BAKU, Azerbaijan, January 17. The ongoing reforms in Azerbaijan could further reduce economic and fiscal dependence on the hydrocarbon sector beyond the expectations, Trend reports citing Moody’s.
“Moreover, there are prospects for further enhancements in institutional strength and governance amid ongoing reforms to enhance monetary policy transmission, financial sector regulations, public finance management and transparency in public administrative processes,” reads the latest report by Moody’s.
The rating agency notes that upward pressure on the rating could develop if ongoing and further reforms lead to more rapid improvements in governance, transparency, and policy predictability that further strengthen the credibility and effectiveness of institutions and their ability to adjust to long-term challenges.
“Increasing evidence that diversification efforts will reduce the exposure of the economy and government finances to oil price cycles and long-term carbon transition would additionally put upward pressure on the rating. Material improvements in economic and diplomatic ties with Armenia that reduces risk of a reescalation in geopolitical tensions will also be credit positive,” the report reads.
Moody’s analysts also anticipate continued accumulation of SOFAZ assets as the government advances non-oil revenue mobilisation and non-oil fiscal consolidation efforts to reduce reliance on hydrocarbon windfalls.
“Meanwhile, Azerbaijan and Armenia agreed to a peace framework in August 2025 that has increased diplomatic engagement and lifted border restrictions, suggesting a potential easing of geopolitical risks relative to past decades of sporadic military conflict between the two countries. Azerbaijan's "ba1" economic strength reflects solid medium-term growth prospects against its significant exposure to the oil and gas sector.
The government's "aaa" fiscal strength is underpinned by the country's strong net creditor position, as the size of sovereign wealth assets covers all of the government's direct debt and guarantees, notwithstanding the high share of foreign currency debt. Azerbaijan's "ba" susceptibility to event risks is driven by strained but improving geopolitical relations with Armenia,” the report reads.