Moody's: Azerbaijan is reducing its dependence on hydrocarbon sector

Azerbaijan and Kazakhstan have been reducing their dependence on the hydrocarbon sector, shown by the rising share of non-oil sectors in their economies compared to a decade ago, according to Moody's, Report informs.

Across the CIS region, countries are gradually growing and diversifying their economies, says Moody's. "Oil exporters, Azerbaijan and Kazakhstan, have been reducing their dependence on the hydrocarbon sector, as shown by the rising share of non-oil sectors in their economies compared to a decade ago. For both countries, for example, the transportation and logistics sector has expanded, driven by rapid growth in cargo transit activity across the Trans-Caspian International Trade Route, also known as the Middle Corridor," said Moody's.

According to the ratings agency, CIS countries' participation in global value chains has increased as more global trade is routed through the region. "Azerbaijan, Kazakhstan, Armenia and Uzbekistan have increased their use of foreign inputs in their manufacturing production, according to IMF research1 and are benefiting from their new position in global trade and production amid Russia's shrinking contribution. These governments have pursued extensive national programs to grow and diversify their economies and improve competition, supported by institutional reform and prolific government spending. At the same time, they have encouraged the private sector to share the financial burden through new investment opportunities. As a result, local banks and development institutions are gradually increasing their appetite for long-term international borrowing," Moody's said.

The ratings agency noted that in Azerbaijan, increased competition for funding is pushing smaller banks to increase borrowings from international financial institutions: "At the same time, large domestic banks will also likely issue eurobonds, although their overall volume will not be significant compared with the overall volume of bilateral funding."

Moody's believes that over the last few years, CIS economies have continued to grow despite economic and geopolitical shocks. "Inflationary pressures have abated in Kazakhstan, Azerbaijan and Uzbekistan, which, in conjunction with greater local currency stability, have allowed banks to borrow more cheaply as risk premiums have declined. In addition, as global monetary policies ease and interest rates fall, investors will seek to maximise their returns, with emerging markets, like in the CIS, still offering competitive rates."