SOVEREIGN DEBT MANAGEMENT FORUM 2016 DEBT MANAGEMENT STRATEGIES FOR - - PowerPoint PPT Presentation

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Dec 21, 2023 43 likes •154 views

SOVEREIGN DEBT MANAGEMENT FORUM 2016 DEBT MANAGEMENT STRATEGIES FOR COMMODITY EXPORTERS: WHAT ARE THE LESSONS OF THE PAST YEAR? AZER MURSAGULOV DEPUTY DIRECTOR OF PUBLIC DEBT MANAGEMENT AGENCY OF AZERBAIJAN MINISTRY OF FINANCE Azerbaijan

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SOVEREIGN DEBT MANAGEMENT FORUM 2016 DEBT MANAGEMENT STRATEGIES FOR COMMODITY EXPORTERS: WHAT ARE THE LESSONS OF THE PAST YEAR?

AZER MURSAGULOV DEPUTY DIRECTOR OF PUBLIC DEBT MANAGEMENT AGENCY OF AZERBAIJAN MINISTRY OF FINANCE

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Azerbaijan economy during commodity boom era

3.9% 3.0% 66.3% 63.2% 36.8% 6.8% 13.9% 1.8%

9.8%
5.1%

0.9%

2.9%

14.9% 13.6% 8.3% 11.9% 11.4% 15.9% 3.7% 7.9% 9.4% 9.6% 9.9% 6.9% 11.2% 10.2% 26.4% 34.5% 25.0% 10.8% 9.3% 5.0% 0.1% 2.2% 5.8% 2.8%

0% 10% 20% 30% 40%

5% 25% 45% 65% 85% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Oil GDP growth rate Non-oil GDP growth rate GDP growth rate

1% 17% 27% 33% 23% 28% 26% 22% 17% 14%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Current account/GDP Capital & Financial account/GDP 889 1,049 1,590 2,472 3,482 5,603 5,018 5,922 7,285 7,594 7,977 7,991 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 GDP per capita, USD 1 1 1 1 2 11 15 23 30 34 36 37 5 5 5 2 3 6 5 6 10 12 14 14 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Oil Fund Reserves Central Bank Reserves

During 2003-2014:  GDP grew by more than 3 times  GDP per capita grew 9 times  Azerbaijan – upper middle income country During 2003-2014:  Significant oil revenues transformed into high current account surplus and substantial reserce accumulation

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Azerbaijan economy during commodity boom era

33% 34% 48% 57% 60% 59% 49% 52% 53% 48% 44% 40% 67% 66% 52% 43% 40% 41% 51% 48% 47% 52% 56% 60% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Share of oil in GDP Share of non-oil in GDP

Oil 77.6% Oil products 8.0% Natural gas 1.8% Aluminium 0.6% Vegetable oil 0.5% Margarine 0.4% Cotton 0.2% Electricity 0.1% Iron products 0.1% Sugar products 1.9% Fresh fruits and vegetables 2.7% Other export 5.8% Tea 0.2% Non-hydrocarbon 12.6%

Export of goods: Main Commodities

23% 26% 25% 26% 28% 49% 41% 46% 45% 41% 40% 39%

1.6% 1.8% 2.7% 0.7% 2.3% 17.4% 6.2% 13.7% 10.9% 4.2% 1.7% 2.8% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Consolidated budget revenue/GDP Consolidated budget expenditures/GDP Consolidated budget surplus(deficit)/GDP 21% 20% 13% 11% 8% 7% 12% 13% 11% 14% 13% 12% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Total public debt/GDP

 During these years government accumulated strong fiscal balance while maintaining low Debt/GDP  Despite all these achievements,

il and gas still remain central for

the economy

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Lower oil prices, weak regional growth, currency devaluations of main trading partners and contraction in hydrocarbon production have impaired economic performance in Azerbaijan

0.9%

2.9%

1.2% 2.1% 9.9% 6.9% 1.1%

6.1%

5.8% 2.8% 1.1%

3.4%

2013 2014 2015 2Q,2016 Oil GDP (YoY%) Non-oil GDP (YoY%) Real GDP (YoY%) 16.7% 13.9%

0.42%
2.10%
8.8%
4.5%
17.11%
5.82%

2013 2014 2015 2Q,2016 Current account/GDP Capital & Financial account/GDP 40.2% 39.1% 33.9% 27.6% 38.5% 36.3% 38.7% 44.6% 1.7% 2.8%

4.8%
16.9%

2013 2014 2015 2016 Projection Consolidated budget revenue/GDP Consolidated budget expenditures/GDP Consolidated budget surplus(deficit)/GDP

As a result of external shocks:  GDP contracted sharply  Current account and government budget surplus have turned negative

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Lower oil prices, weak regional growth, currency devaluations of main trading partners and contraction in hydrocarbon production have impaired economic performance in Azerbaijan

