S&P: Azerbaijan's current account surplus in 2022 will be highest of last decade

Azerbaijan will run the highest current account surplus in over a decade this year, Report informs, citing the statement of S&P Global Ratings on the affirmation of long-term and short-term foreign and local currency sovereign credit ratings of Azerbaijan at the level of "BB+/B".

"Based on our 2022 Brent oil price forecast of $102/bbl and projected oil production of an average of 0.72 mbpd (a 2.5% year-on-year decline as oil fields age), we expect a current account surplus of almost 24% of GDP in 2022, following a 15% of GDP surplus in 2021," says S&P.

S&P analysts note that the launch of the Shah Deniz II (SDII) gas project in 2018 and its further expansion over the next three-to-four years should also support Azerbaijan's external performance.

"However, this is moderated by our projections of stagnating oil production over the medium term, while imports rebound as domestic consumption recovers and the authorities deliver on planned reconstruction activities in Nagorno-Karabakh. Combined with our assumption that oil prices will decline to $55/bbl in 2024, Azerbaijan's current account surpluses will turn into deficits toward the end of the four-year forecast horizon," S&P says.

Nevertheless, according to S&P, Azerbaijan's strong external stock position will remain a core rating strength, reinforced by the large amount of foreign assets accumulated at the State Oil Fund of the Republic of Azerbaijan (SOFAZ).

"We estimate that external liquid assets will surpass external debt through 2025. 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," the agency says.

S&P predicts liquid assets of Azerbaijan to be 54.3% of GDP in 2022 against 69.7% in 2021; in 2023 - 60.9%, in 2024 - 68.4%, and in 2025 - 64.8%.