Situation in world forces Azerbaijani State Oil Fund to invest in riskier assets

Azerbaijan, Baku, March 14 / Trend A. Akhundov /

The transfers from the State Oil Fund of Azerbaijan (SOFAZ) to the state budget are directed to finance the targeted projects (mainly, expenditures for public investments). No serious risk is expected to occur for the macroeconomic balance, the governmental report as of 2011, presented to the parliament said.

"The experience of countries having rich natural resources shows that the appropriate funds are used to form the revenues of the state budget," the report said. "Azerbaijan is an oil country, and its dependence on oil at some level is inevitable. However, effectively using the oil revenues, Azerbaijan in a short time has achieved rapid economic development."

The non-oil sector of the economy doubled for the last seven years. It is expected to increase by an average of 8.2 percent per year in 2012-2015. It is forecasted to decrease the share of the oil sector in GDP to 29.3 percent by 2015.

The purpose of SOFAZ's investment policy is to manage the accumulated funds in terms of minimal risks and low volatility, and to achieve yield in accordance with this policy.

SOFAZ's most of the funds were invested in the securities with high ratings, and liquidity.
"However, the interest rates in financial markets in 2011 decreased to a record low level for the last decade," the report said. "The main reason is for central banks of leading countries to take measures to stimulate economic growth (decrease in interest rates of central banks) after the recent financial crisis. Of course, this was the reason for the decline of profitability of SOFAZ's investment portfolio, primarily consisting of securities with fixed returns. Thus, the fund started applying the new investment policy since 2012, envisaging the existence of a diversified investment portfolio taking into account the dynamic growth of the funds and to improve profitability. According to the new policy, SOFAZ plans to invest in more risky and profitable assets, including the company's stocks, real estate and gold."

As of 2011, the total investment portfolio amounted to $29.629.89 billion, or 99.43 percent of SOFAZ's total assets.

As of January 1, 2012, SOFAZ's assets amounted to $29.8 billion.

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