Azerbaijan’s foreign debts - not a burden

According to the information provided by the Finance Ministry of Azerbaijan, the external debts of the Country as a result of 2006 reached $1972 mln. which makes up 9.9% out of Azerbaijan's GDP.

Such indicators of the external debts of Azerbaijan show that the level of its onerousness in the State budget and gold and exchange currency resources are in the range defined in accordance with the international standards (range of 40-60%). The traditional parameters of the external debts of Azerbaijan are one of the best figures as comprised to the same indicators of the CIS and East European countries which are in the transition period. As per 1 January 2007 the currency reserves of Azerbaijan reached $3.9 bln, an increase of 86% from the external debts of the Country. This situation testifies the financial prosperity of Azerbaijan and absence of the problems with the payment capacity. As of this date, the currency reserves of the National Bank of Azerbaijan amounted to $2 bln, assets of the State Oil Fund - $1.4 bln, currencies of the Finance Ministry - $0.5 bln.

Most part of the credits was involved in financing investments projects in the country - $1577,9 mln. (80%). At the same time 37,4% ($738,1 mln.) out of these funds were intended for the energy sector, 7,1% ($141 mln.) - agriculture and melioration, 16,1% ($317,7 mln.)- road building and repair works and transport, 1,8% ($34,6 mln.) - chemical industry, 1,4% ($26,7 mln.)- oil and gas sector, 8% ($157,8 mln..)- social spheres, etc.

Part of the credits spent in 2006 was $350,3 mln. 20% ($394,1 mln.) in the structure of the external debt fall at credits intended for economic reforms, with $135 mln. (6,8%) out of them - at the expense of borrowings taken from IMF, $259,1 mln.(13,1%) - WB.

Structure of foreign credits attracted into as per 1 January USD
    Spent credits, State debts
I. Total credits     1972,0  
In relevant to GDP     9,9%  
External debts per capita     232,5
II. Structure of credits        
1. Credits for economic reforms     394,1 20,0 %
Out of them: IMF     135,0 6,8 %
World Bank     259,1 13,1 %
2. Credits for investment projects     1577,9 80,0 %
 Including        
Energy sector     738,1 37,4 %
Agriculture and melioration     141,0 7,1 %
Road construction and transport     317,7 16,1 %
Chemical sphere     34,6 1,8 %
Oil and gas     26,7 1,4 %
Restoration of released territories     39,7 2,0%
Social sector     157,8 8,0 %
Other spheres     122,4 6,2 %
III. Credits spent in 2006 350,3
IV. Expenditures on external debts in 2006 136,3
Main debts 97,2
Interests 39,1
Including  
From State budget 26,3
Repayment of main debts to IMF 37,2

Source: Finance Ministry of Azerbaijan

The maximal slab of the external debts are annually included in the budget pack and formed only from credits obtained under State guarantee. It does not include the credits from the IMF because they are given for short period and transferred to the currency reserves of the Country and from 2006 Azerbaijan refused to obtain credit from the IMF. The limit in the 2006 State budget of Azerbaijan for the external debts of the County was defined in amount of $600 mln, but in reality only $560 mln have been used. Incomplete use is explained through the absence of the credit from German Development Bank KFW for the project on construction of the electricity transmission lines AzGRES - Imishli. The Bank plans to allocate €30 mln for the project, but signing the credit agreement was postponed for this year due to the delays with the discussions over the terms of the credit. In addition, the limit in the 2007 State budget for the external borrowing has been increased up to AZN 1.2 bln.

The credits for the investment project prevail in the external debts of Azerbaijan. Main credits have been attracted for the reconstruction of the roads, electric power, melioration system, acquisition of airbuses. Thus last year the external debts of Azerbaijan increased by $322 mln due to the construction of the combined-cycle plant in Sumgayt, first tranche of the World Bank for poverty reduction and due to purchase of airplanes.

In 2006 Azerbaijan used $350.3 mln of the external debts and repaid $136.3 mln for the external debts, including $97.2 mln over main amount and $39 mln as interest. The State budget allocated $26.3 mln to pay off the external debts, especially credit from Eximbank of Turkey and Credit of the Kuwaiti Fund for Road Project Development. Cases of attracting credits under State guarantee in line with the international financial organizations happen very often, and not to pay off them in time automatically makes it necessary to attract finances to compensate them. The expenditures of the State budget to cover the external debts traditionally oscillates between 2% and 3% in relevant to aggregate State payments.

