“After several years of the exchange rate remaining stable, the Central Bank of the Republic of Azerbaijan (CBA) devalued the Azerbaijani manat (AZN) against the US dollar by 33 percent (manat per dollar rate) in February 2015,” said the S&P. “The decision followed a sustained decline in CBA’s foreign-exchange reserves in the preceding months to about $15 billion at the start of February 2015 from $17 billion in November 2014.”

S&P also said it expects CBA`s foreign-exchange reserves to remain stable through the rest of the year.

“They continued to decline during February to April but stabilized in
May,” said the ratings agency.

S&P believes that the Azerbaijani manat remains largely pegged to the US dollar, even though CBA announced a move to a regime targeting a euro-dollar currency basket.

The ratings agency’s analysts said the rapid dollarization after the February devaluation will further weaken the already-weak monetary flexibility.

“As of end-May foreign currency deposits exceeded 70 percent of total
deposits, a significant increase from 50 percent in January,” said the S&P.

The agency also said the CBA’s recent lowering the refinancing rate to 3.0 percent from 3.5 percent will not have a significant effect on stimulation of the non-oil growth, support for small and medium size enterprises and
mortgage lending.

“At the same time, we also project imports to contract following the devaluation and expect net exports to contribute positively to GDP growth,
forecast at 2.2 percent in 2015, down from 2.8 percent in 2014,” said S&P.

“From 2016, a gradual recovery in consumption and stronger investments will support stronger economic performance, which nevertheless will remain much weaker than during the pre-2008 boom years when it consistently exceeded 20 percent annually,” the agency said further.

S&P also added that it forecasts credit growth to reduce to 12 percent this year from 24 percent in 2014.

More about: