Rating of confidence towards Azerbaijan
By Ilaha Mammadli
International rating agencies, amid global instability, continue
to keep focus on the situation in not only developed countries, but
also the emerging markets, including those in the CIS area.
A rating assessment, as is known, is a criterion that determines
the reliability of both the country and the institutions operating
within it. So, maybe the most important reliability indicator, and,
so to say, the solidity indicator, is the country’s place in an
international rating.
Rigging results in such ratings is unlikely possible, as they are
drawn up by international rating agencies based on lots of
factors.
Among the most reputable rating agencies in the world there are
Moody’s, Fitch Ratings and Standard & Poor’s. They have been around
for many years, they have huge experience, and their credibility is
endless.
The data from these international rating agencies make it possible
to understand what countries are the most profitable, stable and
reliable to cooperate with, that is, which markets are profitable
to invest or lend money.
These agencies assess not only the risks of countries, but also the
risks of banks, corporations, and also, evaluate a possible
economic effect from the issuance of bonds and other
securities.
Earlier, the Fitch Ratings once again affirmed Azerbaijan’s
investment rating at "BBB-" with stable outlook, thus demonstrating
the economic stability potential and maintaining high confidence of
international community.
Despite the negative impact of lowering oil prices on world markets
on fiscal and foreign currency position of Azerbaijan, the measures
undertaken by the government of the country help to reduce the
possible risks for public funds and strategic currency reserves,
which will make it possible to retain the position of Azerbaijan as
a strong external creditor.
Simply put, Azerbaijan at the expense of its own efforts will be
able to finance not only the needs of the domestic market, but also
to continue to invest in projects’ implementation abroad. By the
way, as Minister of Energy of Azerbaijan Natig Aliyev said in a
brief video comment on the results of the EBRD-hosted Caspian
Corridor Conference in London, Azerbaijan is able to self-finance
all energy projects that should be implemented until 2020.
At the same time, he was talking about such a large-scale project
as the Southern Gas Corridor, which provides for transportation of
gas from the Caspian region through Georgia and Turkey to European
countries.
In addition to that, today Azerbaijan can easily attract credit
resources from various foreign financial institutions given the
high ratings assigned to it by three internationally recognized
rating agencies, the opinion of which influences large funds.
Some $750 million drawn by SOCAR (State Oil Company of Azerbaijan)
from the international capital markets by placing its own bonds
testify to this. The rate on them is slightly more than 6.95
percent as opposed to the previous two issues of bonds, but the
fact that SOCAR could attract such a large amount for 15 years
testifies to great confidence in the energy projects implemented by
Azerbaijan.
This also allows determining the fair value level of loans for the
company. SOCAR’s such activity in terms of instability in the world
markets indicates that for the company it is not just prestige that
is important, but also the value of money, which it draws.
Correct "rate"
Fitch has also supported the Azerbaijani government’s actions on
the manat rate depreciation.
"The weak exchange rate will soften the blow on oil revenues in the
manat equivalent, while the government will reduce the
infrastructure costs from a very high level by holding back the
implementation of non-essential future projects," Fitch analysts
said.
"This combination must prevent the significant state budget deficit
in 2014 with a surplus of 2.9 percent of GDP," according to
Fitch.
Thus, the adjustment of the exchange rate of manat will allow to
avoid the considerable reduction of assets of the State Oil Fund of
Azerbaijan (SOFAZ). The transfers from SOFAZ account for over a
half of the state budget revenues and strong dollar will allow it
to save over $3 billion.
SOFAZ can save even more funds given the plans of the country’s
government to revise the budget forecasts that are based on the oil
price of $90 per barrel, while the average price has remained at
$60 since early 2015.
This is while from 2016, the expected rise in oil prices and
stabilization of oil production in Azerbaijan will allow to
increase the country’s revenues and accordingly to speed up the
economic growth. Fitch analysts presume that maintaining the
domestic political stability and other factors will positively
affect the improving of Azerbaijan’s rating in the future as well.
It is very important for the country, since as the important
element of the general program for maintaining relations with
investors, rating allows to improve Azerbaijan’s general investment
attractiveness.
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