In 2006 the National Bank of Azerbaijan allocated $37.2 mln to pay off its debts to the IMF. As a result, the gross debts to the IMF as per 1 January 2007 amounted to $135 mln over three programs (ESAF, EFF and PRGF). Since the co-operation between the IMF and Government of Azerbaijan, six programs have been signed, for three out of which (STF, Stand-by and CCFF) the credit service have already completed. As known, the IMF credits are repaid from the currency reserves that are in disposal of the National Bank of Azerbaijan. The debts to the IMF will not increase due to the Government's refusal to receive credits over the future co-operation. Even Azerbaijan is prepared to make advanced repayment of IMF credits.

Azerbaijan began attracting foreign credits in 1993. Since then, the amount of the external debts has been increased by 33.2 times and totaled nearly $2 bln in 2006.

Dynamic of change of Azerbaijan's external debts over 1993-2006

Structure of foreign credits attracted into as per 1 January USD
    Spent credits, State debts
I. Total credits     1972,0  
In relevant to GDP     9,9%  
External debts per capita     232,5
II. Structure of credits        
1. Credits for economic reforms     394,1 20,0 %
Out of them: IMF     135,0 6,8 %
World Bank     259,1 13,1 %
2. Credits for investment projects     1577,9 80,0 %
 Including        
Energy sector     738,1 37,4 %
Agriculture and melioration     141,0 7,1 %
Road construction and transport     317,7 16,1 %
Chemical sphere     34,6 1,8 %
Oil and gas     26,7 1,4 %
Restoration of released territories     39,7 2,0%
Social sector     157,8 8,0 %
Other spheres     122,4 6,2 %
III. Credits spent in 2006 350,3
IV. Expenditures on external debts in 2006 136,3
Main debts 97,2
Interests 39,1
Including  
From State budget 26,3
Repayment of main debts to IMF 37,2
As per end of year Gross amount of external debts, mln in USD External debts per capita, in USD external debts relevant to GDP external debts relevant to export
1993 59,4 8,0 4,5 8,2
1994 71,6 9,5 4,4 11,0
1995 325,0 46,0 14,6 55,2
1996 416,0 53,9 13,1 65,9
1997 549,7 70,5 13,9 70,4
1998 693,4 91,2 16,9 114,4
1999 998,3 125,0 23,1 107,5
2000 1 162 143,8 23,7 61,2
2001 1 280 157,2 23,1 55,3
2002 1 350 164,6 22,1 62,2
2003 1575 190,5 22,0 60,8
2004 1588 191 18,6 45,2
2005 1612 192 12,6 37,0
2006 1972 232,5 9,9 30,9
Rise in 1993-2006 33,2 times 29,1 times 2,2 times 3,8 times

Source: Cabinet of Ministers of Azerbaijan, Finance Ministry, accounts of Trend

As seen from the table, the amount of the external debts has demonstrated the tendency of increase over the past 13 years. Higher growth rates of the amounts of the international credits obtained under State guarantee were noted in 1995 and 1998. These periods are accordingly activation of crediting for Azerbaijan by the international financial organizations (IMF), and fall of world oil prices forced the Government to attract additional credits to finance the deficit.

The ratio of the amount of the external debts to the GDP increased by 29.1 times and as a result of 2006, totals 9.9% which is available level in accordance with the international standards.

Since 2003 the ratio of the external debts to the export has been observed to be decreased and equaled 30% over the past two years. According to the international classification, this figure is lower than critical level. The highest (100-120%) indicators were registered in 1998 and 1999 due to the sharp decrease of the export incomes.

The ratio of the external debts to the main macro-economical indicators is traditional parameters characterizing the onerousness of the international credits. Low indicators of the State and external debts and growth operations on the base of the rapid increase of oil and gas production and significant and sustainable economic growth serve the increasing of the sovereign ratings of Azerbaijan. On the other hand, Azerbaijan is increasing its external debts, but these debts take investment character. Thus, the investments in amount of $20 bln into the oil sector will bring profits to Azerbaijan in the near future.

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