S&P affirms Azerbaijan’s rating at 'BB+/B', outlook stable

By Trend

S&P Global Ratings affirmed its 'BB+/B' long- and short-term foreign and local currency sovereign credit ratings on Azerbaijan. The outlook is stable, Trend reports referring to S&P Global Ratings.

The ratings are supported by Azerbaijan's very strong external and fiscal positions, which are underpinned by relatively low central government debt and significant foreign assets built up over several years.

Azerbaijan's strong external balance sheet will remain a core rating strength, reinforced by the large amount of foreign assets accumulated in the sovereign wealth fund, State Oil Fund of Azerbaijan (SOFAZ).

“The stable outlook indicates the view that the sovereign's fiscal and exter nal position will not materially deteriorate beyond our current expectations, even though prospects for volume production in the oil sector appear limited and prices could remain low,” S&P said. “We assume the de facto manat exchange rate peg to the US dollar will remain in place, supported by the government's large external assets.”

Nonetheless, S&P assumes Azerbaijan will retain the manat's de facto peg to the US dollar at 1.7 manat to $1, supported by the authorities' regular interventions in the foreign currency market.

S&P could consider an upgrade if external surpluses were higher than base-line projections, resulting in a faster accumulation of the government's fiscal assets. This could happen, for example, if hydrocarbon revenues markedly increased in contrast to our assumptions and S&P expected the higher level to be sustained.

Upside to the ratings could also build if the government devised and implemented reforms addressing a number of Azerbaijan's structural impediments, such as limited economic diversification and substantial constraints to monetary policy effectiveness.

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