Fitch affirms Azerbaijan’s rating at BBB-

Fitch Ratings has affirmed the sovereign rating of Azerbaijan at ’BBB-' with a Stable Outlook and the short-term foreign currency IDR at ’F3’.

The issue ratings on Azerbaijan’s senior unsecured foreign and local currency bonds have also been affirmed at ’BBB-’. The Country Ceiling has been affirmed at ’BBB-’.The Agency says that the devaluation of the manat had led to sharp, real effective exchange rate appreciation, while interventions to support the currency caused reserves to fall from $16.4 billion in October 2014 to $11 billion in February 2015.“Devaluation is broadly neutral for the sovereign profile. It will assist fiscal and external adjustment to the lower oil prices, but will also push inflation up to around 10%, negatively impact private consumption and may lead to pressure on bank assets quality, requiring some sovereign support for the banking sector. Consequently, lingering public dissatisfaction and some loss of confidence is to be expected after such an abrupt change in exchange rate policy,” abc.az cited the agency.“As a result, the authorities are likely to avoid a large net draw-down of the state oil fund, where the fund’s assets totalled $37.1 billion, or 49% of GDP at the end of 2014. SOFAZ was due to transfer $10.4 billion to the state budget in 2015, but this will likely be reduced in line with the reduction of budget expenditure," the Agency believes.The president of the Baku Interbank Currency Exchange, Farhad Amirbayov, told Vestnik Kavkaza that "right now, the most urgent problem in the world is the high debt of state and regional budgets, very large corporate debts, the debts of the population. In our country these problems are not so serious. The public debt is very low, the corporate debt is also quite small. The central bank has taken measures due to the debt burden on the population since last year," he said."Another factor is that our reserves are not formed at the expense of debt borrowings, debentures, and mainly due to revenues from oil sales," the expert added. Another important reason is the fact that Azerbaijan's economy is quite large itself. "I think that the desire and the will of Azerbaijan to make changes are also taken into account. We are trying to move to a new model of development now," Farhad Amirbayov concluded.

The issue ratings on Azerbaijan’s senior unsecured foreign and local currency bonds have also been affirmed at ’BBB-’. The Country Ceiling has been affirmed at ’BBB-’.

The Agency says that the devaluation of the manat had led to sharp, real effective exchange rate appreciation, while interventions to support the currency caused reserves to fall from $16.4 billion in October 2014 to $11 billion in February 2015.

"Devaluation is broadly neutral for the sovereign profile. It will assist fiscal and external adjustment to the lower oil prices, but will also push inflation up to around 10%, negatively impact private consumption and may lead to pressure on bank assets quality, requiring some sovereign support for the banking sector. Consequently, lingering public dissatisfaction and some loss of confidence is to be expected after such an abrupt change in exchange rate policy," abc.az cited the agency.

“As a result, the authorities are likely to avoid a large net draw-down of the state oil fund, where the fund’s assets totalled $37.1 billion, or 49% of GDP at the end of 2014. SOFAZ was due to transfer $10.4 billion to the state budget in 2015, but this will likely be reduced in line with the reduction of budget expenditure," the Agency believes.

The president of the Baku Interbank Currency Exchange, Farhad Amirbayov, told Vestnik Kavkaza that "right now, the most urgent problem in the world is the high debt of state and regional budgets, very large corporate debts, the debts of the population. In our country these problems are not so serious. The public debt is very low, the corporate debt is also quite small. The central bank has taken measures due to the debt burden on the population since last year," he said.

"Another factor is that our reserves are not formed at the expense of debt borrowings, debentures, and mainly due to revenues from oil sales," the expert added. Another important reason is the fact that Azerbaijan's economy is quite large itself. "I think that the desire and the will of Azerbaijan to make changes are also taken into account. We are trying to move to a new model of development now," Farhad Amirbayov concluded.