Moody's assigns negative outlook to Azerbaijan
Moody's Investors Service has today confirmed Azerbaijan's long-term issuer ratings and senior unsecured debt ratings at Ba1 and assigned a negative outlook.
Concurrently, Moody's Investors Service has also confirmed Southern Gas Corridor's state-guaranteed senior unsecured debt rating at Ba1 and assigned a negative outlook. Today's rating action concludes the rating review for downgrade that was announced on 5 February 2016.
In Moody's view, the downgrade to Ba1 from Baa3 at the time of the initiation of the rating review on 5 February 2016 captures appropriately the significant deterioration of Azerbaijan's credit profile in recent months. The steep decline in the oil price delivered a significant shock to the oil-reliant Azeri economy, resulting in a severe economic, currency and banking sector crisis and causing Azerbaijan's fiscal position and government debt metrics to deteriorate markedly over the past year. Set against that, the country's large stock of foreign currency assets held in the State Oil Fund of the Republic of Azerbaijan (SOFAZ), the country's sovereign wealth fund, helps cushion the economy and government balance sheet and gives Azerbaijan time to adjust to lower oil prices.
The decision to assign a negative outlook essentially reflects the ongoing threat to Azerbaijan's credit profile from weakening economic strength amid a deepening recession. This is driven by falling economic activity in non-oil GDP sectors, heightened stress in the banking system, and the potential for economic dislocation from further depreciation in the exchange rate.
Geopolitical event risks have also risen with the recent re-escalation of the Nagorno-Karabakh conflict.
Azerbaijan's long-term and short-term foreign-currency bond and deposit ceilings remain unchanged at Ba1/NP and Ba2/NP, respectively. At the same time, the long-term local-currency bond and deposit country ceilings remain unchanged at Ba1.
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