Fitch Ratings' stable outlook for Azerbaijan due to stable currency reserves of CBA

/By AzerNews/

By Aynur Karimova

Fitch's stable outlook for Azerbaijan’s long-term foreign and local currency Issuer Default Ratings is a result of the fact that the currency reserves of the Central Bank of Azerbaijan have remained stable in the past three months.

This was noted by Vugar Bayramov, the Chairman of the Center for Economic and Social Development, on September 2.

"The currency reserves of the CBA have remained practically stable in the last three months. Only in July, a slightly decrease was observed, while in May and June they increased compared to the previous month. The Fitch Ratings affirmed Azerbaijan's rating thanks to the stability of the currency reserves of the CBA," he told Azernews.

The foreign exchange reserves of the Central Bank of Azerbaijan decreased by $18.7 million (0.2 percent) in July 2015 compared to June and amounted to $8.5 billion.

The decline in the foreign exchange reserves of the central bank has been steadily observed since July of last year. In May-June 2015, the growth of foreign exchange reserves resumed. In May, the CBA’s reserves increased by $42.9 million (0.51 percent) compared to April and in June by $89.4 million (1.06 percent).

Bayramov went on to add that stable outlook gives reason to believe that the agency does not expects sharp changes in the monetary policy of the country in the short term.

"A stable outlook from the agency is a positive sign for Azerbaijan's economy, as it approves that there will be no serious threat of change in Azerbaijan. Because according to Fitch forecasts, the economy will develop on the condition of more stable monetary and exchange rate policies," he concluded.

Fitch Ratings reported that the ratings on Azerbaijan’s senior unsecured foreign currency bonds have also been affirmed at ’BBB-’. The Country Ceiling has been affirmed at ’BBB-’ and the Short-Term Foreign Currency IDR at ’F3’.

"The affirmation reflects our expectation that the authorities are committed to making the adjustments to capital spending and tax revenue that will ensure the preservation of these buffers," the agency said.

The agency's experts forecast the general government budget deficit in 2015 to amount to 4 percent of GDP, "as oil-related revenues fall to roughly 20 percent of GDP from 24 percent of GDP a year earlier."

"We forecast that the government budget will be in balance by 2016 and have a surplus of around 4 percent of GDP in 2017. This improvement will be driven by a reduction in capital spending from 14 percent to 10 percent of GDP and a gradual recovery of oil prices. We also expect non-oil revenue to improve to 15 percent of GDP by 2017 from 12.5 percent in 2015, as the authorities’ efforts to boost tax collection pay off," the agency said.

In Fitch’s view, the effects on domestic activity and confidence from the oil price fall and manat devaluation appear to have been benign, with real non-oil growth expected to reach 5 percent in 2015 and overall real GDP growth expected to reach 2.3 percent.