Moody’s confirms Azerbaijan’s rating

By Azernews

By Nigar Abbasova

Moody's Investors Service, an international provider of credit ratings, has confirmed Azerbaijan’s long term issuer rating, as well as senior unsecured debt ratings at Ba1.

The country’s rating was last changed in February 2016 while the outlook on it was changed to “negative” in April 2016. The agency downgraded the government bond and issuer ratings of the country to Ba1 from Baa3.

The Ba1 rating is supported by a number of credit strengths, including sizeable hydrocarbon reserves, which provide substantial revenue to the government; low (though rising) government debt and low interest payments; and large foreign reserves, held in a sovereign wealth fund, which cushion against internal and external shocks, according to the Moody’s December 2016 report.

Moody’s forecasts growth of 1.1 percent in 2017 and 1.9 percent in 2018, as hydrocarbon prices increase, credit growth resumes, and increased gas production from the second stage of the Shah Deniz gas field comes on stream.

Although Azerbaijan’s public finances are highly sensitive to fluctuations in oil prices, manageable levels of government debt, sizable reserve buffers and high debt affordability provide ample fiscal space, according to the report.

Government Liquidity Risk is determined as low, supported by low public debt and stable foreign assets. Banking sector risk is low (-), mitigated by the sector's small size and the government's sizable assets, although the outlook for the Azeri banking system remains negative.

Ratings of Azerbaijani companies are currently defined by such international agencies as Fitch Ratings, Standard & Poor’s and Moody’s Investors Service.

Standard & Poor's credit rating for Azerbaijan stands at BB+ with negative outlook. Fitch's credit rating for Azerbaijan was last reported at BB+ with negative outlook.

Meanwhile, national rating agencies may appear in Azerbaijan in 2018-2019. Financial Market Supervisory Body (FMSB) will consider the issue in the short run. 

The evaluation of the credit on the basis of individual rating will allow to precisely define capital and reserve requirements, which in turn will lead to the effective use of resources and increase of competitiveness and financial stability of separate financial institutions and the banking sector as a whole.

The services are currently rendered by international rating agencies due to the lack of such institutions in the country. As a result, only a limited number of large companies get access to such services.