Fitch Ratings affirms Azerbaijan’s credit rating, increases its forecast on economy

  • 09:41 23 November 2020

Fitch Ratings affirms Azerbaijan’s credit rating, increases its forecast on economy

Fitch Ratings has affirmed Azerbaijan's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'BB+' with a Negative Outlook,ONA reports citing Fitch.

Azerbaijan's 'BB+' IDRs balance very strong sovereign and external balance sheets and fiscal financing flexibility from large sovereign wealth fund (SOFAZ) assets against a high dependence on oil revenues, weak governance indicators and lack of predictability and transparency of policy-making, especially in relation to the exchange rate regime.

The Negative Outlook reflects risks from the coronavirus shock, including near-term uncertainty about the recovery of global oil prices and the potential impact of the second wave of COVID-19 on Azerbaijan's external buffers and lingering risks of a disorderly macroeconomic adjustment. While the recent resolution of the conflict with Armenia in Nagorno-Karabakh and the surrounding regions is positive, in Fitch's view there remains the risk of flare-ups in tensions and uncertainty around the impact of Azerbaijan's regional spending plans on its public finances.

The recent escalation of armed conflict in Nagorno-Karabakh appears to be drawing to a close with a ceasefire brokered by Russia, but the agency considers there is a downside risk of resumption of hostilities over time. Fighting had intensified since September, but the impact on official Azerbaijan GDP, which excludes activity in the region, has been limited. The Azerbaijan government has announced intentions to significantly increase infrastructure investments in the region.

Fitch forecasts real GDP growth to contract by 4.3% in 2020 due to public health restrictions, the slump in oil prices and OPEC+ production cuts, before recovering to 2.7% and 2.0% in 2021-2022. The oil production cuts are currently planned to be tapered from January 2021 but could be extended into 1Q21. Announced anti-crisis support measures to households and businesses are relatively small at 3.1% of GDP in 2020.