TODAY.AZ / Analytics

Rating of confidence towards Azerbaijan

16 March 2015 [17:38] - TODAY.AZ
By Ilaha Mammadli 

International rating agencies, amid global instability, continue to keep focus on the situation in not only developed countries, but also the emerging markets, including those in the CIS area.

A rating assessment, as is known, is a criterion that determines the reliability of both the country and the institutions operating within it. So, maybe the most important reliability indicator, and, so to say, the solidity indicator, is the country’s place in an international rating.

Rigging results in such ratings is unlikely possible, as they are drawn up by international rating agencies based on lots of factors.

Among the most reputable rating agencies in the world there are Moody’s, Fitch Ratings and Standard & Poor’s. They have been around for many years, they have huge experience, and their credibility is endless.

The data from these international rating agencies make it possible to understand what countries are the most profitable, stable and reliable to cooperate with, that is, which markets are profitable to invest or lend money.

These agencies assess not only the risks of countries, but also the risks of banks, corporations, and also, evaluate a possible economic effect from the issuance of bonds and other securities.

Earlier, the Fitch Ratings once again affirmed Azerbaijan’s investment rating at "BBB-" with stable outlook, thus demonstrating the economic stability potential and maintaining high confidence of international community.

Despite the negative impact of lowering oil prices on world markets on fiscal and foreign currency position of Azerbaijan, the measures undertaken by the government of the country help to reduce the possible risks for public funds and strategic currency reserves, which will make it possible to retain the position of Azerbaijan as a strong external creditor.

Simply put, Azerbaijan at the expense of its own efforts will be able to finance not only the needs of the domestic market, but also to continue to invest in projects’ implementation abroad. By the way, as Minister of Energy of Azerbaijan Natig Aliyev said in a brief video comment on the results of the EBRD-hosted Caspian Corridor Conference in London, Azerbaijan is able to self-finance all energy projects that should be implemented until 2020.

At the same time, he was talking about such a large-scale project as the Southern Gas Corridor, which provides for transportation of gas from the Caspian region through Georgia and Turkey to European countries.

In addition to that, today Azerbaijan can easily attract credit resources from various foreign financial institutions given the high ratings assigned to it by three internationally recognized rating agencies, the opinion of which influences large funds.

Some $750 million drawn by SOCAR (State Oil Company of Azerbaijan) from the international capital markets by placing its own bonds testify to this. The rate on them is slightly more than 6.95 percent as opposed to the previous two issues of bonds, but the fact that SOCAR could attract such a large amount for 15 years testifies to great confidence in the energy projects implemented by Azerbaijan.

This also allows determining the fair value level of loans for the company. SOCAR’s such activity in terms of instability in the world markets indicates that for the company it is not just prestige that is important, but also the value of money, which it draws.

Correct "rate"

Fitch has also supported the Azerbaijani government’s actions on the manat rate depreciation.

"The weak exchange rate will soften the blow on oil revenues in the manat equivalent, while the government will reduce the infrastructure costs from a very high level by holding back the implementation of non-essential future projects," Fitch analysts said.

"This combination must prevent the significant state budget deficit in 2014 with a surplus of 2.9 percent of GDP," according to Fitch.

Thus, the adjustment of the exchange rate of manat will allow to avoid the considerable reduction of assets of the State Oil Fund of Azerbaijan (SOFAZ). The transfers from SOFAZ account for over a half of the state budget revenues and strong dollar will allow it to save over $3 billion.

SOFAZ can save even more funds given the plans of the country’s government to revise the budget forecasts that are based on the oil price of $90 per barrel, while the average price has remained at $60 since early 2015.

This is while from 2016, the expected rise in oil prices and stabilization of oil production in Azerbaijan will allow to increase the country’s revenues and accordingly to speed up the economic growth. Fitch analysts presume that maintaining the domestic political stability and other factors will positively affect the improving of Azerbaijan’s rating in the future as well. It is very important for the country, since as the important element of the general program for maintaining relations with investors, rating allows to improve Azerbaijan’s general investment attractiveness.


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