Fitch Ratings has revised the Outlook on Azerbaijan's Long-Term Foreign-Currency Issuer Default Rating (IDR) to Positive from Stable and affirmed the IDR at 'BB+'.

Axar.az reports that high oil and gas prices are further strengthening the sovereign balance sheet. Fitch forecasts the current account surplus will increase 12.1pp in 2022 to 27.3% of GDP, and narrow to 19.3% in 2023 and 12.1% in 2024 (partly reflecting a drop in the oil price to average USD85/b in 2023, and USD65/b in 2024) but still the highest in the 'BB' peer group. Sovereign foreign-currency assets rose to USD52.6 billion at end-June from USD52.1 billion at end-2021. Eighty-six per cent of these are sovereign oil fund (SOFAZ) assets, where the increase in oil and gas revenues in 1H22 more than offset investment losses of USD2 billion. We forecast the net sovereign asset position to rise 14.3pp in 2022-2024 to 77.6% of GDP, the highest in the rating peer group.

The general government surplus is projected to increase to 10.6% of GDP in 2022, from 4.2% in 2021, driven by energy prices but also reflecting strong non-oil receipts, and moderate expenditure (up 9.3% yoy in 8M22). We have revised up our 2023 surplus by 1.5pp since the last review to 6.7% of GDP, due to our new oil price forecast and expectations of still-high gas prices, while continuing to incorporate capex on territories liberated from occupation of 2% of GDP, and higher inflation-related social spending. The fiscal surplus is projected to narrow to 2.3% of GDP in 2024.