BAKU

The international rating agency S&P Global Ratings has affirmed Azerbaijan’s long-term and short-term sovereign credit ratings in foreign and national currencies at ‘BB+’, keeping the outlook ‘Stable’.

“The stable outlook indicates that we expect the ceasefire agreement between Azerbaijan, Armenia, and Russia will continue to broadly hold, while favourable hydrocarbon prices and rising gas exports will support Azerbaijan’s fiscal and balance of payments positions over the next 12 months,” the agency said in a report.

S&P projected economic growth in Azerbaijan at 2.7 percent in 2022.

Nevertheless, oil fields are ageing, and oil production is on a declining trend, which new gas exports are unlikely to fully offset. Over the medium to long term, this could weigh on Azerbaijan’s growth, fiscal, and balance of payments performance. Significant liquid assets, accumulated within the sovereign wealth fund SOFAZ, partially mitigate the risks, the agency said.

S&P considered Azerbaijan’s fiscal and external stock positions to be among the strongest in the ‘BB’ category. The government has accumulated substantial liquid assets, mainly within the sovereign wealth fund SOFAZ.

“We forecast that the government will have access to liquid assets of close to 70 percent of gross domestic product (GDP) through 2025, and that general government debt will remain below 30 percent of GDP,” it said. “Currently, favourable oil prices also support Azerbaijan’s fiscal and balance of payments profiles.”

S&P said that its ratings on Azerbaijan remained constrained by weak institutional effectiveness, the country’s narrow and concentrated economic base, and limited monetary policy flexibility.

As for the economic growth, the agency said that medium-term growth prospects were weaker as oil production was declining due to ageing oil fields, while rising gas exports would likely only partially offset this trend.

“We forecast average annual growth at a modest 1.3% over 2023-2025,” it said.

Azerbaijan’s institutional environment remains relatively weak and political power is centralized around the presidential administration.

Azerbaijan’s economy depends significantly on the hydrocarbon sector, which is currently benefiting from favourable global oil prices.

In January 2021, S&P Global Ratings revised its outlook on Azerbaijan to stable from negative.