0.7844 0.7862 1.05 1.0467 1.0473 1.0499 1.55 1.6411 1.5094 1.5082 1.5054 1.527 1.6124 1.637 0.9065 0.8934 1.195 1.1805 1.1394 1.685 1.7118 1.8378 1.69 1.7201 1.8057 1.8291 05.01.2015 19.01.2015 03.02.2015 17.02.2015 03.03.2015 18.03.2015 08.04.2015 22.04.2015 06.05.2015 21.05.2015 05.06.2015 22.06.2015 07.07.2015 23.07.2015 06.08.2015 20.08.2015 03.09.2015 17.09.2015 05.10.2015 19.10.2015 02.11.2015 17.11.2015 01.12.2015 15.12.2015 29.12.2015 15.01.2016 01.02.2016 15.02.2016 29.02.2016 15.03.2016 05.04.2016 19.04.2016 03.05.2016 18.05.2016 02.06.2016 17.06.2016 04.07.2016 20.07.2016 03.08.2016 17.08.2016 31.08.2016 16.09.2016 USDAZN EURAZN 35.9 37.1 33.6 35.1 14.152 13.8 5.0 4.3 2013 2014 2015 2016 SOFAZ, bln USD CBAR,bln USD 49% 49.89% 81.64% 80.21% 51% 50% 18% 20% 2013 2014 2015 2Q,2016 FX Deposits AZN Deposits

As a result of external shocks:  With high dollarization and SOFAZ assets decreasing, economy has undergone twofold devaluation

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Government acted swiftly with a number of offsetting measures

Adjustments to the monetary policy  Twofold devaluation  Shift to managed floating exchange rate regime  Tightening of monetary policy and preparation to gradual shift to inflation targeting  Restructuring of the banking sector  Blanket guarantee of deposits  Macro prudential limits on FX lending Adjustments to the fiscal policy  Counter-cyclical stimulus tailored to promote growth and protect vulnerable population (increase in (public sector wages, overall pensions and social protection expenditures)  Capital expenditures were downsized.  Growth friendly fiscal consolidation going forward Structural changes  New strategy to rapidly diversify the economy by creating more business friendly environment and pursuing structural reforms.  Establishment of Financial Market Authority  Improved administration of tax and customs collections  Government stimulus to private sector non-oil exports  Government stimulus to foreign investment

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Public Debt Profile of Azerbaijan - Overview

23% 30% 37% 55% 50% 52% 46% 20% 16% 19% 16% 14% 12% 11% 12% 10% 8% 8% 6% 5% 5% 35% 35% 28% 18% 26% 28% 35% 10% 9% 8% 3% 3% 3% 3%

2011 2012 2013 2014 2015 1Q2016 2Q2016

USD EUR SDR AZN Others

1% 1% 1% 9% 13% 34% 14% 6% 22% up to 6 months 6 months - 1 year 1 - 2 years 2- 5 years 5 - 7 years 7- 10 years 10 - 1 5 years 15 - 20 years

ver 20 years

0% 5% 10% 15% 20% 25% 30% 35% 40% Public Debt Maturity Structure Eurobond 10% Development loans 27% Commercial loans 9% Funds, 1% Contingent Liabilities 14% Government bonds 1% Obligations to Central Bank 2% State guaranteed loans 2% Contingent Liabilities 34% Total External Debt 62% Total Domestic Debt 38% Fixed interest rate 73% Variable interest rate 27% 0.2 0.2 0.2 0.3 0.3 0.5 2.1 2.8 2.6 3.9 3.3 1.9 3.0 4.7 1.3 1.6 1.7 2.0 2.4 3.0 3.4 3.9 4.8 5.7 6.1 7.4 7.7 7.6 1.5 1.7 1.8 2.3 2.8 3.5 5.5 6.7 7.4 9.6 9.4 9.3 10.7 12.4 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2Q,2016 Domestic debt, mln USD External debt, mln USD Total public debt, USD 18% 18% 12% 9% 7% 6% 8% 7% 7% 8% 8% 10% 15% 20% 21% 20% 13% 11% 8% 7% 12% 13% 11% 14% 13% 12% 20% 32% 2% 2% 1% 1% 1% 1% 5% 5% 4% 6% 5% 3% 6% 12% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2Q,2016 External debt/GDP Total public debt/GDP Domestic debt/GDP

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Public Debt Profile of Azerbaijan - Major Issues

increasing borrowing needs need for more diverse debt portfolio increased market volatility

Increase in costs and risks of public debt management: need for new strategy with focus on new macroeconomic context and challenges

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Integrating public debt management into broader macroeconomic framework

Fiscal Policy Debt Strategy Monetary Policy

 FX and depreciation pressures  Domestic market liquidity pressures  Focus on short term inflation targeting  Policy measures via government bond market  Need for financing for strategic projects and capital spending and economic growth  Structural fiscal balance financing pressure  Debt sustainability in the context of achieving monetary and fiscal stability

Financial Stability Board

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Priority strategies of debt management in light of new macroeconomic challenges

Medium term perspective Managing market and refinancing risk Managing contingent liabilities Focus on domestic borrowing an government bond market development Coordination with macroeconomic policies

Government closely collaborating with IMF on:  Medium term fiscal framework  Rule based fiscal regime  Close coordination between monetary and fiscal policies Government closely collaborating with WB

 Improving overall debt management structure  Medium term debt management strategy  Managing market risk more efficiently  Government bond market development

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