Q What is the state of the Azerbaijani economy?
A Accelerated growth describes it well. The growth can be observed in almost all spheres: GDP [gross domestic product] growth is substantial. Azerbaijan has recorded around a 10% annual GDP growth rate for the past five years. The GDP growth rate for 2005 was more than 26%. For 2006, we are confident that the GDP rate will be almost 40%.
Although the growth rate arises because of oil production, you have to look at the non-oil economy and this is also developing fast. Last year’s non-oil economy growth was 8%, and this year we expect more than 11%.
Our budget is also growing rapidly. This year’s budget is twice that of last year. In 2007, the budget will continue to grow. We expect the consolidated budget to reach $7bn. This represents a steep rise from $2.3bn in 2005 and $5.5bn in 2006.
Q What are your plans to enter the Euromarkets?
A We have been courted by many major investment banks that have urged us to think about an issue of sovereign debt in the international capital markets. But we have taken a very cautious approach.
We first decided to get a credit rating from Fitch. This was a useful process as it enabled us to become familiar with the working methods of the rating agencies.
Last year we decided we needed a second credit rating and we hired Citicorp as our adviser for a rating from Moody’s. Our Fitch rating is a BB with positive outlook.
The spread that Azerbaijan can get on the international capital markets will reflect Azerbaijan’s rating. The market will be prepared to recognise Azerbaijan as a country with oil reserves and as a country that has developed substantial energy projects, in particular the Baku-Tbilisi-Ceyhan oil pipeline.
There are other factors favourable to us. If we decide to issue debt in the autumn of this year, it will be a very opportune time for the country. The economy is on the rise, the oil price is favourable, the fundamentals of the economy are sound. Foreign debt is very low, the debt to GDP ratio is [just] 11%, and this will decline. The country has a potential to be transformed from a net importer to net exporter of capital.
Q Why does a country with your levels of liquidity inflows need to tap the markets?
A There are questions whether Azerbaijan needs to issue any debt. This is another favourable message to the market. If Azerbaijan doesn’t need the money, then the issue serves other and different purposes, namely structural policy, to create a yield curve for the debt. The market will consider this and price in this factor.
Q How do you assess investors’ expectation for the issue?
A We believe investors will be eager to diversify their portfolios and to include another country in their portfolio. This will enable them to diversify and spread their risk. There is a very fundamental move to quality in the attitudes of fixed income investors. There are very narrow spreads between high grade paper and lower grade/high risk securities. So Azerbaijan debt will be very favourable.
Q What is the likely size of the issue?
A We don’t believe our issue should be less than $250m. We reiterate that the major purpose is to set a benchmark for Azerbaijan debt in the capital markets. We would also like to pave the way for other corporate issues.
We are not pursuing a fiscal role and we are not filling budget gaps. We will fix an amount that is feasible from a financial point of view for the economy. This money will enable us to refinance the existing debt which is probably more expensive. From a liquidity point of view, we don’t believe it should be less than $250m.
Q How important is the BTC pipeline?
A This project has been delivered in the right place and in the right time. We have proved to the rest of the world that our decision to lay the pipeline to the Mediterranean Sea was correct. We have proved that all speculation about problems related to the Bosphorus was absolutely groundless.
Q What is your view of the current oil price?
A We are not supporting the very high level of oil price that we have now. Nor are we supporting very low levels of oil prices. The range of oil prices between $40 and $50 a barrel reflects the real price of oil in the current market environment.
The oil price that we had between 1998 and 2002 did not reflect the actual price. Now it is slightly overpriced, and that provides a cooling affect on the world economy. The fair price is within this range. We have managed to commission and build the pipeline while the price is at the higher level.
Q What role will foreign investors play in the economy?
A We encourage foreign investors. But we don’t believe they are the major factor in developing the economy. They are very sensitive creatures. They over-react to events in a much more sensitive way than local investors.
So you cannot rely on foreign investors as the major locomotive of the economy, because they pursue short-term targets and objectives.
But it doesn’t mean we don’t want to work with foreign investors. It should be a combination of local and foreign.
Q What is your economic philosophy?
A We intend to secure the prosperity of the people and to develop the economy so it is not based on the oil factor. We believe that non-oil should be given priority. To achieve this goal, the government has pursued a number of very important programmes. We want to expand our economy. Compared with other countries with comparable populations, our economy should be bigger. This is what we should concentrate on.
We need to increase our GDP and our budget by building the non-oil sector. We want to depend less on the oil but this will not happen over night. Everybody says Azerbaijan spends a lot of oil money. But it is absolutely clear that we cannot develop the non-oil sector unless we spend some oil money. We can’t develop infrastructure without oil money.
We should not rely on the oil. We should not encourage [the] living on coupons from oil. So we have to develop alternative sectors to make the economy less vulnerable to oil factors, to oil price shocks. This is the ultimate goal of the government. If we succeed, then when the oil runs out, we won’t notice it because we will have huge revenues from non-oil sector.
Q What is Azerbaijan’s position in the region?
A We are trying to pursue a policy that isolates us from political pressures. Our choice is very clear, namely integration into the European-Atlantic community. It is a gradual build-up of democratic values and freedoms, which are valuable for European countries. Azerbaijan is a member of the Council of Europe.
We are not knocking at the door of the EU, we have a realistic approach. But we are very interested in developing the EU’s neighbourhood policy. Our approach is realistic.
