S&P affirms Azerbaijan’s sovereign credit ratings, upgrades GDP growth forecast

S&P Global Ratings has affirmed Azerbaijan’s 'BB+/B' long- and short-term foreign and local currency sovereign credit ratings, maintaining a stable outlook for the country.

In a notable update, the international rating agency has revised its forecast for Azerbaijan's GDP growth in 2024 to 4.5 per cent, a significant improvement from the 2.5 per cent projection made in June, Caliber.Az reports citing local media.

According to the agency, Azerbaijan's GDP growth rate in the first ten months of 2024 exceeded expectations, reaching 4.9 per cent. As a result, S&P now expects the country’s nominal GDP to reach 126 billion manats (approximately $74 billion) by the end of the year.

The non-oil sector has been the primary driver of Azerbaijan’s economic growth, with a robust 6.8 per cent expansion over the past ten months. S&P attributes this growth to the strong performance of sectors such as freight and passenger transportation, information and communication services, and retail trade. The construction sector has also demonstrated positive trends, driven by ongoing investments in the Karabakh region.

Looking ahead, S&P forecasts the non-oil sector will grow at an average annual rate of 3-4 per cent in the medium term. The agency believes that continued structural reforms and further diversification efforts could help accelerate the sector’s growth.

For the years 2025 to 2027, S&P Global Ratings projects Azerbaijan’s average annual GDP growth rate to be 2 per cent. The agency estimates that Azerbaijan’s nominal GDP will reach 127 billion manats ($75 billion) in 2025, 132 billion manats ($78 billion) in 2026, and 137 billion manats ($81 billion) in 2027.

In comparison, the Azerbaijani government’s own projections for GDP growth stand at 4.2 per cent in 2024, 3.5 per cent in 2025, 2.8 per cent in 2026, and 3.8 per cent in 2027.

Meanwhile, S&P Global Ratings has forecasted that the Azerbaijani manat will remain stable against the US dollar through 2028, maintaining its peg at 1.7 manat per 1 dollar. This outlook is supported by the authorities' regular interventions in the foreign exchange market. 

However, the agency also noted that a significant and prolonged decline in hydrocarbon prices could prompt authorities to consider adjusting the exchange rate to protect the Central Bank’s foreign exchange reserves.

In its latest report, S&P projected Azerbaijan's average annual inflation rate at 2 per cent for 2024, down from 8.8 per cent in 2023. The agency’s updated forecasts indicate that inflation will accelerate to 4 per cent in 2025 but is expected to slow to 3 per cent annually in 2026-2027.

S&P also predicts a reduction in Azerbaijan's current account surplus, forecasting it to reach 6.9 per cent of GDP by the end of 2024, down from 11.5 per cent in 2023. The surplus is expected to further decrease to 2.7 per cent of GDP in 2025 and 1.2 per cent of GDP in 2026. By 2027, S&P anticipates that the current account will shift to a deficit of 0.2 per cent of GDP.

For comparison, Azerbaijan's Ministry of Economy expects the country's average annual inflation to be 2.7 per cent in 2024, with projections of 4.6 per cent in 2025, 4 per cent in 2026, and 3.8 per cent in 2027-2028.

Overall, S&P's forecast reflects a period of moderate inflation and stability for the manat, with challenges to be addressed primarily in relation to the global price of hydrocarbons.

By Vafa Guliyeva