Fitch Ratings: Oil prices positively affect Azerbaijan’s economy

The rise in oil prices this year was a key factor in the sharp recovery of the current account balance, due to which the Fitch international ratings agency in May changed the Outlook on Azerbaijan’s ‘BB+’ rating from Negative to Stable, Douglas Winslow, director at Fitch Ratings on Azerbaijan, and his colleague Paul Gamble, head of Emerging Europe Sovereign Ratings, told Report.

“This was an important factor in Fitch’s decision in May to move the Outlook on Azerbaijan’s ‘BB+’ rating from Negative to Stable. At the review we highlighted the strength of Azerbaijan’s sovereign balance sheet had been preserved during the pandemic and is supported by upward revisions of Fitch's oil price forecasts, further easing the risk of a disorderly macroeconomic adjustment,” they said.

“This year’s increase in the oil price has been a key driver of the sharp rebound in the current account balance which we project at 7.9 percent of GDP in 2021 (from a deficit of 0.5 percent of GDP in 2020) – the highest in the ‘BB’ peer group,” they added.

Fitch predicts the average oil price during this period at $63 per barrel, up from $43 per barrel in 2020.

“Global energy prices are the dominant factor in changes to Azerbaijan’s export receipts and overall balance of payments this year. Oil and gas together accounted for 86 percent of total exports in 2020 and 87 percent in the first half of 2021 (predominately from the oil sector),” they concluded.

Fitch Ratings expect that oil production volumes will largely follow the OPEC production quota. The latest OPEC forecast is for Azerbaijan to produce 0.75 million barrels per day on average in 2021, only slightly higher than the 0.73 million average last year (but rising further to 0.82 million in 2022).