Fitch names reason for delay in Azerbaijan's plans to reduce non-oil budget deficit

International rating agency Fitch Ratings expects that oil prices higher than planned in the budget of Azerbaijan and the growth of non-oil revenues will contribute to the preservation of the state budget surplus, despite the increase in expenditures for the restoration of liberated territories, Azernews reports.

The rating action said in connection with the affirmation of Azerbaijan's long-term foreign currency Issuer Default Rating (IDR) at 'BB+' with a positive outlook.

"According to our estimates, the consolidated budget surplus will grow to 7.8% of GDP in 2023. Despite this, Azerbaijan has postponed for one year (until 2027) the targeted reduction of the non-energy primary deficit to 17.5% of non-oil GDP (from 25% in 2023). in line with its budget rule to meet Garabagh and defense-related spending commitments," the agency notes.

The government has also increased the public debt ceiling to 30% of GDP (previously 20%). Fitch believes that this rule has limited practice and a weak institutional framework in terms of oversight and setting budget targets.

The agency emphasizes that the country's public debt rose to 21.8% of GDP in 2023 after the government borrowed more than 8% of GDP domestic guaranteed debt from non-banking credit institution Agrarkredit. Fitch forecasts that debt will average 21.6% of GDP in 2024-2025, the lowest in the BB category.

External government guarantees and re-lending have fallen to USD 6 bln (8.2% of GDP) in 2023, much of it related to the Southern Gas Corridor project, which is profitable and unlikely to require government support.