Bloomberg Businessweek

Friday, December 23, 2011,

ZULFUGAR AGAYEV

(Updates with oil revenue in first paragraph, energy production in fourth, debt in fifth, outlook in sixth.)

Dec. 23 (Bloomberg) -- Azerbaijan’s sovereign-credit rating was raised to investment level at Standard & Poor’s, which cited oil revenue driving “substantial” fiscal and external buffers created by public assets and international investments.
S&P raised the nation’s credit assessment one step to BBB-, the lowest investment grade, from BB+, it said today in a statement. The outlook is stable on the rating, which is on par with Azerbaijan’s evaluation at Fitch Ratings and one step above its assessment at Moody’s Investors Service.

Azerbaijan’s “growing public-sector net-asset and international-investment positions have reached a point where they constitute substantial fiscal and external buffers,” the rating company said in its.

The Caspian Sea nation is the third-biggest energy producer in the former Soviet Union, with Russia and Turkey as its biggest export markets. Companies led by London-based BP Plc have invested about $33 billion in the country’s oil and gas fields since 1994. Azerbaijan produced 51 million metric tons of oil and 26 billion cubic meters of gas last year.
Gross government debt, at 6 percent of gross domestic product this year, is “small,” according to S&P. Azerbaijan’s GDP per capita contracted 0.8 percent in 2011 because of lower oil production even as public spending rose, S&P said, adding that it expects per capita growth of 1.9% next year.

Oil Outlook

The medium-term prospects for oil extraction have improved and Azeri exports may increase to about 50 million tons per year by 2014, it said. Assets at the State Oil Fund of Azerbaijan, or Sofaz, which is a fiscal reserve fund invested externally, will amount to 56 percent of GDP in December 2011, up from 42 percent at the end of 2010, according to the credit evaluator.

Azerbaijan may have a budget surplus of about 10 percent of GDP next year as the price of crude oil may be higher than assumed by the government, S&P said. That will mask a “large” increase in public spending, it added.

The stable outlook balances S&P’s expectation of strengthening external and fiscal accounts against “moderate” growth and diversification prospects in an “unreformed” institutional framework, the ratings company said.

S&P may raise the ratings if there is “significant” improvement in the business environment, and acceleration of structural reform and economic diversification efforts, or a strengthening of monetary policy and the banking system.
A shortfall in expected external and fiscal buffers, an escalation of geopolitical tensions or “pronounced” disruption of domestic stability may lead to downward ratings pressure, it said.

Link to article