ING: Azerbaijan remains most resilient sovereign borrower in Caucasus, Central Asia region

Azerbaijan maintains its position as the most financially stable sovereign borrower among the states of the Caucasus and Central Asia, Report informs, citing the Netherlands' largest banking group, ING Group.

"The country's resilience is supported by significant and growing reserve assets in the fiscal and monetary spheres, low public debt, and a reliable foreign trade balance. The rise in hydrocarbon quotes has strengthened the state's short-term budgetary and foreign economic prospects, and also contributed to increased domestic confidence in the non-oil sectors of the economy. At the same time, experts point out that declining oil production volumes, insufficient diversification, and moderate private investment continue to act as limiting factors for potential growth," the report notes.

The authors of the report indicate that inflation in the country is currently under control, making it possible to keep monetary policy unchanged. However, threats of imported inflation cause a certain degree of concern due to close ties with trading partners, where there is a risk of an unforeseen acceleration of consumer prices.

Overall, ING Group experts maintain a constructive assessment of the sovereign issuer's resilience and external stability, while highlighting structurally subdued economic growth as a key medium-term challenge.

"The fundamental conditions for Azerbaijan remain predominantly favorable. Sovereign ratings are firmly anchored in the investment grade (G-range), and the rating agency Moody's maintains a positive outlook on them. The country has the opportunity to significantly benefit from the current rise in energy prices due to its high dependence on oil quotes," the study's authors emphasize.

According to the group's analysts, the risks of possible negative consequences from the Middle East conflict are currently assessed as manageable: "At the same time, the ongoing peace process with Armenia, considering the progress achieved in recent years, is perceived as a potentially positive factor. Under the current conditions, the valuations of Azerbaijani assets look attractive, making them a reliable defensive instrument in the event of a prolonged geopolitical crisis and persistently high oil prices."