BAKU, Azerbaijan, October 17. International rating agency Fitch expects Azerbaijan's real GDP to grow by 2.5 percent in 2026, mainly due to the development of non-resource sectors of the economy and large-scale government investments, the director of Sovereigns and Supranationals at Fitch Ratings, Arvind Ramakrishnan, said in an exclusive interview with Trend.
According to him, at the same time, the manat remains stable, the budget is stable, and the prospects for foreign investment growth are supported by new oil and gas projects and the expansion of transit trade.
Fitch's forecast for Azerbaijan's economic growth in 2026 and the key drivers of development
According to Ramakrishnan, Fitch forecasts real GDP growth of 2.5 percent in 2026, which is close to Azerbaijan's medium-term growth potential, with growth primarily driven by the non-commodity sector of the economy and government investment, given the ongoing decline in oil production, although natural gas production will have a supportive effect.
"There are good growth prospects in the information and communication technology and transport sectors. For the latter, the key supporting factors are large-scale government investment and transit operations within the Middle Corridor.
Growth in the non-commodity sector has also received a significant boost in recent years due to the recovery in Karabakh. However, as capital expenditures peak, their contribution to growth will decline," Ramakrishnan said.
Azerbaijan's fiscal sustainability and Fitch's forecast for the budget balance in 2026-2027
According to him, Fitch expects the consolidated budget to have a surplus of 0.3 percent of GDP in 2026 (in 2024: 3.6 percent), after which it will shift to a small deficit in 2027.
"Azerbaijan maintains its BBB- investment rating with a stable outlook, supported by the sovereign's sustainable external balance and low public debt. In addition, Azerbaijan's public finances are supported by high financing flexibility and solvency thanks to the significant assets of the State Oil Fund (SOFAZ) and government deposits," Ramakrishnan emphasized.
Fitch's forecast for the stability of the manat exchange rate and the maintenance of its peg to the US dollar
According to Fitch, the actual peg of the manat to the US dollar will remain at the current level of 1.70 in the coming years. Fitch believes that the official commitment to this currency regime is high and that the state has sufficient foreign exchange reserves to defend it.
Fitch's forecast for Azerbaijan's oil and gas revenues and production dynamics until 2027
"Azerbaijan's oil and gas revenues are directly dependent on global prices and, therefore, can be volatile. Fitch's forecast for oil prices is $70 per barrel in 2025 and $65 per barrel in 2026-2027.
Oil revenues are expected to stabilize in 2025-2027, with production volumes declining by about 9 percent compared to 2024 levels. Gas production, on the other hand, will increase by about 5 percent by the end of 2027 compared to 2024," Ramakrishnan stressed.
Fitch's assessment of Azerbaijan's investment climate and the impact of the Karabakh field on foreign investment inflows
The director of the division noted that the investment climate in Azerbaijan is somewhat limited by the significant presence of the state in the economy, low levels of financial intermediation, and low volumes of foreign investment outside the energy sector.
Fitch believes that fundamental changes in the investment environment will take time. However, the expected start of oil production at the Karabakh field in 2029, as well as Azerbaijan's expanding role in transit trade, could contribute to growth in foreign investment in the coming years.