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Country Risk Service Azerbaijan

  • ID: 2101369
  • Country Profile
  • May 2020
  • Region: Azerbaijan
  • 27 Pages
  • The Economist Intelligence Unit
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The sovereign risk rating is at B, after a downgrade from BB in our April assessment. This reflected our more pessimistic economic forecasts-including new oil price assumptions-following the global coronavirus outbreak. The pandemic is driving a deterioration in Azerbaijan's public finances and current-account balance and the currency peg now looks unsustainable. However, the US$41bn sovereign wealth fund provides macroeconomic stability in a time of crisis.

The currency risk rating is at B. Falling global oil prices have put downward pressure on the manat, which is pegged to the US dollar. Foreign-exchange reserves were 12% of GDP at end-2019. The central bank can withstand pressure on the currency for a certain period during the public health crisis, but we do not think the currency peg is sustainable and temporarily abandoning the fixed-exchange-rate regime looks likely. This will open the way for depreciation of about 24%, on average, in 2020 compared with 2019.

The banking sector score has deteriorated by 4 points to 70, driving a rating downgrade to CC, from CCC previously. This reflects the unsustainability of the currency peg given current market forces, and our projected manat depreciation. The banking sector is otherwise uncompetitive (dominated by a few large banks), poorly developed and suffers from poor corporate governance.
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Country Risk Service Azerbaijan

Risk assessment
Sovereign risk
Currency risk
Banking sector risk
Political risk
Economic structure risk

Definitions
Sovereign risk
Currency risk
Banking sector risk
Political risk
Economic structure risk
Overall country risk

Sovereign risk
Current assessment
Positive factors
Negative factors
Rating outlook

Currency risk
Current assessment
Positive factors
Negative factors
Rating outlook
Foreign-exchange regime

Banking sector risk
Current assessment
Positive factors
Negative factors
Rating outlook

Generic risks
Political risk assessment
Economic structure risk assessment

Country risk
Overall country risk

Central scenario for 2020-24: Political stability

Central scenario for 2020-24: Election watch

Central scenario for 2020-24: International relations

Central scenario for 2020-24: Policy trends

Central scenario for 2020-24: Fiscal policy

Central scenario for 2020-24: Monetary policy

Central scenario for 2020-24: Economic growth

Central scenario for 2020-24: Inflation

Central scenario for 2020-24: Exchange rates

Central scenario for 2020-24: External sector

Central scenario for 2020-24: External financing requirement

Central scenario for 2020-24: External debt

Key risk indicators

Ratings summary

Quarterly indicators

International assumptions summary

Economic structure

Public finances

Exchange rates, interest rates and prices

Financial sector

Current account

International liquidity

Foreign payment and liquidity indicators

External trade

External financing requirement

External debt stock

External debt service
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