Weekly economic review (july 31-august 1)

S&P keeps investment rating of Azerbaijan

On July 31, 2015, Standard & Poor's Ratings Services has kept its 'BBB-/A-3' long- and short-term foreign and local currency sovereign credit ratings on the Republic of Azerbaijan, said the message of the agency published on its website.

The outlook remains negative, the message said.

"We could revise the outlook to stable if pressures on Azerbaijan's fiscal accounts abate, for instance as a result of a timely and credible response from the government, while Azerbaijan's external position remains strong," said the agency.

S&P expects Azerbaijan's current account surpluses to persist over the next four years. That said, the surplus will moderate to 2.2 percent of GDP in 2015 from over 13 percent of GDP last year reflecting the oil price decline.

In the next few years, the analytics of the agency expect current account surpluses to grow again but to remain below pre-2015 levels. This is largely explained by the agency's oil price forecasts (which are projected to be at $55/bbl in 2015, $65/bbl in 2016, and $75/bbl thereafter).

"The current account should be supported from 2019, when Azerbaijan starts exporting higher volumes of natural gas to Europe from the Shah Deniz II gas field," the agency said.

"Our ratings on Azerbaijan remain supported by the sovereign's strong external and fiscal positions, primarily reflecting the sizable foreign-invested sovereign oil fund SOFAZ, which has assets in excess of $35 billion (about 60 percent of estimated 2015 GDP)," said the message.

The agency expects SOFAZ assets to decline to $33 billion in 2015 from $37 billion in 2014. This partly reflects the pronounced depreciation of the euro against the dollar (SOFAZ's assets are primarily invested in foreign fixed-income securities with about 30 percent of total denominated in euro) and a roughly $2 billion allocation for the financing of the aforementioned consolidated deficit, according to the agency.

SOFAZ's assets will gradually return to growth from 2016 onward as oil prices start to recover.

Azerbaijan's GDP is expected to reach $53 billion till the end of 2015 with an increase of 2.2 percent, $65 billion in 2016 (an increase of 2.5 percent), $73 billion in 2017 (an increase of 2.7 percent), $80 billion in 2018 (3.2 percent increase), according to the report of S&P.

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