Fitch affirms Azerbaijan’s foreign-currency issuer rating

Business Materials 21 January 2020 14:24 (UTC +04:00)
Fitch affirms Azerbaijan’s foreign-currency issuer rating

BAKU, Azerbaijan, Jan. 21

By Eldar Janashvili - Trend:

Fitch Ratings, the international ratings agency, has affirmed Azerbaijan’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BB+' with a stable outlook, Trend reports with reference to the agency.

This rating reflects Azerbaijan’s strong external balance sheet and low government debt, set againstweaknesses from its heavy hydrocarbon dependence and continued banking sector vulnerabilities.

“The consolidated fiscal surplus is estimated to have increased to 6 percent of GDP for 2019, compared with the current 'BB' median of -2.8 percent,” Fitch said. “Gross general government debt at 18.9 percent of GDP in 2019, is less than half the current 'BB' median of 46.5 percent. Fitch forecasts debt/GDP to decline only slightly to 17.7 percent of GDP by 2021.”

“Real GDP growth continues to recover from the oil shock and devaluation crises since 2014,” the agency noted. “Fitch estimates that real GDP growth reached 2.4 percent in 2019 from 1.4 percent in 2018, driven by 3.5 percent non-oil growth and just 0.8 percent for the oil and gas industry. We forecast growth to stabilize at 2.2 percent in 2020-21, driven by new gas production coming on-stream.”

Azerbaijani banks are recovering from legacy asset quality problems since the 2015 devaluations, but remain very weak, as reflected by its poor 'Fitch Banking System Indicator (BSI) score of 'b', according to the report.

“Capitalization had increased to 23 percent at end-October 2019 (end-2018: 19.4 percent), while non-performing loans fell considerably to 11 percent at end-October 2019 (end-2018: 14.5 percent),” reads the report.

Azerbaijan achieved significant improvement in the World Bank Ease of Doing Business indicators to rank in the 87th percentile of Fitch-rated sovereigns in 2019, from the 70th percentile in 2018, but the ability to attract significant FDI in the non-oil sector to diversify the economy remains uncertain, said the report.