Azernews.Az

Friday March 29 2024

Main factors named for Azerbaijan's economic growth in 2018 [UPDATE]

1 March 2018 12:25 (UTC+04:00)
Main factors named for Azerbaijan's economic growth in 2018 [UPDATE]

By Kamila Aliyeva

The most topical issues related to Azerbaijan’s economy and banking sector were discussed at the annual conference of Fitch Ratings international rating agency in Baku on March 1.

The meeting gathered top managers of the largest corporations in Azerbaijan, major banks and non-banking financial institutions, representatives of the international investment community, local and regional governments and mass media.

The event speakers on behalf of Fitch Ratings were Amelie Roux, director of sovereign and supranational rating analysis group, Dmitry Marinchenko, director of natural resources and commodities group, James Watson, managing director of the financial institutions group, and Ruslan Bulatov, associate director of the financial institutions group.

Azerbaijan’s state budget may become deficit-free in 2018 and the subsequent years, Amelie Roux said at the meeting.

She noted that the deficit of Azerbaijani state budget was quite low in 2017, which makes it possible to predict the deficit-free implementation of the budget in 2018 and in subsequent years.

The state budget deficit of Azerbaijan was lower than that of Kazakhstan and Russia last year, Amelie Roux said.

Fitch expects that Azerbaijan’s state budget will be executed with a surplus of 0.6 percent by the end of 2018, and the rating agency’s forecast regarding the surplus of Azerbaijan’s state budget for 2019 is 2.5 percent, she said.

She noted that such forecasts by Fitch are mainly related to gradual decrease in budget expenditures in Azerbaijan. If in 2016, Azerbaijan’s state budget expenditures amounted to 35.7 percent of GDP, they amounted to 35.1 percent of GDP in 2017.

Azerbaijan’s GDP will be 74.1 billion manats in 2018 and 81.9 billion manats in 2019, According to Fitch forecast.

Fitch raised the outlook for Azerbaijan’s sovereign rating from “negative” to “stable” a month ago, according to Roux.

She further said that the agency identifies three main reasons for improving the forecast for the rating.

The main reasons for this are the gradual decline in the level of dollarization in the country, the stabilization of manat rate since April 2017 and, as a result, the growth of confidence in it, as well as the process of restructuring the International Bank of Azerbaijan, which had a positive impact on the banking sector as a whole, Roux noted.

She noted that the stabilization of the manat rate had a positive impact on prices for consumer goods, and also led to increased confidence in manat.

“As a result, the dollarization of both loans and deposits began to gradually decline and amounted to 70 percent and 40 percent, respectively, at the end of the year. Another factor that affected our forecast was the return of Azerbaijan's current account to the surplus, which was affected by higher oil prices, as well as the growth of non-oil exports, particularly, the export of agricultural products, which increased by 31.3 percent in the first three quarters of 2017 compared to the same period of 2016. Fitch expects that the surplus of the balance of payments will be 3.1 percent at the end of the year,” she said.

According to Roux, this, in turn, had a positive impact both on the gold and foreign currency reserves of the Central Bank of Azerbaijan, and on SOFAZ reserves, which grew by 22 and 8 percent, respectively.

Roux also noted the positive impact of the restructuring of IBA, which will be completed soon.

“Along with the restructuring of external liabilities worth $2.3 billion in July 2017, the bank issued bonds worth $1 billion. A part of the bank’s toxic assets was transferred to the Aqrarkredit non-bank credit organization in 3Q17. Thus, the transferred toxic assets amounted to 14 billion manats (20 percent of GDP). The government intends to transfer a small part of toxic assets until the end of the first quarter,” Roux added.

Addressing the meeting, Arzu Huseynova, the deputy director of the Research Institute of Economic Reforms under the Azerbaijani Economy Ministry, said that the Azerbaijani government points to six main factors for the economic growth of the country in 2018.

She said that the country’s natural resources, population growth, human capital development, institutional reforms, promotion of the development of technologies and comprehensive measures to diversify the Azerbaijani economy can be noted as the main factors of economic growth in Azerbaijan this year.

Asim Zulfugarov, deputy executive director and director of Strategic Services Department of Azerbaijan’s Financial Market Supervisory Authority (FIMSA), while speaking at the event, said that capitalization of Azerbaijani banks will continue to increase in 2018.

He noted that this is related to the capital injections by the banks of Azerbaijan.

“Since the beginning of this year, a number of Azerbaijani banks have already increased their authorized capital. Moreover, currently, we expect further growth of market capitalization, as a number of banks plan to inject capital in the total amount of 400 million manats,” he added.

Director of the Monetary Policy Department of the Central Bank of Azerbaijan Azar Alasgarov, who also attended the meeting, said that the level of dollarization will gradually decline in Azerbaijan.

Dollarization in Azerbaijan reached its peak, totaling about 80 percent in early 2017, but it began to decline gradually during the year and it decreased by 10 percentage points by the end of the year, he noted.

“We believe that dollarization will continue to decline in the short term,” Alasgarov added.

Ruslan Bulatov, addressing the event, said that the international rating agency Fitch Ratings expects the growth of the aggregate loan portfolio of Azerbaijani banks in 2018.

“We believe that the process of restructuring of the International Bank of Azerbaijan in 2018 will have significantly less impact on the credit portfolio of the banking sector, and by the end of the year it will grow, albeit insignificantly,” Bulatov stressed.

The IBA is at the stage of recovery since July 2015, which is related to the preparation for the privatization of the bank’s state-owned shares. In July 2017, creditors of the IBA adopted a plan of voluntary restructuring of the bank’s foreign liabilities.

As a result of the restructuring, the bank exchanged foreign currency liabilities of about $3.34 billion for new bonds of the bank and the state.

He went on to say that a number of Azerbaijani banks do not meet the requirements of the regulator.

Bulatov noted that at the end of 2017 four banks - Bank Respublika, AGBank, Bank of Baku and AccessBank - did not meet the minimum capital requirements of the Chamber of Supervision of Financial Markets of Azerbaijan.

About 25 percent of Azerbaijani banks’ aggregate loan portfolio accounts for the restructured loan portfolio of the International Bank of Azerbaijan (IBA), he said.

He added that IBA’s non-performing loans account for 18 percent of Azerbaijani banks’ aggregate loan portfolio.

The meeting program consisted of two main sessions which addressed Azerbaijan sovereign outlook and country’s banking sector. The annual event presents a valuable opportunity for informal communication between representatives of regulatory bodies, Fitch analysts and experts.

---

Kamila Aliyeva is AzerNews’ staff journalist, follow her on Twitter: @Kami_Aliyeva

Follow us on Twitter @AzerNewsAz

Loading...
Latest See more