Fitch: Azerbaijan’s government debt remains contained

# 08:16
25 February 2017

Beyond 2017, the fiscal balance in Azerbaijan is expected to improve as oil prices recover; the envisaged adoption of a fiscal rule could reduce the pro-cyclicality of public finances over the medium term, says Fitch Ratings, APA-Economics reported.


Deficits are largely financed by ample assets accumulated in Sofaz. Despite a decline in the USD value of assets in 2015-2016, they accounted for a comfortable 92% of GDP at end-2016 (USD33.1bn), were largely held in safe, liquid assets, and were reported much more transparently than in most higher-rated oil producers. Government debt therefore remains contained, at 22.5% of GDP at end-2016, much lower than the 'BB' median of 51.1%. Although public debt has an unfavourable currency composition (88.2% was denominated in foreign currency at end-2016), this is mitigated by the USD denomination of most Sofaz assets.


FX reserves fell to a historical low of USD3.9bn at end-2016 (2014: USD13.8bn), just covering three months of current account payments. In a move to preserve FX reserves and Sofaz assets, the central bank adopted a managed float regime in 2016, which it intends to convert into a free float in 2017. Ongoing volatility of the manat undermines confidence in the currency.