BAKU, Azerbaijan, July 26
By Fidan Babayeva – Trend:
Amid increased pressures from the COVID-19 pandemic and lower oil prices, S&P Global Ratings now expect Azerbaijan's real GDP will shrink by 6.9 percent in 2020 before rebounding to about 3 percent growth in 2021, Trend reports.
“The stable outlook reflects our expectation that, despite the lower hydrocarbon prices and economic contraction in 2020, growth will rebound starting next year and will prevent Azerbaijan's fiscal and external positions from deteriorating materially,” S&P said.
On July 24, 2020, S&P Global Ratings affirmed its 'BB+/B' long- and short-term foreign and local currency sovereign credit ratings on Azerbaijan. The outlook on the long-term ratings is stable.
“However, we expect Azerbaijan's economy will grow only modestly in the medium term, compared with countries at similar levels of economic development,” S&P said. “We assume the de facto manat exchange rate peg to the U.S dollar will remain in place, supported by the government's large external assets.”
“We could lower the ratings if Azerbaijan's fiscal and external balances do not start improving in 2021 as we currently expect,” S&P said. “This could happen, for example, as a result of a substantial decline in hydrocarbon revenue beyond our assumptions or if increased fiscal pressures from COVID-19 and the economic slowdown persisted beyond the current year.”
“Despite the sharp decline in economic activity associated with the COVID-19 pandemic and lower hydrocarbon prices, Azerbaijan's fiscal and external positions remain among the strongest of sovereigns we rate in the 'BB' category,” S&P said.
Large liquid government assets, projected at an average of about 85 percent of GDP in 2020-2023, will continue to provide a buffer against external shocks.
“Reflecting our oil price and production assumptions, and taking into account Azerbaijan's participation in the recent OPEC+ production cut agreement, we expect the twin deficits to be temporary, reverting to surpluses over the medium term,” S&P said.
S&P Global Ratings predicts an increase in the consumer price index in Azerbaijan this year by 1.8 percent compared to 2019.
The inflation rate will reach 3.7 percent in 2021, 2.9 percent - in 2022, 2.5 percent - in 2023.
The economy will rebound from 2021, supported by a recovery in domestic consumption aided by fiscal stimulus and higher hydrocarbon exports.
Amid decreased global demand for energy resources and lower oil prices, the country's hydrocarbon exports will also fall sharply in 2020.
“We assume an average Brent oil price of $30/bbl in the rest of 2020, $50/bbl in 2021, and $55/bbl from 2022,” S&P said. “We expect Azerbaijan's crude oil production will shrink by about 15 percent this year from 713,000 bbl per day in 2019, due to the country's compliance with the OPEC+ extended production cut agreement in June this year.”
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