Azerbaijan’s net int’l investment position until 2028 evaluated

Azerbaijan’s external liquid assets will surpass external debt through 2027 and the net international investment position will average 68% of GDP in 2024-2027, reads a report by the international rating agency S&P Global Ratings affirming Azerbaijan’s sovereign credit ratings, Report informs.

“Although Azerbaijan remains vulnerable to potential terms-of-trade volatility, we consider that its large net external asset position will serve as a buffer that could mitigate the potential adverse effects of economic cycles on domestic economic development. Based on our oil price and production forecasts, we expect that Azerbaijan's current account surplus will average 7% of GDP over 2024-2027, following a record 30% of GDP current account surplus in 2022, the highest level in over a decade,” reads the report.

“We forecast general government fiscal surpluses to average 1.7% of GDP over 2024-2027, gradually declining toward balance as expenditure increases (including on additional investments in Karabakh), while oil production remains flat.

The authorities have made provision for a recurrent deficit in the consolidated budget in the next several years, but this is based on an average oil price of $60/bbl, versus our forecast price of $80/bbl. Indeed, given the actual average oil price over 2021-2023 exceeded the budgeted one, Azerbaijan recorded a 7% of GDP average general government surplus against the official deficit projections. We forecast a general government surplus of 3.4% of GDP in 2024,” S&P analysts noted.

“Despite a rapid increase in natural gas production volumes in recent years, we consider that the related fiscal receipts for the government will remain markedly lower than from oil. For instance, even with the much higher recent prices for gas, the proceeds from Shah Deniz gas sales transferred to SOFAZ over 2023 amounted to about $1.3 billion compared with almost $7 billion for oil sales from the ACG field.

Azerbaijan’s net fiscal asset position remains strong, mirroring its external position and supporting the sovereign ratings. We expect that the net general government asset position will remain about 50% of GDP through 2027. In calculating net general government debt, we include our estimate of SOFAZ's external liquid assets. We exclude less-liquid exposures equivalent to about 14% of 2023 GDP--including the fund's domestic investments and certain equity exposures abroad--because we consider that they could not be liquidated quickly when needed. Azerbaijan is far more transparent than many of its peers (such as those in the Gulf Cooperation Council) about the composition of its assets and size of the sovereign wealth fund. For example, SOFAZ publishes detailed audited annual reports with granular information on the categories of investments it holds,” S&P added.