Fitch upgrades Azerbaijan

Fitch Ratings said it upgraded the Republic of Azerbaijan's foreign- and local-currency issuer default ratings and country ceiling to BB+ from BB and affirmed the short-term foreign-currency rating at B.

The outlook is stable.

The agency said the upgrade was driven by Azerbaijan's strong and sustainable economic growth, low government and external debt ratios and a growing current account surplus, underpinned by rapidly rising oil and gas production. The completion of key energy export projects in 2005 and 2006 has driven a significant rise in hydrocarbons production and accelerated Azerbaijan's real GDP growth, which reached an estimated 35% in 2006, and rapidly growing oil exports led to an end-year current account surplus of 14% of GDP. At just 11% of GDP, Azerbaijan's government debt-to-GDP ratio is the lowest of all BB range sovereigns, Fitch said.

Azerbaijan is, however, facing rising inflationary pressure as oil revenues finance increased public spending and monetary policy remains accommodating, the agency said, adding that the republic's non-oil sector remains small and the banking sector is one of the weakest among the sovereigns rated by Fitch.

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