BAKU, Azerbaijan, February 2. The ratio of Azerbaijan's external public debt to the country's gross domestic product (GDP) amounted to 8.6 percent, Minister of Finance Samir Sharifov said at the board meeting of the department, Trend reports citing the Azerbaijani Finance Ministry.
"Last year witnessed a significant external debt reduction and development of the domestic debt market. This work was based on the "Medium- and long-term public debt management strategy" document, approved by Presidential Order of 2018 and updated at the end of 2022," he said.
During the discussions, the meeting participants noted that the strategic goals have been achieved, and public debt sustainability has been ensured, given both the medium- and long-term financial needs of the state budget.
Thus, the ratio ceiling of total public debt to GDP for 2018 through 2025 shouldn't exceed 30 percent and is planned to be reduced to 20 percent by 2025. As a result of the strategy, the share of gross public debt in GDP as of July 1, 2018 decreased by 9.7 percent, from 21.4 percent to 11.7 percent by January 1, 2023. In the reporting period, the ratio of external public debt to GDP dropped from 20.3 percent to 8.6 percent, while the ratio of domestic public debt to GDP increased from 1.1 percent to 3.1 percent.
The next strategic goal is to reduce the risk profile of public debt, including reducing exchange rate risk by gradually decreasing external borrowing with a priority of increasing domestic borrowing, as well as replacing a variable interest rate debt with a fixed interest debt in order to prevent the risk of increasing interest rates.
As of the date of approval of the strategy, debt's share in the total public debt portfolio in foreign currency decreased by 20 percent, from 94 percent to 74 percent by the beginning of 2023, respectively, while the share of debt in domestic currency increased from six percent to 26 percent. Meanwhile, stabilization of variable interest rates have been ensured, when benchmarking interest rates are at the lowest level, and the share of a variable interest debt in the total debt portfolio decreased from 49.7 percent as of July 1, 2018, to less than 35 percent as of January 1, 2023. This contributes to savings in the state budget for servicing external public debt.
In 2022, crucial steps were taken to support the development of local financial markets. Thus, public securities in circulation by the beginning of 2023 increased by 3.4 billion manat ($2 billion) compared to July 1, 2018, reaching 4.2 billion manat ($2.47 billion). During this period, the ratio of government securities in circulation to GDP increased from 1 percent to 3.1 percent.
While during the strategy approval period, only short-term (one year) and medium-term (two years and three years) government securities were placed, in the last period, public bonds with a maturity of five and even seven years were placed. As a result, the average maturity of government bonds increased significantly during the strategy period.
In addition, the investor base of government bonds was expanded with the involvement of new institutional and corporate investors, as well as individuals.