Azerbaijan's GDP could grow by 1.5 percent in 2018, Moody’s Investors Service said in its report on February 12.
The rebound in oil prices since early 2017 has contributed to stabilization in Azerbaijan's economy, according to the report of the leading global provider of credit ratings, research, and risk analysis.
“We expect the economy to return to growth in 2018, expanding 1.5 percent after 0.1 percent growth in 2017 (based on preliminary estimates) and a 3.1 percent contraction in 2016. We also expect the fiscal balance to return to a surplus of 1.0 percent of GDP this year,” Moody’s analysts believe.
Moody’s highlighted that oil- and gas-related activities account for around 40 percent of GDP and 60 percent of fiscal revenue.
Most of Azerbaijan's gas production will be consumed domestically until the Trans-Anatolian (TANAP) and Trans-Adriatic (TAP) pipelines are fully operational and can transport gas to new export markets in the European Union, the report noted.
“Higher oil prices, currently around $65-$70 per barrel, will therefore boost economic growth and fiscal revenue,” the report said.
While positive, the boost from higher oil prices will be constrained by certain factors including Azerbaijan’s commitment to OPEC deal on oil production cuts, Moody’s analysts believe.
The size of Azerbaijan’s sovereign wealth fund remains big enough to cover all of the government debts and guarantees, according to the report.
Moody’s assesses Azerbaijan's fiscal strength as high.
Support to fiscal strength stems from the size of SOFAZ – the sovereign wealth fund – which provides, in principle, a substantial financial buffer in the event of a new shock, such as a renewed downturn in oil prices, according to the report.
The size of Azerbaijan’s sovereign wealth fund remains large at around 90 percent of GDP, and big enough to cover all of the government's debt and guarantees.
“Given that all of the assets held by SOFAZ are invested in foreign markets, this provides an effective and substantial financial buffer to mitigate the impact of a future economic shock on Azerbaijan’s fiscal strength,” the report said.
Progress on tourism and transport and logistics appear to be most advanced, according to Moody’s.