By Ayya Lmahamad
The international rating agency Fitch Ratings forecasts Azerbaijan's real GDP to recover to 2.5 percent in 2021 and 2.8 percent in 2022 as oil prices and aggregate demand recover, but constrained by the impact of low oil prices on oil and gas investments.
Moreover, Fitch forecasted a real GDP growth to contract by 4.2 percent in 2020 due to the lockdown in major cities and the sharp fall in oil prices. It should be noted that in April, Fitch predicted a decline in Azerbaijan’s economy at 4.8 percent in 2020.
Oil production volumes have also been affected by Azerbaijan’s participation in OPEC+ oil supply cuts in May- June, with a possible extension to the rest of 2020. Thus, growth will only be partly offset by ongoing government packages announced in 2019 and AZN 2.5 billion (3.1 percent of GDP) in households and businesses support measures from reallocated expenditures in the original 2020 budget.
Furthermore, as Azerbaijan is highly dependent on energy resources, oil and gas accounts for about 40 percent of GDP, 81 percent of goods and services export revenues and two-thirds of fiscal revenues in 2019. Although it is forecasted the current account balance to deteriorate to 4 percent of GDP in 2020, it will return to surpluses of 4.4 percent and 6.1 percent in 2021 and 2022, respectively.
Likewise, according to the statement, Azerbaijan’s very strong external balance sheet is absorbing most of the impact from lower oil prices. Reserves at the end of 2019 amounted to $49.5 billion, which is enough to cover 27 months of imports. It is forecasted that in 2020 they will declined to $38.3 billion (23 months of imports). In addition, external assets include mainly SOFAZ assets, which amounted to $41.3 billion at the end of the first quarter of 2020, and foreign exchange revenues of the Central Bank of Azerbaijan, which increased slightly to $6.4 billion at the end of May 2020.
Additionally, the agency forecasts that in 2020 the surplus of the consolidated budget will be replaced by a deficit of 6.8 percent of GDP.
“The sharp fall in oil prices will greatly reduce oil fiscal revenues flowing into SOFAZ, while automatic stabilisers are expected to increase current spending on social payments and benefits as the unemployment rate rises to 8 percent from 5 percent in 2019. (…) We forecast public debt to increase to 23 percent of GDP by the end of 2020 but return to 19 percent by 2022,” the statement reads.
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