Page 16 - FSUOGM Week 35 2020

FSUOGM POLICY FSUOGM

Azeri budget changes highlight hit to

finances from oil and virus

AZERBAIJAN AZERBAIJAN'S revised 2020 budget highlights consolidated budget deficit will be primarily
the hit to its public finances from lower oil prices financed by a drawdown of Sofaz assets and
The planned deficit has and the pandemic, Fitch Ratings said on August the large cash deposits in the government's
been raised to 12.4% 26 in a non-rating action commentary. single treasury account,” Fitch also said in its
of GDP. The government’s planned deficit has been commentary.
raised to 12.4% of GDP from 2.3% in the origi- It added: “Sofaz assets were broadly flat over
nal budget, the ratings agency noted. An increase the first six months of 2020, ending June at
in the planned transfer from the country’s sov- USD43.2 billion, with changes in the value of
ereign wealth fund (Sofaz) to the budget should its portfolio offsetting lower oil revenues and
support the Azerbaijani manat (AZN) 1.7 to transfers to the budget. With nominal GDP
USD exchange rate, which has faced less pressure falling in US dollar terms and its portfolio pri-
in recent months, it also observed. marily in foreign currency-denominated assets,
“The key change in the revised consolidated Sofaz assets will remain in excess of 85% of GDP.
budget, approved by the president in mid-Au- Consequently, while most sovereigns are pro-
gust, is a lower oil price assumption,” Fitch said. jected to post large rises in debt/GDP in 2020,
“Fiscal projections are now based on an average we forecast Azerbaijan's general government
of USD35/b (consistent with Fitch's forecast for debt to increase by just 4.0pp to 23.0% of GDP,
Brent crude), compared with USD55/b in the with much of that resulting from a sharp fall in
original 2020 budget. Spending has been revised the denominator.”
up by 1.2pp of GDP. This incorporates a rise of Sofaz transfers to the state budget were
0.4pp of GDP in health expenditure compared increased to the equivalent of $7.2bn from
with the original budget, additional capital $6.7bn, supporting the AZN/USD de facto
investments to stimulate the economy amount- fixed exchange rate of 1.7, Fitch said. Sofaz sales
ing to 0.3pp of GDP, and 0.5pp of GDP in addi- of FX for manats to transfer to the budget are a
tional unspecified measures.” key source of foreign currency and helped pre-
As with many other sovereigns, counter- serve exchange rate stability, notably in March,
ing the economic impact of the coronavirus it added.
(COVID-19) pandemic has necessitated a tem- The 2020 economic growth assumption in
porary suspension of the government's fiscal Azerbaijan’s revised budget has been cut to -5.0%
rule, Fitch also said. from 2.4%. Fitch forecasts -4.2%. The cut reflects
Fitch rates oil and gas-rich Azerbaijan at coronavirus containment measures and Azer-
‘BB+’, with a ‘Negative’ outlook (revised from baijan's participation in OPEC+ oil supply cuts.
‘Stable’ in April). “A renewed lockdown in July highlights the
lingering risk of coronavirus in Azerbaijan and
"Large savings" downside risks from further waves of infections
“Despite the severe adverse impact on the fiscal and renewed lockdown measures, which could
deficit, large savings provide Azerbaijan with a further pressure real GDP growth,” Fitch con-
significant degree of financing flexibility. The cluded. ™

P16 www. NEWSBASE .com Week 35 02•September•2020