International ratings agency reaffirms Azerbaijan’s economic strength

International ratings agency Moody's Ratings has completed its scheduled periodic review of Azerbaijan's sovereign ratings, reaffirming the country's credit profile and underlying economic strengths.

According to Moody's, the review was conducted during a rating committee meeting that reassessed the rationale behind Azerbaijan's ratings in light of the applicable methodology and recent developments, Caliber.Az reports, citing local media.

"The assessment does not constitute a rating action announcement and does not indicate the likelihood of such action in the foreseeable future," the agency said.

Moody's noted that Azerbaijan's ratings, including its long-term issuer rating of Baa3, continue to be supported by the country's substantial net creditor position, underpinned by significant financial assets managed by the State Oil Fund of Azerbaijan (SOFAZ). The fund provides a substantial financial buffer and mitigates government liquidity risks and external vulnerabilities.

The agency highlighted improvements in monetary and macroeconomic policies, saying they have contributed to stable external positions and strengthened the resilience of the financial sector to shocks. The prudent use of fiscal buffers has also enabled countercyclical spending while helping contain potential deterioration in fiscal and debt indicators.

At the same time, Moody's said Azerbaijan's high dependence on the hydrocarbon sector continues to limit the economy's shock-absorption capacity, although diversification efforts are gaining momentum.

Economic growth remained moderate in 2026, with real GDP contracting by 0.3% year-on-year in the first quarter. During the first five months of the year, real GDP remained broadly unchanged from the same period of 2025, as the continued decline in oil production due to maturing fields was only partially offset by growth in non-oil sectors.

According to the agency, the construction sector weakened as reconstruction activity carried out in previous years gradually declined, while information and communication technologies, tourism and manufacturing continued to support economic growth.

Moody's expects Azerbaijan's economy to expand by around 1.5% in 2026, with medium-term growth averaging between 2% and 2.5%, supported by diversification efforts, investments in digital infrastructure and regional connectivity projects that are expected to boost non-oil economic activity.

The agency also pointed to gradual improvements in institutional development through stronger public financial management, the digitalisation of public administration, and enhanced banking supervision and budget oversight.

Azerbaijan's fiscal sustainability continues to benefit from its commitment to medium-term non-oil fiscal consolidation, supported by increased mobilisation of non-oil revenues and slower expenditure growth as spending on the reconstruction of formerly conflict-affected territories declines.

Moody's noted that SOFAZ assets continued to grow, reaching 97% of GDP in 2025, making them among the largest relative to the size of the economy among countries with comparable credit ratings.

The agency expects higher oil prices in 2026 to generate additional hydrocarbon revenues and further increase SOFAZ assets, strengthening the government's ability to absorb shocks and maintain fiscal flexibility.

Moody's also said the geopolitical environment is becoming increasingly favourable.

"Growing economic interaction between Azerbaijan and Armenia, progress in the development of regional transport corridors and continued international support for a peaceful settlement are gradually strengthening regional connectivity and reducing geopolitical risks, despite the absence of a formally ratified peace agreement," the agency noted.

According to Moody's, Azerbaijan's economic resilience score of Ba1 reflects a balance between improving medium-term growth prospects and the country's still significant dependence on the oil and gas sector, while the government's fiscal strength assessment of Aaa is supported by the country's strong net creditor position and sovereign wealth fund assets that fully cover direct government debt and guarantees.

By Bakhtiyar Abbasov