Weekly economic review (may 7-12)

Analysis Materials 14 May 2012 12:36 (UTC +04:00)

Fitch Ratings has revised the Outlooks on Azerbaijan's Long-term foreign and local currency Issuer Default Ratings (IDR) to Stable from Positive and affirmed them at 'BBB-'. The agency has also affirmed Azerbaijan's Short-term foreign currency IDR at 'F3' and Country Ceiling at 'BBB-'.

The government's revision to the 2011 budget resulted in an overall increase in spending of 30 percent year-on-year, financed by a 50-percent rise in use of State Oil Fund (SOFAZ) resources. Nearly half the budget was development or investment spending. Fitch expects the government to refrain from a supplementary budget in 2012.

Sovereign assets are a major support to the ratings, underpinning a strong external balance sheet and dispelling concerns about external financing. They also provide the government with great financing flexibility, allowing it to finance counter-cyclical spending without borrowing. However, the government needs to accumulate assets to prepare for a forecast fall in petroleum revenues in the 2020s. The non-oil fiscal deficit is above its long-run sustainable level," the agency's statement said.

Fitch forecasts sovereign assets to rise by another $18 billion in 2012 and 2013, reaching $58 billion (82 percent of forecast GDP), placing Azerbaijan among the top ten sovereign net creditors rated by Fitch. The Central Bank of Azerbaijan (CBAR) and the SOFAZ together added $11 billion in reserves in 2011, to reach a total of $40 billion. Azerbaijan has the strongest net external creditor position in the 'BBB' range of 82 percent of CXR.

International rating agency Fitch Ratings has affirmed the long term investment rating of Azerbaijan in local and foreign currency at "BBB-". "Maintaining Azerbaijan's rating at the investment level reflects a significant strengthening of the country's economic power, its dynamic socio-economic development and improving population's wellbeing," the Finance Ministry said with reference to the agency.

According to the report, oil revenues, as well as cautious and thought out budgetary policy have significantly improved the financial situation of the country and allowed it to create substantial foreign exchange reserves to keep inflation at a controllable level. 'The dynamic development in the non-oil sector of the country formed the basis for the formation of a competitive national economy, reducing poverty and addressing many issues related to human capital', the report said.

The Agency specially noted that Azerbaijan has become an integral part of the world economy and the country is resistant to any geopolitical risks. International rating agency Fitch Ratings has been working with a number of new corporate issuers in Azerbaijan, the ratings of which will soon be published, regional head of Russia, CIS and Black Sea Region at Fitch Ratings, Dmitry Surkov told Trend.

"The Azerbaijani market is promising and a portfolio of published ratings of the issuers of Azerbaijan has been actively growing over the past few years," Surkov believes.

Currently, banking organisations are the main clients of Fitch. This fact is not always due to high quality of corporate governance in companies operating in other economic sectors, Surkov said. "Also the relatively small size of some companies may be a deterrent for the rating," spokesman for the agency said.

Fitch is working with 10 organisations in the country - seven commercial banks (IBA, AGBank, Demirbank, Kapital Bank, Technikabank, AccessBank and Unibank), the State Oil Company of Azerbaijan (SOCAR), Azerenergy and the Azerbaijan Mortgage Fund under the Central Bank.