S&P expects currency reserves of Azerbaijan’s Central Bank to grow
BAKU, Azerbaijan, Jan. 28
By Eldar Janashvili - Trend:
Standard & Poor's international rating agency expects the reserves of the Central Bank of Azerbaijan (CBA) to rise from $6.2 billion to $7.5 billion in 2020-2023, and the average annual growth is projected at around 5.1 percent, Trend reports referring to a report by the rating agency.
In particular, CBA reserves in 2020 will grow by 4.5 percent – to $6.5 billion, in 2021 - by 7.1 percent - to $6.9 billion, in 2022 - by 5.3 percent - to $7.3 billion, in 2023 - by 2.1 percent - to $7.5 billion, according to the report.
“Following de-pegging in December 2015 and a period of float, since April 2017, the exchange rate has stabilized at 1.7 manat per US dollar, supported by authorities’ regular interventions in the foreign-exchange market,” reads the report. “In our view, should oil prices become less favorable, the authorities will allow the exchange rate to adjust to avoid a similar substantial loss of foreign exchange reserves to that seen in 2015.”
“However, we believe the inflexible exchange arrangement constrains the CBA's ability to conduct monetary policy,” the rating agency noted. “The central bank's ability to influence domestic monetary conditions and economic development is further constrained by still-elevated resident deposit dollarization, which remains high at about 55 percent despite falling from peak levels of 76 percent in 2015.”
Currency reserves of the CBA increased by 11 percent in 2019 and amounted to $6.2 billion, according to the bank.
The country’s assets in terms of international investment position ($111 billion) are two times higher than the liabilities ($54 billion), which indicates Azerbaijan’s high international solvency and its role as an international creditor.
Standard & Poor's affirmed its long- and short-term foreign and local currency sovereign credit ratings on Azerbaijan at 'BB+/B'.
The ratings reflect significant foreign assets accumulated in the sovereign wealth fund, the State Oil Fund of the Republic of Azerbaijan (SOFAZ), as well as still-weak institutional effectiveness, monetary policy flexibility, and strong fiscal and external net asset positions.