Moody’s: SOFAZ assets help cushion low oil prices’ negative effect on Azerbaijani economy (UPDATE)
Baku, Azerbaijan, Apr. 30
By Azad Hasanli - Trend:
The international ratings agency Moody's Investors Service has confirmed Azerbaijan's long-term issuer ratings and senior unsecured debt ratings at Ba1.
Concurrently, Moody's also confirmed the Southern Gas Corridor's state-guaranteed senior unsecured debt rating at Ba1, reads the agency's report posted on its website Apr. 29.
Azerbaijan's long-term and short-term foreign-currency bond and deposit ceilings remain unchanged at Ba1/NP and Ba2/NP, respectively. At the same time, the long-term local-currency bond and deposit country ceilings remain unchanged at Ba1.
Moody's also confirms that Azerbaijan's large stock of foreign currency assets held in the State Oil Fund (SOFAZ), the country's sovereign wealth fund, helps cushion the economy and government balance sheet, and gives Azerbaijan time to adjust to lower oil prices.
"The government retains sizeable fiscal buffers that could help it absorb shocks, specifically SOFAZ's significant foreign currency assets," said the report. "These fiscal buffers could help Azerbaijan cope with the challenges from the ongoing economic, currency and banking sector crises and allow it time to adjust to lower oil prices. As a result, the government has room to let fiscal deficits widen during periods of lower oil prices, economic recession and reduced fiscal revenues. SOFAZ's assets are predominantly invested in high-grade, liquid instruments."
SOFAZ's foreign currency assets remain very large, despite declining by 9.5 percent to $33.6 billion in 2015, Moody's said.
The volume of SOFAZ's assets are high not only relative to Azerbaijan's GDP and general government debt, but also compared to other oil exporting countries' sovereign wealth funds, the Moody's analysts noted, adding that SOFAZ's foreign assets account for roughly 100 percent of Azerbaijan's GDP forecast for 2016.