BAKU, Azerbaijan, Nov. 23
By Zeyni Jafarov - Trend:
External pressures that led to a reduction in the foreign exchange reserves of the State Oil Fund of Azerbaijan (SOFAZ) by $2.5 billion from March through April 2020 due to falling oil prices and the coronavirus (COVID-19) pandemic have eased significantly, Trend reports citing Fitch Ratings’ report.
Net demand for the currency has been relatively stable since that period, despite the recent escalation of the military conflict with Armenia over Nagorno-Karabakh and the surrounding districts, the report said.
According to the report, the current rate of sale of foreign currency by the SOFAZ corresponds to the revised budget plan of the Azerbaijani government for 2020 and is sufficient to maintain a fixed exchange rate at 1.7 AZN / USD.
Fitch's underlying assumption of a gradual rise in oil prices in 2021 and 2022 is that the risks of devaluation in Azerbaijan remain low, but the ongoing second wave of COVID-19 infection increases the risks of a worsening outlook, the report said.
“The revised budget increased SOFAZ's approved transfers to the state budget for 2020 and the potential for currency sales by a total of $500 million, providing more support for the fixed exchange rate. SOFAZ's foreign exchange sales from January through October 2020 made up $6.2 billion," said the report.
“A strong recovery in international financial markets after an abrupt adjustment in March 2020 and periodic changes in gold prices also led to high returns on the SOFAZ's portfolio, almost offsetting the drop in oil revenues and an increase in budget transfers. By the end of September 2020, SOFAZ's total assets fell by just 0.1 percent,” said the report.
Fitch Ratings also predicts that SOFAZ’s external assets will make up $49.8 billion by the end of 2020, while at the end of 2019 the figure was equal to $50.4 billion.
Fitch Ratings has affirmed Azerbaijan's long-term foreign-currency issuer default rating (IDR) at 'BB+' with a negative outlook.
---
Follow the author on Twitter: @jafarov_zeyni