BAKU, Azerbaijan, October 22. Azerbaijan
remains the financially strongest sovereign in the Caucasus and
Central Asia (CCA) region, supported by large and growing fiscal
and monetary reserve assets, low public debt and a robust external
balance sheet, the Dutch ING Group said in its latest report.
“Higher hydrocarbon prices have strengthened the near-term
fiscal and external outlook, as well as domestic confidence in the
non-oil sectors. However, weak oil production, limited
diversification and subdued private investment continue to
constrain potential growth. Inflation is manageable for now,
supporting an extended policy hold, although imported price
pressures through high exposure to trading partners with high risks
of upward CPI surprises, warrant caution. We remain constructive on
sovereign resilience and external stability but see structurally
modest growth as the main medium-term challenge,” said the ING.
The report says that the fundamental picture is generally
positive for Azerbaijan, with ratings now comfortably in the G
space and Moody’s holding a positive outlook.
“At the same time, the country stands to be a significant
beneficiary from the current energy price spike, given its high
sensitivity to oil prices in terms of fiscal and external accounts.
While there remains some risk of negative spillovers from the
conflict in the Middle East given the generally tense relations
with Iran and cooperation with Israel, for now this seems well
contained. The ongoing peace process with Armenia seems more likely
to act as a positive catalyst at this stage, given the progress in
recent years. In this context valuations look attractive for
Azerbaijan, which should act as a strong defensive play in the
event of a more prolonged conflict in the Middle East and
persistent oil price spike. The current pickup over Kazakhstan
appears to offer decent value, while the sovereign continues to
benefit from lower geopolitical risk than oil exporting peer Oman,”
reads the report.
