BAKU

The international rating agency S&P Global Ratings has affirmed Azerbaijan’s long-term and short-term sovereign credit ratings in foreign and national currencies at ‘BB +/B’, keeping the outlook ‘Stable’.

“The stable outlook reflects our expectation that the ceasefire agreement between Azerbaijan, Armenia, and Russia will broadly hold, underpinning a reduction in war-related security, financial sector, and balance-of-payments risks,” the agency said in a statement.

S&P said that the decision also reflected its view that a rebound in economic activity and comparatively higher hydrocarbon prices would, over the next 12 months, prevent Azerbaijan’s fiscal and external positions from deteriorating materially from strong levels.

“We could consider an upgrade if external surpluses were higher than we expect, resulting in further external asset accumulation. This could happen, for example, if hydrocarbon revenue increases markedly,” the agency said.

According to S&P, the rating upside could also build if the government implements reforms addressing some of Azerbaijan’s structural impediments, including constraints to monetary policy effectiveness stemming from high financial dollarization and a still-weak domestic banking system.

“We do not expect material economic and financial sector risks to Azerbaijan’s credit profile from the conflict (with Armenia) over our rating outlook horizon. Despite heightened geopolitical uncertainties, there has not been any increased conversion of domestic residents’ savings to foreign currency or their outright withdrawal from the banking system,” S&P said.

S&P said it considered that Azerbaijan’s fiscal and external stock positions remained among the strongest of sovereigns we rate in the ‘BB’ category, despite lower hydrocarbon prices and the COVID-19-induced economic slowdown.

Large liquid government assets, projected at an average of about 74 percent of Gross Domestic Product (GDP) in 2021-2024, will continue to provide a buffer against economic and financial shocks.

Reflecting our oil price and production assumptions, and considering Azerbaijan’s participation in the OPEC+ production cut agreement, we expect external receipts and fiscal revenue will gradually rise over the medium term,” S&P said.

It added that it had expected that the government’s import-driven reconstruction measures in the territories surrounding Nagorno-Karabakh would, for now, have a moderate impact on fiscal and external flows.

In January, S&P Global Ratings revised its outlook on Azerbaijan to stable from negative.