The international rating agency S&P Global Ratings has confirmed Azerbaijan's long-term and short-term sovereign credit ratings in foreign and national currencies at 'BB+/B' with a stable outlook.
Report informs citing S&P that the "stable" outlook reflects expectations that favorable hydrocarbon prices will support Azerbaijan's financial position and balance of payments next year, despite the projected medium-term decline in oil production.
The agency said it might an upgrade if Azerbaijan maintains a higher external surplus for longer than expected, leading to significant additional accumulation of external assets. It added that the ratings could also rise if the government implements reforms to remove some of the structural impediments, including undiversified the nature of the economy and limits on the effectiveness of monetary policy.
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). According to the agency's forecasts, the government will have access to liquid assets in the amount of about 55% of GDP until 2026, and gross general government debt will gradually decrease to 17% of GDP by 2026 from an estimated 19% of GDP at the end of 2022. In addition to the current strong inventory position, favorable oil prices should also support Azerbaijan's fiscal and balance of payments execution.
However, Azerbaijan's economy remains focused on the oil and gas sector, which accounts for about 50% of the country's nominal GDP. Consequently, Azerbaijan remains vulnerable to any possible adverse changes in hydrocarbon prices, S&P notes.