Moody's: Iran's nuke deal could partially offset pressure from low oil prices for Azerbaijan
Baku, Azerbaijan, Oct.19
By Azad Hasanli - Trend:
Azerbaijan's high level of foreign assets provides a large buffer to mitigate the adverse effect from the decline in oil prices on the country's economy, said Moody's Investors Service in a new research report.
The rating agency noted that the oil price drop has already delivered a significant shock to the oil-reliant Azerbaijani economy and pressured its balance sheet.
"However, Azerbaijan's large stock of foreign assets worth roughly $42 billion as of the end of the Q2 2015 gives it time to adjust to lower oil prices," said the report.
"Azerbaijan's sizeable foreign assets enable the government to let fiscal deficits widen during periods of lower oil prices, weaker growth and reduced fiscal revenues," said Sebastian Becker, Moody's assistant vice president, analyst.
Furthermore, the windfall revenues from oil enabled the government to keep gross debt low and to accumulate large foreign reserves with the Central Bank of Azerbaijan and the State Oil Fund of the Republic of Azerbaijan, according to the report.
"However, Azerbaijan remains strongly reliant on the hydrocarbon (oil and gas) sector, and thus remains vulnerable to a potential further decline in oil prices," Becker added.
He believes that the country will continue to rely on hydrocarbon revenues to develop its non-oil GDP sectors.
Furthermore, Moody's noted that the Iran nuclear deal could partially offset pressures from low oil prices for Azerbaijan.
"Although a rise in global oil supply due to Iran's imminent return to global oil markets would put downward pressure on oil prices in 2016, a credit negative, lifting of the economic and financial sanctions on Iran would ultimately enable Azerbaijan to benefit from increased foreign trade and investment with neighboring Iran," said the report.
Earlier, the US President Barack Obama ordered to take all necessary additional measures and create conditions to lift the US sanctions imposed on Iran in accordance with the agreement on Iran's nuclear program.
Moreover, the European Union took the necessary procedural measures on Oct.18 aimed at lifting on the sanctions imposed on this country.
The agreement on Iran's nuclear program entered into force Oct.18, 90 days after its approval in the UN Security Council.