Last week International rating agency Fitch Ratings announced on awarding Azerbaijan with a credit rating at BB+. Taking into consideration tat previous rating of Azerbaijan was BB, the current rating can be regarded as successful.
Fitch Ratings has upgraded Azerbaijan's foreign and local currency issuer default ratings from 'BB' to 'BB+' with a stable outlook, citing high oil production and low state debt in the former Soviet state. The Country Ceiling has been revised to 'BB+' from 'BB', while the short-term foreign currency rating is affirmed at 'B.'
Samir Sharifov, the Azerbaijan Finances Minister, said that the Azerbaijan Ministry of Finances is eager to intensify the work in the direction of issue of sovereign euro-bonds in connection with the issue of new rating by Fitch Ratings. The Agency issued Azerbaijan with Р'Р'+ rating, which is less than the investment rating by point.
The rating coincides to estimation awarded the country in 2006 by another agency Moody`s - Ba1, but lower by point from the investment crediting rating. We are satisfied with the result, though we hoped for issue of higher rating. Now the country holds two ratings and it enables to work over issue of euro-bonds, the Minister said. The Minister said that after the development of a package of tender bids is planned, tender will be announced on organization of issue of euro-bonds, which is a difficult process.
Azerbaijan has been cooperating with Fitch Rating for 7 years. Under 3-year contract with the Agency Azerbaijan for the first time was awarded "B+" rating in June 2000. In 2001 the international rating agency awarded the country with long-term rating in foreign and national currency at Р'Р'-, while short-term rating at B. The current rating is the highest awarded Azerbaijan for its history of independence.
While estimating the rating Fitch experts took into consideration the political stability and some economic parameters in Azerbaijan, in particular, stable and dynamic growth pace of GDP, the level of foreign and domestic debts of the country, surplus at current accounts in foreign operations, high liquidity, stable monetary policy. "Fitch's upgrade of Azerbaijan's sovereign ratings is driven by a strong and sustainable economic growth, low government and external debt ratios and a growing current account surplus, underpinned by rapidly rising oil and gas production," said Fitch sovereign debt analyst David Heslam.
The agency admits that the completion of the BTC oil pipeline proves investment attractiveness of Azerbaijan.
"At just 9% of GDP, Azerbaijan's government debt-to-GDP ratio is the lowest of all 'BB' range sovereigns... Azerbaijan's external debt stock is the second smallest in the 'BB' range at just 20% of GDP," the statement said
The completion of key energy export projects in 2005 and 2006 has driven a significant rise in hydrocarbons production, accelerating Azerbaijan's real GDP growth.
The Azerbaijan Government's share in profits obtained from oil and gas projects as well as transit payments and per-acre payments are accumulated in the State Oil Fund of Azerbaijan (SOFAR). The Fund's assets made up $1.45bln, or 6% of GDP, as of January 2007.
Thus, the rating reflects the macroeconomic stability and low level of public arrears, as well as continuing development of the important oil and gas sector of the country. Azerbaijan demonstrates the best macroeconomic indices in CIS.
Major socio-economic indices of CIS member-countries in 2006
(2006 in % to 2005)
|
Gross Domestic Product (in current prices) |
Industrial products |
GDP of Agriculture (at constant prices; economies of all categories) |
Investments in major capital (at constant prices; al sources of financing) |
Consumer Price Index | |
|
Azerbaijan |
134,5 |
136,6 |
100,9 |
114,8 |
108,3 |
|
Armenia |
113,4 |
99,1 |
100,4 |
137,1 |
102,9 |
|
Belarus |
109,9 |
111,3 |
106,1 |
131,4 |
107,0 |
|
Georgia |
108,6 |
… |
112,2 |
… |
109,2 |
|
Kazakhstan |
110,6 |
107,0 |
107,0 |
110,6 |
108,6 |
|
Kyrgyzstan |
102,7 |
89,8 |
101,5 |
118,2 |
105,6 |
|
Moldova |
104,6 |
93,1 |
95,4 |
117,0 |
112,7 |
|
Russia |
106,7 |
103,9 |
102,8 |
113,5 |
109,7 |
|
Tajikistan |
107,0 |
104,9 |
… |
155,1 |
111,9 |
|
Turkmenistan |
… |
… |
… |
… |
… |
|
Uzbekistan1) |
107,3 |
110,2 |
107,1 |
110,0 |
. . . |
|
Ukraine |
107,0 |
106,2 |
100,4 |
116,1 |
109,1 |
|
In average per CIS country* |
107,5 |
105 |
103 |
114 |
109 |
Source: CIS Statistics Committee
Nevertheless, the Azerbaijani economy remains more imposed to risks in cases of sharp changes in oil prices. Experts urge that the implementation of reforms and anti-corruption measures develop in slowly and it actually complicates the business climate in the country. Azerbaijan is not so developed as Kazakhstan which holds a rating of "BР'Р'", particularly, in the implementation of pension reforms consolidation of banking capital, etc.
Rise in inflation is also alarming factor. Fitch states that inflation continues affecting the real exchange rate and poses danger for competitiveness of the non-oil sector, as well as improvement of living conditions. Sharing this position, the Azerbaijan Government acknowledges it is necessary to cut current public expenses, as it really leads to inflation.
For the time being the basic indices of inflation and their inter-relations with ratings on liabilities in national currency, represented in the table below, enable to keep the developments within updated rating.
Dependence of sovereign ratings on inflation ratio
|
Rating |
Annual rate of inflation, РІ % |
|
B |
50-200 |
|
BB |
25-100 |
|
BBB |
10-50 |
|
A |
7-25 |
|
AA |
4-15 |
|
AAA |
0-10 |
At the present time the work over placement of Azerbaijani euro bonds at international markets is underway. Thus, in 2007 Azerbaijan plans to issue euro-bonds to issue eurobonds in the mount of $300mln. Issue of eurobonds, as well as renewal of credit raring of Azerbaijan indicates the recognition of the Azerbaijani economy in the world, and estimation by foreign investors We should now create conditions, so that to carry out borrowings at foreign markets at reasonable conditions in cases of necessity,' The Azerbaijani Finances Minister says.
According to estimations by Fitch Ratings, the country's can get improved in case of maintenance of present tendency in the development of Azerbaijani economy. Investors' confidence in financial system of any country depends on investment rating, or credit reliability. It is very important for economic image of the country, to make it attractive for investors.