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Fitch Says Azerbaijan’s Oil Output to Be Stable

International Rating Agency Fitch Ratings has affirmed Azerbaijan's long-term foreign and local currency issuer default ratings (IDR) at 'BBB-'.

The agency also affirmed the issue ratings on Azerbaijan's senior unsecured foreign and local currency bonds at 'BBB-', while the country ceiling has been affirmed at 'BBB-' and the short-term foreign currency IDR at 'F3'.

"The affirmation reflects Fitch's expectation that oil production will remain broadly stable for the next five years," the agency said.

"Oil production grew by 0.3 percent in 2013, halting a steep decline from the 2010 peak. New wells and a possible extension of the production sharing agreement between the BP-led consortium and country's government will mitigate natural output decline rates. The natural gas export outlook is also more certain, after stakeholders in the Shah Deniz 2 natural gas project chose an export route to Europe in December, 2013.

The government plans to progressively reduce transfers to the budget from SOFAZ, the State Oil Fund, and generate more non-oil revenue. Oil revenues will still account for around two-thirds of the budget, underscoring high dependence on commodity prices. The 2014 budget calls for spending growth to halve on the previous year to just 5 percent in nominal terms, so that spending as a share of GDP, which reached 39 percent of GDP in 2013, will stop growing."

Azerbaijan's sovereign balance sheet is one of the strongest among rated sovereigns and underpins the rating. SOFAZ accumulated $1.7bn in 2013 to reach $35.9bn (49 percent of GDP) by the end of 2013. International reserves of the Central Bank of Azerbaijan (CBA) are a further USD14.4bn. Fitch expects further modest growth in sovereign assets, providing a buffer against oil price or production shocks.

"Fitch estimates the current account surplus at nearly 18 percent of GDP in 2013, driven by a wide trade surplus. The current account surplus will narrow but remain in excess of 10 percent of GDP in 2015," the agency said.

Source: AzerNews

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