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Moody's expects slowdown in government debt’s growth rate, decline in inflation

22 February 2018 16:10 (UTC+04:00)
Moody's expects slowdown in government debt’s growth rate, decline in inflation

By Kamila Aliyeva

Moody’s expects inflation to decrease in Azerbaijan in 2018 and 2019, Moody’s Investors Service said in its report on February 22.

The agency forecasts inflation to be six percent in 2018 and five percent in 2019.

“Inflation in Azerbaijan amounted to 5.5 percent in January 2018. Absent a major weakening of the manat, we expect that inflation will stabilize at around 5-6 percent as confidence in the stability of the exchange rate grows, bringing down inflation expectations. In such a scenario, the central bank would likely ease monetary policy further, having already cut the refinancing (policy) rate to 13 percent from 15 percent in February,” Moody’s analysts believe.

The agency also expects GDP to grow in the country in 2018 and 2019. Thus, according to the Moody’s forecasts, Azerbaijan's GDP in 2018 will grow by 1.5 percent, and in 2019 - by 2 percent.

The inflation rate is expected to reach 6-8 percent in the country in 2018, according to the forecasts of the Central Bank of Azerbaijan. The country’s GDP is expected to grow by 1.5 percent this year. In 2017, the inflation rate in Azerbaijan was 12.9 percent, while GDP growth was 0.1 percent.

At the same time, according to Moody’s, the growth rate of direct and guaranteed government debt of Azerbaijan will be reduced within the next three years.

The growth of direct and guaranteed government debt to taper over the next three years as a result of the implementation of a set of fiscal rules intended to shrink the government’s budget deficit and the completion of several major projects, the report said.

“However, the State Oil Company of Azerbaijan (SOCAR) doubled its stake in Azeri-Chirag-Gunashli (ACG), the country's main oilfields complex, in the context of the renegotiated long-term production sharing contract with BP and other partners. This higher stake will likely require that SOCAR take on additional upgrade costs in an effort to slow the decline of the ageing field's output, in so doing expanding the government's contingent liabilities and/or explicit debt guarantees beyond the $3.6 billion payment that Azerbaijan will receive from SOCAR's ACG partners,” according to Moody’s.

The agency expects that the ratio of government debt to GDP in 2018 will be 53.4 percent, and in 2019 - 53.8 percent. In 2017, Moody’s predicted the ratio of state debt to GDP at the level of 53.6 percent.

This means a significant reduction in the growth rate of government debt after the growth in 2017 was 2.9 percentage points, and in 2016 - 15.7 percentage points.

According to the Ministry of Finance of Azerbaijan, as of January 1, 2018, Azerbaijan's external government debt amounted to $9.3 billion (15.9 billion manats), which is 22.8 percent of the country's GDP.

The external government debt consists of direct liabilities as well as contingent liabilities emanating from sovereign guarantees.

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

Follow us on Twitter @AzerNewsAz

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