Azerbaijan, Baku, April 20 / Trend A.Akhundov /
Moody's Investors Service has today upgraded Azerbaijan's foreign- and local-currency government issuer ratings by one notch to Baa3 from Ba1, and the rating outlook is now stable, Moody's said in its press release on Friday.
"The main drivers of this rating action were the ongoing strengthening in the government's finances, as reflected in the rapid accumulation of foreign assets by the State Oil Fund of Azerbaijan (SOFAZ) and the Central Bank of Azerbaijan (CBA) and the strong performance of Azerbaijan's non-oil sector in recent years as a result of government investment activities and efforts to improve the business environment and diversify the economy away from the oil sector," the report says.
High oil prices have helped the government accumulate considerable foreign assets in both SOFAZ, the country's sovereign wealth fund, and the reserves of the CBA, which amounted to around USD40 billion at the end of 2011 (75% of GDP).
Moody's believes that this level of foreign assets will help shield Azerbaijan's economy from future adverse impacts arising from internal or external shocks. Moreover, the rating agency expects the government to grow its reserves further in the coming years.
"With a breakeven oil price of around USD56 per barrel (the price per barrel of oil required for the general government sector to balance its budget), Azerbaijan could withstand a sustained drop in global oil prices without a severe deterioration of its fiscal and debt metrics," the press release says.
With regard to the second driver, high government spending on upgrading Azerbaijan's infrastructure and developing new industries helped non-oil sector output expand by 9.4% last year, up from 7.9% in 2010. This strong performance has helped the economy avoid an outright contraction in output as oil production decreased sharply during 2011.
A high level of public investment in areas such as social infrastructure, construction and services will continue to be a key driver of non-oil sector performance. Going forward, Moody's believes that strong government revenues should continue to support further development and diversification of the economy.
"The stable outlook on Azerbaijan's Baa3 ratings reflects the government's strong financial position and the deployment of oil revenues towards economic diversification," the press release says.
Moody's has also aligned Azerbaijan's local- and foreign-currency ceilings for bonds and deposits with the new government issuer rating of Baa3.