Azerbaijan’s expenditure on liberated territories to amount to GDP’s 2.2% in 2022

Fitch Ratings forecasts 2.1% growth of Azerbaijan’s GDP in 2021 and 2.9% in 2022, below the projected ‘BB’ median of 4.2% growth, Report informs, citing the agency.

In 2020, the country’s GDP contracted 4.3%.

“A gradual increase in oil production (in line with Azerbaijan’s OPEC plus quota) and recovering non-oil GDP (which fell 2.6% last year) will support strengthening activity from 2H21.

Azerbaijan’s current Covid-19 wave has peaked at around half the level of December’s spike and we assume economic restrictions remain limited, also supported by the vaccination rollout, currently 14 doses per hundred people,” the agency said.

Fitch expects oil and gas production capacity to be broadly flat in 2022 (as maturing oil extraction is offset by growth in the gas sector) and to gradually decline thereafter. Fitch anticipates there will be only limited reform progress, and that structural rigidities and impediments to competition will constrain faster growth in non-oil FDI inflows and in economic diversification.

Fitch forecasts the current account returns to surplus, of 5.9% of GDP in 2021 and 4.7% in 2022 (following a 9.6pp deterioration in 2020 to a deficit of 0.5% of GDP), largely reflecting the higher oil price. Net FDI is also projected to recover to average 1.7% of GDP in 2021-2022.

“We forecast the sovereign net foreign asset position increases to 84.9% of GDP at end-2022 from 83.1% at end-2020, compared with the ‘BB’ median of –3.7%,” the agency noted.

Fitch forecasts the general government deficit narrows from 6.5% of GDP in 2020, to 0.2% in 2021 and 0.7% in 2022 (which compares favourably with the ‘BB’ medians of 5.2% and 3.6%).

“This is driven by strong revenue growth due to the higher oil price and to a lesser extent, a gradual rise in OPEC plus production quotas and the recovery in non-oil GDP (with budgeted SOFAZ transfers unchanged on 2020). We assume additional expenditure on the reclaimed territories totals 1.9% of GDP in 2021 and 2.2% of GDP in 2022, and that the large majority of the Covid-19 support package (totalling near 2.4% of GDP in 2020) is unwound by 2H21,” Fitch added.