S&P: State Oil Fund of Azerbaijan to increase up to $12 bn in 2010

Baku, Fineko/ International rating agency Standard & Poor’s has published its outlook “How does Azerbaijan react to the world economic crisis?”

Then outlook says that if prices for oil increase and expenditures do not exceed the oil price level stipulated in State Budget, then by the end of 2009 volume of finances in State Oil Fund of Azerbaijan will grow up to $11.5-12 bn versus $11.2 bn in December 2008.

“In this case positive balance of Azerbaijan state sector in 2009 can increase up to 32.3% of GDP. SOFAZ plays an important role in support of credit solvency of Azerbaijan. It not only allows closing gaps appearing in budget. In our view, with its help the government tries to tackle some problems relating to Dutch syndrome. The Fund is a kind of buffer allowing solution of problems appearing in country’s budget and giving a possibility to the government to follow counter-cycling policy. Besides, Fund’s finances are invested in non-oil sector and can promote to economy diversification and reduce its dependence on oil and gas industry. And at last, SOFAZ can promote to reduction of inflation caused by large flow of hard currency in a way of investing “superfluous” money outside of Azerbaijan,” the outlook says.

S&P also considers monetary and budget anti-crisis measures of Azerbaijani government and Central Bank as operative and efficient, but too expensive.

The outlook stresses that within monetary policy the CB cut refinancing rate stage by stage from 15% to 2%; expanded access to liquidity; rendered “emergency care” to some banks – the CB allocated AZN 50 million to Unibank and $250 million to commercial organizations in a form of short-term loans; gave insurance guarantees almost on all deposits.

“Anti-crisis measures cannot be called substantial as over the last few years the government increased fast expenditures on social needs.

Extra measures will most likely bear counter-cycle character, but the country’s Leadership was observed certain opposition to budget re-consideration,” the outlook says.

S&P considers substantial growth in construction industry, sector of services, agro-industrial sector conditioned by government’s stimulating measures has led to the fact that in 2008 non-oil sector of Azerbaijani economy surpassed oil industry (16% versus 11% in 2007) on growth rate.

“S&P appraises positively these tendencies but considers that they as earlier were conditioned mainly by oil earnings. In our opinion, economy and balance of budget depend as previously on oil revenues and first of all it concerns account of current operations and balance of state sector — two areas which define country’s credit capacity to the large extent. 97% of export and 39% of state revenues fell on the share of oil and gas sector in 2008,” the outlook says.

S&P also focuses on a range of factors that have negative impact on Azerbaijan’s sovereign rating. The restricted maneuvers when taking anti-crisis measures is explained particularly with insufficient foreign participation in financial and non-financial sectors of economy and non-transparency and defects of management system.

“So far relations with foreign operators, judging to everything, were good that in our opinion, should promote to increase of foreign direct investments (FDI) in oil sector, but we consider that the country needs much foreign investments in non-oil industries of economy as well, especially in banking sector,” the outlook says.


23.07.2009 18:02

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