Potential remains for upgrade of Azerbaijan’s ratings to investment grade category

The potential remains for an upgrade of Azerbaijan’s ratings to the investment grade category in the short term. This potential is primarily due to economic diversification as well as improvement of external and internal balances, Gulnara Khaidarshina, deputy head of research, chief CIS economist at Russia’s Gazprombank, said after the meetings held in Baku, Report informs.

“The diversification of Azerbaijan’s economy will be facilitated by the country’s strengthening role as a Eurasian transport and logistics hub. As the country’s role as a leading logistics center strengthens, the share of transport and construction in GDP will increase due to the development of transport and related infrastructure. According to our estimates, the share of these industries in Azerbaijan's GDP may increase to 27% in 2024 and exceed 30% over a five-year horizon. These estimates also include the effect of new projects in Karabakh,” she noted.

Growth in the non-oil and gas component of Azerbaijan's GDP will continue to be supported by new projects in Karabakh, which include the construction of new transport and social infrastructure, industrial parks and renewable energy facilities, she said.

“Plans to attract tourists to the region will also contribute to expansion of the non-oil and gas sector of the economy. In addition, thanks to the lifting of quarantine restrictions as well as the influx of tourists and relocation of businesses from neighboring countries, we are seeing recovery of economic activity in the country’s non-oil and gas sector. In this regard, we expect the expansion of domestic demand to contribute to economic diversification. According to our estimates, the share of domestic trade in Azerbaijan's GDP will increase to 18% and 19% in 2023 and 2024, respectively.”

“The UAE is an interesting example of a country moving to a higher group of sovereign ratings, similar to Azerbaijan. As soon as oil and gas revenues began to be invested in non-oil and gas industries, including construction projects (especially in Dubai) and tourism, Moody's raised the UAE’s sovereign ratings over the 2004-2007 period in three steps. In Azerbaijan, the factors for a transition to the sovereign investment grade category are being fulfilled thanks to measures taken to diversify the economy, including 1) a reduction of its dollarization; 2) a rational approach to budget expenditures and management of SOFAZ assets; and 3) programs to increase the share of non-oil and gas exports and new projects in Karabakh,” she said.

Azerbaijan has the following sovereign ratings: according to S&P at 'BB+' with a stable outlook, Fitch - 'BB+' with a positive outlook and Moody's - 'BA1' with a stable outlook.