Moody's highly rates Azerbaijan's financial resilience

Azerbaijan, Kazakhstan, Uzbekistan and Tajikistan have significant financial buffers to withstand external economic and geopolitical risks, Moody's Ratings said.

According to the international ratings agency, sovereign issuers in Central Asia and the Caucasus maintain some of the region's strongest financial positions due to relatively low debt burdens, sustained economic growth, fiscal reserves and access to concessional financing.

Financial resilience in the region is also supported by stable fiscal performance and ongoing structural reforms. Several countries, including Azerbaijan and Armenia, are consolidating their fiscal positions through rising revenues and restrained expenditure growth, Moody's analysts said.

The agency estimates that further strengthening fiscal positions will be a key factor in maintaining the creditworthiness of sovereign issuers in the region. However, the fiscal capacity of individual countries varies considerably depending on their economic structures, government reserves and access to financing.

Further progress toward normalizing relations between Armenia and Azerbaijan could provide an additional boost to regional stability and economic prospects. Reduced geopolitical tensions could create new opportunities for trade, transport, energy and infrastructure links across the South Caucasus.

Moody's said the credit outlook for sovereign issuers in Eastern Europe, Central Asia and the Caucasus is positive, supported by reform momentum, economic diversification and deeper regional ties.

"Regional economic growth will remain resilient, although it will normalize from very high levels. In Central Asia and the Caucasus, growth will remain strong in 2026-2027 amid increased investment in infrastructure and regional connectivity," the analysts said.

At the same time, growth is expected to moderate from the peaks recorded after 2022, when economies benefited from migration, capital relocation and the redirection of trade flows.

Government and private-sector investment in infrastructure, the expansion of transport routes and stronger economic ties between countries will play an important role in sustaining growth, according to Moody's.

The development of new trade corridors is also contributing to the diversification of foreign trade and reducing individual economies' dependence on traditional routes.

Overall, stable fiscal performance and access to concessional financing are expected to support the credit strength of most countries in the region. Budget balances, debt burdens and debt-servicing indicators are expected to remain relatively stable despite risks related to contingent liabilities of state-owned enterprises, large infrastructure projects and high borrowing costs.

However, Moody's cautioned that further strengthening of public finances remains necessary. The implementation of major infrastructure projects, rising expenditures and potentially higher external financing costs could put pressure on the fiscal positions of some countries.

Geopolitical risks, including the consequences of the Russia-Ukraine conflict, remain among the main constraints, the analysts said. Economic performance may also be affected by changes in global commodity prices, external demand and terms of trade.

At the same time, many Central Asian and Caucasus countries have significantly strengthened their ability to withstand external shocks in recent years. Diversified trade links, increased regional cooperation, accumulated foreign-exchange and fiscal reserves, and the development of new transport and energy routes are enhancing economic resilience.

According to Moody's, the region is entering 2026-2027 with relatively favorable credit positions. If fiscal discipline is maintained, reforms continue and infrastructure projects are successfully implemented, Central Asia and the Caucasus could sustain solid growth even as economic activity gradually normalizes after an exceptionally strong period in recent years.