Fitch forecasts a sizeable increase in Azerbaijani foreign exchange reserves, Paul Gamble, a senior director in the Sovereigns team at Fitch Ratings, AzVision.az reports citing Trend.
In his words, Fitch’s revision in May of the Outlook on Azerbaijan’s BB+ rating from Negative to Stable reflected the resilience of the sovereign balance sheets to the pandemic and to last year’s oil price shock.
"In particular, sovereign foreign-currency assets ended 2020 at $49.9 billion, slightly higher than a year earlier. And external finances are further supported by the higher oil price (in June Fitch revised up its oil price forecast for this year to $63/b, with $55/b in 2022). Reflecting this, we now forecast the current account surplus averages 7 percent of GDP in 2021-2022 (from a small deficit in 2020), leading to a sizeable further increase in foreign exchange reserves," he said.
Fitch has maintained its GDP growth forecast of 2.1 percent this year for Azerbaijan, and 2.9 percent in 2022, supported by a gradual increase in oil production (in line with Azerbaijan's OPEC plus quota) and recovering non-oil GDP.
"There has been a moderate COVID-19 vaccination rollout (34 does per 100 people have been administered) but the recent wave has subsided (with a 7-day average of 50 new cases) and we assume economic restrictions remain limited – although a further severe wave represents a downside risk to our forecast," he explained.
Gamble noted that in Azerbaijan Fitch expects structural economic rigidities and impediments to competition to constrain faster growth in non-oil FDI inflows and in economic diversification.
"The key factors that weigh on Azerbaijan’s rating are weak governance indicators and lack of predictability and transparency of policy-making, especially in relation to the exchange rate regime, as well as high banking sector dollarization and dependence on the hydrocarbon sector," Gamble added.