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Fitch revises outlook on Azerbaijan to stable

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Fitch revises outlook on Azerbaijan to stable

Fitch Ratings revised its outlook on Azerbaijan's long-term foreign and local currency issuer default ratings to stable from negative, citing improved macro stability in 2017 and strict monetary and fiscal policies. The sovereign's ratings were affirmed at BB+.

The rating agency noted that those strict policies, coupled with slowly recovering oil prices, helped maintain the Azerbaijani manat exchange rate at approximately 1.70 to the U.S. dollar since April 2017 which, in turn, helped mitigate pressure on inflation.

Fitch said it expects the currency to remain stable over the next couple of years, assuming stable oil prices. The agency also highlighted enhanced confidence in the currency given the gradual decline in dollarization of loans and deposits.

The rating agency also noted that the country's current account had turned to a surplus since the second quarter of 2017, buoyed by increased oil prices. Fitch said it estimates the current account surplus to reach 3.1% for the entire year.

The rating agency noted that foreign exchange reserves rose by nearly 22%, while assets in the State Oil Fund of Azerbaijan, or Sofaz, went up to $35.8 billion by the end of 2017, amounting to 87.4% of the country's 2017 GDP.

"Fitch expects Sofaz assets to continue rising thanks to steady oil prices and expected limitations of its transfers to the state under a new fiscal rule in 2019," the rating agency said.

Moreover, Fitch expects the government's budget to return to surplus this year due to improved oil revenues, which kept the consolidated budget deficit of 2017 moderate at 1.5% of GDP.