Moody’s elevates Azerbaijan to investment grade Key factors explained

Despite global geopolitical instability, intensifying trade wars since the beginning of the year, and high volatility in oil prices, Azerbaijan has been successfully developing its economy. The effectiveness of the country’s reforms aimed at boosting the non-oil sector is reflected in the recent upgrade of Azerbaijan’s sovereign credit rating by Moody’s to investment grade.

On July 6, Azerbaijan’s Minister of Economy, Mikayil Jabbarov, commented on the significance of the ongoing reforms and their impact on the country’s improved credit rating via his social media account on X.

Recently, the international credit rating agency Moody’s upgraded Azerbaijan’s sovereign credit rating from Ba1 to Baa3, thereby assigning the country investment-grade status for the first time. The rating outlook was also confirmed as “positive.”

According to the agency, the confirmed positive outlook indicates a low likelihood of a downgrade in the short term. Moody’s also highlighted Azerbaijan’s continued macroeconomic stability despite external shocks.

The Moody’s statement on Azerbaijan’s rating position reads: “The upgrade reflects improvements in institutional effectiveness, shown in a lengthening track record of maintaining macroeconomic and fiscal stability through recent shocks and oil price swings, which we expect to continue. Progress in regulatory reforms will further enhance banking sector stability, while declining fiscal reliance on hydrocarbon revenues strengthens fiscal resilience.”

Azerbaijan’s elevation to investment-grade status means the country is now considered a reliable borrower with a low risk of default. This rating reflects the stability of Azerbaijan’s core macroeconomic indicators, including its foreign trade balance and a positive current account surplus, the presence of fiscal surpluses and low public debt, an optimal fiscal and monetary policy, as well as economic growth and the efficiency of government institutions.

The strength of these parameters demonstrates that Azerbaijan is a stable and safe environment for business, making it an attractive destination for investors.

Azerbaijan’s elevation to investment-grade status means that the country is now considered a reliable borrower with a low risk of default. Such an assessment reflects the stability of key macroeconomic fundamentals, including a solid foreign trade balance and a positive current account surplus, the presence of fiscal surpluses and low public debt, an effective monetary and fiscal policy, and, ultimately, sustained economic growth and efficient public institutions. The strength of these indicators demonstrates that Azerbaijan is a stable and secure environment for business, making it an attractive destination for investors.

Moody’s also highlighted Azerbaijan’s efforts to strengthen its regional role as a transport and green energy hub, which are contributing to sustainable and significant growth in the non-oil sector—particularly in construction and tourism. The agency also pointed to Azerbaijan’s achievements in the transport and logistics sector, especially in light of increased activity in the development of rail and port infrastructure along the Trans-Caspian International Transport Route (TITR).

In this context, it is particularly noteworthy that the international rating agency recently upgraded the long-term Corporate Family Rating (CFR) of CJSC “Azerbaijan Railways” (ADY) from B1 to Ba3. The agency attributes this decision to positive developments in ADY’s operations in 2024, especially in the areas of passenger transport, safety, and sustainable development. The upgrade also reflects improvements in financial and economic indicators, increased cargo handling volumes, and, most importantly, favourable prospects for the growth of international transit.

“The recent upgrade of Azerbaijan’s sovereign credit rating to #investment grade (Baa3) by Moody’s is a testament to the effectiveness of reforms aimed at fostering non-oil sector growth, increasing revenue diversification, and significantly reducing the state budget’s dependence on hydrocarbon revenues,” wrote Minister Mikayil Jabbarov on social media platform X. “The wide-ranging reforms implemented across the country have ensured macroeconomic stability and fiscal sustainability, deepened economic diversification, accelerated the reconstruction of the liberated territories, and mobilized their economic potential.”

Despite certain challenges in the external economic environment and a decline in exports, the past year proved to be quite promising for the development of Azerbaijan’s economy—especially its non-resource sectors. In particular, the country’s gross domestic product (GDP) grew by 4.1% in 2024, while the growth rate of the non-oil sector reached 6%. Within this, the non-oil industry expanded by 7%.

These achievements are underpinned by the steadily increasing role of the non-oil sector in the national economy. For instance, while its share of GDP stood at 49% in 2011, it had risen to 68% by the end of 2024. This trend is hardly surprising, as the government’s long-term policy of providing financial incentives and fiscal preferences to producers and exporters has helped attract private investment into the real sector of the economy.

Particularly notable is the dynamic growth in the capitalisation of industrial clusters—technology parks, industrial zones, and agro-parks—including those established in the Karabakh region.

The Minister of Economy also emphasised that Azerbaijan’s positioning as a key strategic transport hub—both regionally and globally—is yielding tangible socio-economic benefits. This goal is supported by consistent reforms in the banking and financial sectors, improvements in monetary policy, strict adherence to fiscal rules, and comprehensive tax reforms grounded in transparency and accountability.

At the same time, Azerbaijan’s strategic foreign currency reserves have grown significantly, driven by increased transparency in public procurement and the digitalisation of relevant processes. Altogether, these measures have contributed to a notable improvement in Azerbaijan’s sovereign credit indicators.

Moody’s is not the only rating or donor institution to recognise Azerbaijan’s reform achievements and economic diversification efforts. In mid-June, the international credit rating agency Fitch Ratings reaffirmed Azerbaijan’s long-term foreign currency issuer default rating (IDR) at “BBB-” with a stable outlook. This reflects the country’s very strong external balance, the lowest level of public debt in the “BBB” rating category, and substantial sovereign foreign currency assets that provide considerable financial flexibility.

Fitch Ratings, for its part, raised Azerbaijan’s country ceiling from “BBB-” to “BBB,” citing reduced risks of capital controls, declining dollarisation of the financial system, and improved liquidity management by the Central Bank.

The international credit rating agency S&P Global Ratings has also acknowledged Azerbaijan’s success in implementing economic reforms. At the end of last year, it affirmed the country’s long-term and short-term credit ratings for obligations in both local and foreign currencies at “BB+/B,” with a “stable” outlook.

According to the World Bank’s April 2024 report on economic prospects for Europe and Central Asia—“Accelerate Growth through Entrepreneurship, Technology Adoption, and Innovation”—Azerbaijan is listed, alongside Kazakhstan and Serbia, among the countries with high credit ratings, significant fiscal space, and well-developed domestic financial markets. These factors enable the Azerbaijani government to increase borrowing without posing significant risks to macroeconomic stability.