Parliament approved amended budget on February 23, 2016
In the amended budget document, oil price is set at US$ 25/bbl, resulting in lower budgeted revenues. At the same time, expenditures were revised upward due to higher social spending, debt service and military spending. According to the document, consolidated budget revenues are set at AZN 15.7bn, down from AZN 16.7bn in the original document, while expenditures are revised up to AZN 24.6bn from AZN 19.9bn. Consolidated budget deficit is forecast to reach AZN 8.8bn (more than 10% of GDP), which will be mainly financed by tapping SOFAZ reserves.
Fitch downgraded Azerbaijan from investment grade to BB+
Following S&P and Moody’s downgrade, Fitch lowered Azerbaijan’s sovereign credit rating from BBB- and stable outlook to BB+ with negative outlook. Low oil price and associated fall in fiscal revenues were the main reason for this revision. Fitch expects budget deficit at 12.5% of GDP in 2016. Fitch also expects decline in SOFAZ reserves from US$ 37.1bn in 3Q15 to US$ 31.0bn by 2017.
Fitch forecasts that the economy will contract by 3.3% in 2016, with non-oil GDP contracting by 4.0%, on the back of lower government spending, freeze in bank lending and fall in confidence. Growth is expected to pick up in 2017 and accelerate in 2018 as Shah Deniz field comes on-stream.
FX demand increased to US$ 487.2mn
Central bank lowered FX offering at the auctions, while demand from the commercial banks was up 4.6x w/w to US$ 487.2mn last week, more than SOFAZ and the central bank combined offer.
