Azerbaijan retained a "garbage" rating

Baku / 29.07.17 / Turan: Standard & Poor's once again confirmed long-term and short-term sovereign credit ratings of Azerbaijan in national and foreign currency at "BB + / B" level. Thus, the country's rating again turned out to be lower than the investment level, meaning a "junk" rating.

"This negative outlook, mainly, reflects the risks of weakening Azerbaijan's positions in foreign markets in comparison with the agency's baseline scenario," the S & P report says.

The country's rating is affected by the pressure on the country's balance of payments and if such pressure does not weaken, it will lead to a reduction in the reserves of the Central Bank or the State Oil Fund (SOFAZ). S & P may revise the outlook to "stable" if the pressure on the balance of payments decreases on the background of improving prospects for the country's economic growth and the situation in the banking system.

"Our ratings for Azerbaijan are mainly supported by the country's strong fiscal position and the reserves accumulated in SOFAZ. Ratings are constrained by weak institutional efficiency, narrow and concentrated economic base and limited flexibility of monetary policy," the agency reports.

S & P Global Ratings recommends the Azerbaijani government accelerate the implementation of structural reforms to diversify the economy.

"Azerbaijan's economic prospects are highly dependent on oil prices. In addition, economic prospects depend on the plans of the country's authorities to carry out reforms, including improving the business environment. The ultimate goal of these reforms should be to diversify the country's economy," the agency says.

Prior to the "junk" level, Azerbaijan slipped back at the beginning of last year, right after the second devaluation of the manat, when the national currency depreciated against the dollar by almost 50% and the domestic banking system was covered by a wave of non-payments.

S & P reports that the decline in the country's rating is due to the state of the budget still largely dependent on oil revenues and oil price forecasts. About 40% of the country's GDP and almost 95% of its exports falls on hydrocarbons.

It is depressing that investments in the fields were reduced and oil production declined, which affected both the volume of exports and state revenues. Moreover, against the backdrop of the economic crisis, last year's GDP "fell" by 3.8% in relation to the indicator of 2015, amounting to 59 billion 987.7 million manat. By the way, this decrease was almost four times higher than the forecast of 1%, as was announced by optimistic members of the government at the time. The country's GDP per capita in dollar terms, according to analysts of the rating agency, declined almost twice: from $ 8,000 to $ 4,100. Inflation at the same time increased to 12.4% in 2016 against the average inflation rate of 2% in 2012-2015.

However, the forecasts for the current year are not so rosy either. According to World Bank experts, GDP in Azerbaijan in 2017 will decrease by 1.4%, and in 2018 it will grow by 0.6%. Such dynamics are facilitated by negative processes taking place in the banking system, tight monetary policy and other factors.

As the economist Azer Mehdiyev told Turan, S & P's assessment expresses the objective situation in the Azerbaijani economy, in which the recession continues. Important macroeconomic indicators of the country are in the red. The government is taking desperate steps to stabilize the situation in the economy. The main focus is on the development of the non-oil sector - tourism, agriculture and the pharmaceutical industry. But the formation of these areas requires huge investments and a certain amount of time. Therefore, the situation in the country may stabilize in the next year or two, or even more, and then there will be moderate growth.

"The continuing fall in oil prices pulls the economy of Azerbaijan down. Until oil ceases to play a dominant role in the formation of the treasury of the state, until the non-oil sector becomes an alternative to raw materials, the crisis will continue. Monopoly and corruption are still unresolved problems, which hamper business and efforts to create a competitive economy. According to the forecasts of international experts, the economic situation in Azerbaijan is unlikely to improve soon," Mehdiyev says. -0---