Natig Jafarli: Azerbaijan’s foreign debt growing rapidly

Foreign debt could reach GDP level by 2020.

Natig Jafarli
Natig Jafarli

“If things continue like this, foreign debt will reach the level of the GDP by 2020”

According to the 2017 report of the Cabinet of Ministers, creditors owning 93.9% of liabilities of the International Bank of Azerbaijan (IBA) voted to transfer more than 2.2bn dollars of its foreign debt to the state in July last year.

To this end, the law on the state budget for 2017 has been amended, increasing the maximum limit of foreign debt to 4.5bn manats. The new upper limit allowed the government to issue state bonds in foreign currency worth 2.2bn dollars in order to transfer the bank’s debts to the state.

Meydan TV spoke to Economicst Natig Jafarli, who explained that the state is liable not only for loan agreements signed by the state but also for those signed by state-owned entities, meaning that the state assumes responsibility if any company and state-owned entity fails to pay the loan back.

“If the state is not the guarantor, no financial institution will give Azerbaijani companies a loan. The IBA had foreign debt in the amount of 3.2bn dollars and later it turned out that the Oil Fund had paid 1bn of that debt.”

“Azerbaijan’s debts are growing rapidly. Two years ago, Azerbaijan’s foreign debt was 8% of its GDP, which was one of the best rates in the world. But according to current official numbers, our foreign debt now makes up for 20.1% of GDP. And this is only state debt. SOCAR’s foreign debt is as high as the state debt, and there are other large state companies with foreign debt whose guarantor is the state, such as Azerenerji, AZAL, Azersu or Azerdemiryol. All of them together make up for more than 60% of GDP. Azerbaijan’s foreign debt is rapidly increasing, and in the next two or three years more debt agreements will be signed, mainly for the completion of the Southern Gas Corridor.”

Jafarli estimated that the amount of foreign debt could reach GDP level by 2020.

“If we assume that the country’s revenues depend on the energy sector alone, we are in a very dangerous situation. The burden of repaying foreign debt will again fall on the state and consequently, funds allocated for other sectors will decrease. In 2018, it is the first time that 12% of the state budget are envisaged to repay foreign debt. This digit will increase gradually.”

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