BAKU, Azerbaijan, October 22. Azerbaijan remains the financially strongest sovereign in the Caucasus and Central Asia (CCA) region, supported by large and growing fiscal and monetary reserve assets, low public debt and a robust external balance sheet, the Dutch ING Group said in its latest report.
“Higher hydrocarbon prices have strengthened the near-term fiscal and external outlook, as well as domestic confidence in the non-oil sectors. However, weak oil production, limited diversification and subdued private investment continue to constrain potential growth. Inflation is manageable for now, supporting an extended policy hold, although imported price pressures through high exposure to trading partners with high risks of upward CPI surprises, warrant caution. We remain constructive on sovereign resilience and external stability but see structurally modest growth as the main medium-term challenge,” said the ING.
The report says that the fundamental picture is generally positive for Azerbaijan, with ratings now comfortably in the G space (investment-grade category), and Moody’s holding a positive outlook.
“At the same time, the country stands to be a significant beneficiary from the current energy price spike, given its high sensitivity to oil prices in terms of fiscal and external accounts. While there remains some risk of negative spillovers from the conflict in the Middle East given the generally tense relations with Iran and cooperation with Israel, for now this seems well contained. The ongoing peace process with Armenia seems more likely to act as a positive catalyst at this stage, given the progress in recent years. In this context valuations look attractive for Azerbaijan, which should act as a strong defensive play in the event of a more prolonged conflict in the Middle East and persistent oil price spike. The current pickup over Kazakhstan appears to offer decent value, while the sovereign continues to benefit from lower geopolitical risk than oil exporting peer Oman,” reads the report.
