Fitch affirms Azerbaijan at “BBB-” with stable outlook

Fitch Ratings has affirmed Azerbaijan’s Long-Term Issuer Default Rating (IDR) at "BBB-" with a Stable Outlook, pointing to the country’s exceptionally strong external balance sheet, low public debt levels, and substantial sovereign wealth assets as key supporting factors.

The agency said Azerbaijan continues to stand out among investment-grade peers due to its large foreign-currency buffers and fiscal flexibility anchored by hydrocarbon revenues and sovereign fund savings, Caliber.Az reports via local media. 

According to the State Statistics Committee, the country's foreign exchange reserves increased by $2.7651 billion in April.

At the end of 2025, Azerbaijan's strategic foreign exchange reserves were estimated at $85.1 billion.

Oil prices

Fitch expects higher oil prices—partly driven by geopolitical tensions in the Middle East—to significantly improve Azerbaijan’s external position over the next two years.

The agency projects that sovereign foreign-currency assets will rise to USD 93 billion in 2026, equivalent to 117% of projected GDP. Around 84% of these assets are held by the State Oil Fund of Azerbaijan (SOFAZ), with the remainder managed by the central bank.

Net sovereign foreign assets are forecast to reach 73% of GDP, the highest level among Fitch-rated "BBB" sovereigns.

As a result, Azerbaijan’s current account surplus is expected to widen to 9% of GDP in 2026, up from 4.6% in 2025, before easing in 2027 as oil prices normalize. Even so, Fitch said external balances are likely to remain stronger than peer averages.

Fiscal surplus 

Fitch projects that Azerbaijan’s consolidated fiscal balance will strengthen further in 2026, reaching a surplus of 5.6% of GDP, supported by higher energy revenues and controlled spending.

However, the agency expects the surplus to narrow in 2027 due to softer oil prices, modest non-oil revenue growth, and stable expenditure patterns. Government priorities—including defense spending and reconstruction of formerly occupied territories—are expected to keep fiscal outlays elevated.

Growth outlook

The rating agency forecasts Azerbaijan’s economic growth to accelerate moderately to 2% in 2026, following slower expansion in 2025.

This reflects a balance between stronger energy revenues and restrained fiscal and credit conditions.

Inflation, however, is expected to pick up. Fitch projects average annual inflation of 6.1% in 2026, compared with 5.6% in 2025, driven by higher logistics and food costs as well as increases in regulated prices. Currency dynamics are expected to partially offset price pressures.

Strong reserve position

Azerbaijan’s foreign exchange reserves continue to expand, reaching USD 87.9 billion as of May 1, 2026, a 15% increase year-on-year. The figure includes assets held by both SOFAZ and the central bank.

Public debt remains among the lowest in the investment-grade category. Fitch estimates government debt at around 21% of GDP by 2027, supported by declining external obligations and limited new borrowing.

As of April 2026, total public debt stood at 24.46 billion manats (18.7% of GDP), with external debt accounting for about 6.1% of GDP.

"External guarantees declined to USD3 billion in 1Q26 after the Eurobond repayment by Southern Gas Corridor," the agency said.

According to the country's Ministry of Finance, this figure was 8.1% lower than on April 1, 2025.

Of the total government debt, $4.6893 billion, or 7.9718 billion manats, accounted for external debt (6.1% of GDP), while 16.4929 billion manats represented domestic public debt (12.6% of GDP).

Compared with the same period a year earlier, external and domestic government debt decreased by 7.6% and 8.4%, respectively.

Fiscal strategy focused on long-term stabilisation

Azerbaijan’s 2027–2030 fiscal framework assumes an oil price of USD 65 per barrel and aims to reduce the non-oil primary deficit to 13% of GDP by 2029, down from 18.6% in 2025.

Fitch noted that planned reforms—including tighter limits on changes to medium-term fiscal targets and reduced transfers from SOFAZ—could improve policy predictability and reduce pro-cyclical fiscal behavior.

The agency added that continued accumulation of sovereign assets, combined with prudent spending policies, will remain central to maintaining macroeconomic stability.

Overall, Fitch maintained a stable outlook, citing Azerbaijan’s strong external buffers and low debt levels as key credit strengths.

However, the agency also highlighted continued reliance on hydrocarbons and sensitivity to global energy prices as structural constraints, even as non-oil sector growth gradually expands.

By Sabina Mammadli