Azerbaijan has low GDP, weakness, but can face risk

In its annual report on Azerbaijan, Moody's Investors Service said the country's Ba1 credit rating — the highest level in the non-investment-grade range — reflects low GDP per capita and weak institutional strength set against very high government financial strength and low susceptibility to event risk.
"Azerbaijan's challenges lie mainly in the areas of efficient use of public resources, prudent macroeconomic policy making, and development of stronger sovereign institutions," said Moody's Vice President Jonathan Schiffer, author of the report.
"The most important of these will be to efficiently manage the future large inflows of oil and gas revenues to ensure macroeconomic stability and avoid a loss of competitiveness in the non-energy sector."
Schiffer said that the country's economic resilience is deemed "low," not only because of low average incomes more typical of a non-investment grade country, but also because it has a relatively small and undiversified economy. This stands in contrast to the government's financial strength, which is rated "very high."
"In addition, Azerbaijan's rate of economic growth has been very rapid, averaging almost 20% over the past six years," said Schiffer. "With the onset of the global liquidity crunch, however, the rate of growth will return to a more 'normal' range and is estimated at 3%-5% per annum during 2009-2010."
Although the energy sector has powered past growth, he said, the government has utilized tax revenues — via the budget — to spur diversification of the economy.
"Efforts of the last few years to stimulate domestic demand via infrastructure projects have been pared back as a result of lower-than-forecast government revenues and to preserve the national oil fund," said Schiffer. "All 2009 capital expenditure programs have been postponed — probably until 2011 — and, no doubt, non-oil sector growth rates will decline substantially as a result."