Standard & Poors: Forecast Long-term Credit Rating of Azerbaijan Negative

The international rating agency Standard & Poors has confirmed the long-term credit rating of Azerbaijan at the level «BBB-», with a negative outlook.

As stated in the press release structure, the country's rating is supported by its strong external positions - so that the assets of the State Oil Fund (SOFAZ) are in excess of $ 35 billion (approximately 60% of GDP projected for this year). The agency notes the relatively weak institutional effectiveness and limited monetary flexibility, which is tied to the February devaluation of the manat, results in a rapid growth of dollarization of the local economy.

The country's economy, dependent on trade in hydrocarbons (about 40% of GDP and 95% of exports in 2013-2014), is suffering from a significant reduction in world oil prices. By the way, the agency has reasons to believe that oil production will be reduced by 1-2% per year, which, in turn, will lead to a decrease in exports.

According S & P, the Central Bank of Azerbaijan, given the small volume of the banking sector and the capital market, will continue to seek financial resources in the domestic market to stimulate growth in non-oil sector. Actual for it will be also support of small and medium-sized businesses, as well as mortgage lending. According to experts, the July decline in the discount rate from 3.5 to 3% is unlikely to have a significant impact on credit growth.

The budget deficit for the year will amount to 8.9% of GDP despite the fact that government spending in 2015 will amount to only 90% of the planned expenditure in accordance with the plans of the government and the SOFAZ assets by early next year will be reduced to $ 33 billion against $ 37 billion at the end of 2014. This position will gradually recover in 2016 against the backdrop of rising oil prices (the average price for oil is projected to be $ 65 per barrel in 2016 compared to $ 55 per barrel in 2015).

The report notes that the negative outlook reflects the risk of weakening the financial buffer of Azerbaijan and thus reducing the ability of the economy to counter the possible shocks.

The agency does not exclude that in 2016 the ratings of Azerbaijan may reduce, if the fiscal efforts of the government are insufficient or if the fall in prices is higher than expected. With the weakening of the budgetary pressure on the fiscal system, the outlook for the rating of the country can rise from "negative" to "stable", experts say. --17D-