Moody’s forecasts inflation moderation in Azerbaijan, affirms sovereign rating

International credit rating agency Moody’s expects inflationary pressures in Azerbaijan to ease over the medium term, forecasting average annual inflation to decline to 4% by 2028, according to its latest outlook.

Moody’s projects that inflation will rise to 5.2% in 2025, up from 2.2% in 2024, before gradually slowing to 4.8% in 2026 and further to 4% in 2027, a level expected to be maintained into 2028. The agency attributes the near-term increase to temporary price pressures, which are expected to subside in the coming years, Caliber.Az reports per local media.

Official figures from Azerbaijan’s State Statistics Committee present a slightly higher estimate, indicating that average annual inflation in 2025 will reach 5.6%. According to the committee, inflation this year has been driven primarily by rising prices for food, beverages, and tobacco products, which increased by 6.8%. Prices for non-food goods rose by 2.5%, while paid services to the population increased by 6.5%.

Despite the inflation uptick, Moody’s maintains a positive assessment of Azerbaijan’s overall macroeconomic outlook. The agency has confirmed the country’s sovereign credit rating at “Baa3” and reaffirmed a “positive” outlook.

Moody’s notes that Azerbaijan’s rating is supported by substantial financial buffers, which help mitigate vulnerability to external shocks. However, the agency also highlights the economy’s continued dependence on the oil and gas sector as a structural challenge.

The positive outlook reflects Moody’s expectation that ongoing reforms could further reduce economic and fiscal reliance on hydrocarbons. These reforms are aimed at strengthening monetary policy transmission, enhancing financial sector regulation, improving public finance management, and increasing transparency in administrative processes.

According to the agency, successful implementation of current and future reforms—leading to improved governance, greater transparency, and more predictable policymaking—could support a future upgrade of Azerbaijan’s credit rating.

Moody’s also points to improving economic and diplomatic relations with Armenia as a positive factor, noting that reduced geopolitical tensions lower the risk of escalation and contribute favorably to Azerbaijan’s credit profile.

Analysts at Moody’s believe a near-term downgrade is unlikely. However, they caution that the rating outlook could be revised to “stable” if macroeconomic conditions worsen or if geopolitical tensions with Armenia intensify.

By Sabina Mammadli