S&P affirms Azerbaijan ratings at 'BBB-/A-3'; outlook stable

On Aug. 1, Standard & Poor's Ratings Services affirmed its 'BBB-/A-3' long- and short-term sovereign credit ratings on the Republic of Azerbaijan. The outlook is stable.

The affirmation reflects our view that Azerbaijan's general government net asset and external creditor positions are currently solid, despite some gradual weakening from the previous several years when the country experience rapid oil-related revenue growth. Although we expect the general government budget to start running deficits and accumulating debt, we anticipate that the overall fiscal profile will remain strong over the next couple of years.

The ratings are constrained by Azerbaijan's modest economic wealth levels, generally weak institutional and governance effectiveness, and limited monetary flexibility.

"We project a modest slowdown in economic growth to about 4% in 2014-2017 from 5.8% in 2013, due to stagnating oil production, gradual weakening of oil prices to about $103/barrel in 2015-2016, and decelerating growth rates in the non-oil sector. We think that lower public-sector capital spending will further slow economic growth. Nevertheless, we anticipate that GDP growth will be supported by a substantial inflow of investment into the development of new oil and gas fields, in conjunction with last year's increase in public-sector salaries and other social-related expenditures. Long-term GDP per capita growth of about 3.0% is in line with that of Azerbaijan's peers, although the country's wealth levels remain relatively low, with GDP per capita estimated at US$8,300 in 2014," S&P said.

Over the long term, higher gas production should support economic growth and compensate for stagnating oil production. The major new Shah Deniz II gas field is expected to come onstream in 2018, and will bring gas directly from Azerbaijan to Europe for the first time. In late 2013, the final gas pipeline route was determined, and currently the development of the Trans-Anatolian and Trans-Adriatic pipelines are on track. These will be constructed by a consortium of Azerbaijan's state-owned oil and gas company (SOCAR), international oil and gas corporations, and the newly created Southern Gas Corridor CJSC, that will likely benefit from capital support via the State Oil Fund of the Republic of Azerbaijan (SOFAZ), the country's sovereign wealth fund.

Bakudaily.az