Baku, Azerbaijan, Jan. 24
Trend:
Azerbaijan's introduction of capital controls does not automatically have consequences for its 'BBB-'/Stable sovereign rating, Fitch Ratings says.
"Low debt and substantial external assets still support the rating, although the capital controls could damage the sovereign's credit profile through their impact on growth and financial stability," the statement said.
The move reflects the challenge of dual policy goals - preserving the value of State Oil Fund of Azerbaijan (SOFAZ) assets, and supporting the currency to maintain price and social stability, the statement said.
The measures will support the manat and reduce the pressure on buffers, which are a key strength of Azerbaijan's credit profile. But this may be offset by the impact of devaluation, capital controls, and low oil prices on the economy, budget, and banking sector.
Azerbaijan's external balance sheet is strong. SOFAZ assets were nearly USD35bn, 16 months of the country's total imports, at end-3Q15, but the government may be reluctant to use them to defend the manat as SOFAZ finances around half of the state budget and is also meant as a fund for future generations, the statement said.
The CBA has used regulatory forbearance to support the sector again following December's devaluation, lowering minimum regulatory capital adequacy requirements for Tier 1 and total capital adequacy ratios. This may bring some banks that breached ratios last month back into formal compliance, without changing their core economic capital position.
A mandatory fee of 20 percent on remittances for sending money abroad, which exceeds $50,000 during a year, was introduced in Azerbaijan, according to the amendments to the Law on currency regulation adopted by the parliament.
This charge does not apply to transfers abroad in relation to the cost of medical treatment, education, execution of court decisions and law enforcement agencies outside of Azerbaijan.
Currency exported as direct investment for the purchase of securities, real estate and land, as well as for the maintenance of Azerbaijani companies' foreign missions also will be taxed with a mandatory fee of 20 percent.
This charge does not apply to legal entities, the state share in capital of which exceeds 50 percent.