S&P affirms Azerbaijan's sovereign ratings at "BB+/B"

The international rating agency S&P Global Ratings has confirmed the long-term and short-term sovereign credit ratings of Azerbaijan in foreign and national currency at “BB+/B” with a stable outlook.

The stable outlook reflects expectations that favourable hydrocarbon prices will support Azerbaijan's financial position and balance of payments next year, despite the projected medium-term decline in oil production, Report informs, citing S&P.

“We may consider upgrading the rating if Azerbaijan maintains a higher external surplus for longer than we expect, leading to significant additional accumulation of external assets. The ratings could also rise if the government implements reforms to remove some of the structural obstacles, including the undiversified nature of the economy and limits on the effectiveness of monetary policy," the report said. 

According to the agency's analysts, Azerbaijan's strong fiscal and external stock positions are a key support for sovereign ratings.

“The government has accumulated significant liquid assets, mainly from the State Oil Fund of Azerbaijan [SOFAZ]. We project that the government will have access to liquid assets of about 55 per cent of GDP until 2026, while gross general government debt will gradually decline to 17 per cent of GDP by 2026 from an estimated 19 per cent of GDP at the end of 2022. In addition to the existing strong position of reserves, favourable oil prices should also support Azerbaijan's budget and balance of payments execution," the statement noted. 

"However, Azerbaijan's economy remains concentrated in the oil and gas sector, which accounts for about 50 per cent of the country's nominal GDP. Consequently, Azerbaijan remains vulnerable to any possible adverse changes in hydrocarbon prices,” S&P notes.