foreign investment, mainly in the resources sector.
Fitch, which previously rated Kazakhstan BBB-, said the main risks came from commodity markets and uncertainty about who might eventually succeed long-time President Nursultan Nazarbayev.
Fitch expects the country's net foreign assets to reach 49 percent of gross domestic product by the end of 2013, up from 37 percent of GDP at the end of last year.
It forecast the government would record a budget surplus of 6-7 percent of GDP in the period from 2011 to 2013.
The Fitch upgrade moves Kazakhstan level with Russia and above troubled euro zone countries such as Portugal and Greece, which have skidded from A ratings since the euro debt crisis began two years ago.
It follows a Standard & Poor's upgrade on Nov. 7 to BBB+, three notches into investment-grade and above Russia's BBB.
"Unlike Russia, which drastically increased the government's expenditure appetite, Kazakhstan channels a bigger part of its oil revenues to the National Fund," said Julia Tsepliaeva, head of market economics for Russia and CIS at BNP Paribas.
She said the fund, replenished by windfall oil export revenues, was likely to continue growing by $10 billion to $15 billion annually in the medium term.
"The oil price threshold for Kazakhstan's budget is relatively low at $80 a barrel (of Brent crude) versus Russia's $125-126 a barrel," Tsepliaeva said. Brent crude is currently trading at nearly $107 a barrel.
Fitch said that "credible projections" for the expansion of mining and oil production in Kazakhstan underpinned one of the strongest growth outlooks among the major emerging markets.
Kazakhstan, four times the size of Texas, holds slightly more than 3 percent of the world's recoverable oil reserves and plans to raise crude output by more than 60 percent to 132 million tonnes by 2020.
The country of 16.6 million people also has ambitious plans to more than double gold output by 2015, while copper miner Kazakhmys is planning to bring large new deposits into production in the middle of this decade.
Moody's is now alone among the three main ratings agencies in leaving Kazakhstan's status unchanged this year.
Moody's, which declined to comment on its future plans, currently rates Kazakhstan Baa2, also two notches into investment grade, with a stable outlook. Its rating was last revised in April 2010.
Grigory Marchenko, the outspoken central bank governor, said after the S&P upgrade that Kazakhstan deserved an A-grade, citing the $42 billion National Fund that dwarfs external debt of less than $4.5 billion.
"We expect the new upgrade to BBB+ coming soon," said Tsepliaeva at BNP Paribas. "A further rating upgrade to A-club is likely to take more time."
Yevgeny Popov, asset management department director at Troika Dialog, said the upgrade would increase investor confidence in Kazakhstan at a time when markets elsewhere were coming under pressure.
"If Kazakhstan can preserve the policies that have taken it to this point, there's every chance that agencies might look at raising its rating further given time. The conditions are there," Popov said.
Fitch said that further strengthening of the sovereign and external balance sheets, as well a "major clean-up" of the banking sector, might also trigger another upgrade.
The agency said the Kazakh economy should be "relatively resilient to slower growth in major advanced economies". The main risk, it said, was from a severe downturn in commodity prices or external demand.
Other risks include the succession to 71-year-old Nazarbayev, the only leader independent Kazakhstan has ever known, or some other "domestic or regional political shock".
Kazakhstan will hold snap parliamentary elections on Jan. 15-16 that will dilute the monopoly of the ruling Nur Otan party in the docile legislature. (Reporting By Robin Paxton; Editing by Ruth Pitchford)