Fitch Says Azerbaijan Stable

International ratings agency Fitch has revised Azerbaijan’s credit outlook to “stable” from “negative” while affirming its credit rating at ‘BB’. After two years of turmoil, macroeconomic stability improved in Azerbaijan last year, it said in a statement released late Friday.

With the gradual recovery in oil prices in addition to tight fiscal and monetary policies, Azerbaijan’s exchange rate has stabilized around 1.70 to the US dollar since April 2017, Fitch said, Anadolu Agency reported.

“This has in turn helped ease pressure on inflation which although at 12.9% on average in 2017 has reduced on a month-on-month basis since April 2017,” the statement added. “Fitch expects the currency to remain broadly unchanged over the coming two years, based on stable oil price assumptions,” it said.

With higher oil prices, Azerbaijan’s current account balance has turned to a surplus since the second quarter of last year, Fitch said, adding that it estimates the surplus reaching 3.1% for the full year of 2017.

Assets in the State Oil Fund of Azerbaijan have also increased from $33.1 billion in 2016 to $35.8 billion at the end of 2017—equal to 87.4% of gross domestic product last year.

However, Fitch warned that the economy is highly dependent on commodities, and this is unlikely to change. “Given the expected rise in gas exports upon completion of the Southern Gas Corridor project, commodity dependence will remain particularly high,” it said.

“Prospects for meaningful diversification of the economy, although on the authorities’ agenda through the ‘strategic roadmaps’ initiative, appear remote,” it added.

Fitch also warned that disruption in macroeconomic stability and weaker growth could lead to a negative rating action, while improvement in economic diversification and the business environment could pave the way for a positive rating action.