Weekly actual topics in Azerbaijan (May 22-26)

Azerbaijan, Slovakia planning to ink deals in economic sphere

Azerbaijan and Slovakia plan to sign a number of agreements in the sphere of investments, agriculture and taxes, Head of Azerbaijan’s diplomatic mission in Slovakia Jafar Huseynzade said.

Huseynzade said that as of today, the contractual base between the two countries is based on 7-8 agreements, which doesn’t reflect the level of existing capacity.

“Currently, we work to expand the contractual base in four directions – political, economic, cultural and humanitarian spheres. As part of this work, we prepared several documents, among which there are agreements on investment promotion, on avoidance of double taxation, on cooperation in the field of education and tourism,” said the diplomat.

“We also work on a strategic cooperation document. It is important that the issue of settlement of the Nagorno-Karabakh conflict within Azerbaijan’s territorial integrity will be reflected in this document.”

Three more documents, noted Huseynzade, on preparation of which work is being carried out, touch upon various areas of cooperation in the field of agriculture: this is the cooperation in the field of veterinary medicine, plant cultivation and, in general, in the agrarian sector.

However, the diplomat added that these documents will be signed not earlier than 2018.

“We also aimed at creating a joint commission, which will help to stimulate mutual investments and establish closer cooperation in the economic sphere. That is why we want this commission not to be an intergovernmental one, but to operate between the economy ministries of the two countries,” said the head of Azerbaijani diplomatic mission.

According to him, Azerbaijan and Slovakia have good opportunities for development of cooperation in the spheres of tourism and education.

“Particularly, we have quite big potential for cooperation in the tourism sphere. We are working to simplify the visa regime between our countries. Slovakia is very attractive in terms of tourism, because at the European level of quality, services are offered here at lower prices. As for the sphere of education, it should be noted that Slovakia’s universities provide qualitative education, and the cost of education in them is also lower than in Germany and Austria. Meanwhile, universities offer language courses for foreign students, which facilitates studying in this country,” noted Huseynzade.

Moody’s: Azerbaijani economy to grow 1.8% in 2018

The Moody’s Investors Service international ratings agency has forecasted the Azerbaijani economy to grow 1.8 percent in 2018, Petr Paklin, the agency analyst, said at the Moody's Annual Azerbaijan Summit in Baku.

He noted that Azerbaijan’s GDP growth is highly dependent on the level of oil prices.

If the oil prices remain at the level of above $50 per barrel, Azerbaijan will abandon its savings policy and increase the government investments, Paklin said.

He said that Azerbaijan still retains a number of positive factors influencing the assessment by Moody’s.

First of all, Azerbaijan has big oil and gas reserves, significant volumes of foreign assets, as well as foreign exchange and gold reserves in the country’s State Oil Fund (SOFAZ) and the Central Bank (CBA), he noted.

Besides, Azerbaijan has an acceptable level of debt burden, despite its growth in the last two years, he added.

Paklin also noted that the increase of Azerbaijan’s debt burden is associated with high costs for supporting the banking sector, in particular, the International Bank of Azerbaijan.

If at the end of 2014, the level of Azerbaijan’s national debt was 11 percent of GDP, this figure reached 40 percent of GDP by the end of 2016, Paklin said.

He added that such growth of the debt is due to sharp drop of oil prices and the need to support the banking sector.

Although the size of Azerbaijan’s banking sector is small (slightly more than 50 percent of GDP), the state’s expenditures to support this sector are very high, the analyst said, adding that according to Moody’s estimates, in 2015-2016, Azerbaijan allocated funds equivalent to its national debt’s level of 18 percent of GDP for the banking sector’s support.

At the same time, Azerbaijan can afford such a debt level, he noted.

Azerbaijan’s foreign exchange reserves are about 100 percent of the country’s GDP, which exceeds the level of the country’s national debt by slightly more than twice, Paklin said, adding that this is a very impressive debt safety cushion that will help overcome stress.

Moody’s: Azerbaijani banks should increase reserves

Azerbaijani banks should increase their reserves to cover problem loans, Maria Malyukova, analyst of the Moody’s Investors Service international ratings agency, said.

The reserves of Azerbaijani banks should be increased due to the growth of the share of problem loans in the banks’ total loan portfolio, she said.

According to the information regarding six banks, which are rated by Moody’s (International Bank of Azerbaijan, Kapital Bank, Xalq bank, Bank Respublika, Bank of Baku and Bank VTB (Azerbaijan)), the share of problem loans (which remained overdue for more than 90 days) of these banks amounted to 30 percent of their total loan portfolio as of late 2016, while it amounted to 16 percent as of late 2015, she noted.

Given this, the coverage level for these loans is insignificant and amounts to 10.6 percent, Malyukova noted.

She said that the growth of the share of problem loans is observed against the background of reduction of lending volumes.

“As of late 2016, the loan portfolio of Azerbaijani banks decreased by 24 percent,” she added. “This tendency continued in the first quarter of 2017 as well. The reduction in lending in this period was 9.5 percent.”

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