Fitch: Azerbaijan’s fiscal buffers to be bolstered in medium term

Fitch projects a general government surplus of 4.9% of GDP in 2021, following last year’s deficit of 6.5%, with accelerating capex execution towards year-end lowering the surplus relative to the 9M21 (annualised) outturn of 5.4% of GDP, Report informs, citing the Agency.

“The large improvement in this year’s fiscal balance has been driven by the higher oil price, strong tax receipts (up 12% yoy in 9M21) on the back of economic recovery and improved compliance, and the unwinding of pandemic support measures.

“We forecast the general government surplus to narrow to 1.1% of GDP in 2022 and return to a deficit of 1.0% in 2023. This largely reflects a lower oil price and faster execution of infrastructure spending on the territories reclaimed in the conflict with Armenia (to an average of 2.5% of GDP), but still compares favourably with the ‘BB’ median deficits of 4.0% and 3.5%, respectively,” the agency says.

It adds that the government plans to introduce a revised fiscal rule in 2022 comprising an annual reduction in the non-oil primary balance and a debt target, the consistent implementation of which would help bolster fiscal buffers in the medium term.