' Azerbaijan’s real growth can slowly increase'

Standard & Poor's expects Azerbaijan's real growth to slowly increase.

"We expect real growth to slowly increase again, reaching 3.0% in 2012 and 5.0% in 2013, buoyed by higher oil production and prices leading to stronger inflows from exports, an increase in household disposable incomes, and better credit conditions, which supports domestic demand," the agency told Trend.

The growth of GDP per capita will be 3.2 percent in 2012-2014., which would correspond to median ration of three percent of the countries of BBB rating category, but will be lower, especially in Russia and Kazakhstan which depend on the production of raw materials and where population growth rates are lower (in Russian negative growth).

According to experts of the agency, Azerbaijan's GDP growth will, as before, be promoted by foreign direct investment in the oil sector, increase in production and export of oil and gas, as well as significant public spending - due to these factors the prospects of high growth in non-oil sectors are increasing.

"We expect GDP per capita to increase to $7,063 in 2012, significantly lower than in Kazakhstan and Russia, as well as the 'BBB' median ($11,697), but comparing well with Morocco, Colombia, and Peru," the agency believes.

S&P believes that from 2005 to 2010, Azerbaijan experienced a rapid increase in GDP and living standards, mainly driven by oil revenues. On average during those years, Azerbaijan generated a record 17% annual GDP per capita growth.

We do not expect a comparable growth period in the future. While Azerbaijan has coped relatively well with the effects of the global economic downturn, maintenance issues on the main oilfield (Azeri-Chirag-Guneshli) lowered oil production by over 10%. As a result, real GDP growth slowed to an estimated 0.1% in 2011. This occurred despite an increase in stimulatory public spending, highlighting the central role of oil," the agency notes.

In S&P baseline scenario, oil production is expected to flatline in 2013-2015 at close to 50 million tons per year based on current investments.

"Beyond the forecast period, oil production is expected to rapidly decline though this does not account for unmade investments, which could yet prolong oil production. At the same time, the Turkey-Azerbaijan agreement over the gas price formula and on the Trans-Anatolian Pipeline should enable sufficient investments to flow into gas production to ensure that the "Shah Deniz II" gas field comes on stream by 2017," the S&P analysts say.

According to the S&P, the oil and gas sectors directly contributed 40% of GDP in 2011, and another 35% indirectly through ancillary industries and services. The sector is expected to directly account for about 62% of government revenue (including revenues for the oil fund) and about 10% indirectly through the oil-related tax base. Similarly, oil and gas constitute 93% of merchandise exports.

The oil and gas sectors have experienced rapid modernization and capacity increases via large, long-term investments, including large amounts of FDI.

"Lower extraction in 2011 means that Azerbaijan's oil production forecast is more evenly balanced over the forecast period, with the effect of "peak oil" delayed by at least two years," the agency's experts believe.

In December 2011, Standard & Poor's raised long-and short-term sovereign credit ratings of Azerbaijan from BB + / B to investment grade BBB-/A-3. Forecast - stable. Assessment of risk transfer and convertibility remains at "BBB-". The rating action is due to the fact that increasing net assets of the public sector of Azerbaijan and the international investment position improved to a level that provides significant resources for both the budget and the external balance of payments.


/Trend/