CBN, September 22, 2006

BAKU - Moody's Investors Service have assigned Azerbaijan a foreign and local currency issuer rating of "Bal", one notch below the investment grade, noting little government debt and rising revenues from oil exports.

As Moody's said, Azerbaijan has "excellent medium-to-long term prospects for surpluses on the current account and consolidated budget bal­ances" based on a rapid expansion of oil production and exports.

The windfall from oil profits is expected to swell government cof­fers, expand official and "oil fund" foreign currency reserves significant­ly and shrink the country's already low debt ratios.

"The key challenges for the country, however, will center on its ability to manage these gains prudently and to encourage diversification in non-oil sectors of the economy," Moody's said.

It also assigned a foreign currency country ceiling for Azerbaijan's bonds and notes at "Baa2/P-2," reflecting a medium risk of a moratorium in the event of a government default.

Moody's assigned a foreign curren­cy bank deposit ceiling of "Ba2/NP" and a local currency deposit ceiling of "Baal/P-2." The local currency guideline - the highest possible rating that can be assigned to any issuer domiciled in Azerbaijan - is assigned at "A3." Minister of Finance, Samir Sharifov, said that Moody's rating is the one step higher than the Fitch Rating, which was declared beginning 2006.

"The country got the Moody's sover­eign rating for the first time, and it is very good that it is approaching the investment rating. Therefore, private companies and other issuers will get wide opportunities in international cap­ital markets. Reforms and economic policy especially the government's oil strategy caused the higher rating. Other agencies should revise and reassess Azerbaijan's ratings," Sharifov said.

Minister of Economic Develop­ment, Heydar Babayev, said that this second rating is a big success for the country. "The current speed of economic development shows that from 2007, Azerbaijan will be able to get invest­ment ratings from Moody's and Fitch," Babayev said.

According to the State Statistics Committee during the January-August period, more than $4 billion was invested into Azerbaijan's economy. Ziya Samadzadeh, head of the par­liamentary economic commission, said that improvement of the legisla­tion, political stability and other fac­tors such as participation in global projects has caused higher ratings.

The Azerbaijani government plans to continue work with the internation­al rating agencies and to expand their list in 2007. The Ministry of Finance and the Ministry of Economic Devel­opment will appeal to the government to involve the third international rat­ing agency, Babayev said.

According to the minister of finance, Samir Sharifov, three sover­eign ratings will create opportunities for obtaining loans from international capital markets.

"Of course, it does not mean that Azerbaijan needs money, but it enables us to establish medium and long-term ceiling with more favor­able terms for corporate issuers," Sharifov noted.

Beginning in 2006, Fitch, an inter­national credit rating agency, affirmed a new rating for the new Azeri currency. Fitch graded Azerbaijan's issues a default rating of "BB." The outlook for both foreign and local ratings is "Stable." Besides, the agency has affirmed the short term issuer the default rating at "B" and the country ceiling at "BB." Among the Commonwealth of Independent States, Kazakhstan and Russia have high Fitch rates.

Meanwhile, a Fitch delegation will visit Azerbaijan in November to assess the sovereign rating for 2006 and to observe the economic situa­tion. The Ministry of Finance has a three year agreement with Fitch Rat­ings on the assessment of Azerbai­jan's economy, to define a sovereign rating. The rating company gets 40,000 pounds a year for this work from the state budget.

• Moody's assigns BA1 rating to Azerbaijan