Baku: The international rating agency Moody's Ratings has recently conducted a periodic review of Azerbaijan and related ratings, as reported by APA-Economics. The review spotlighted Azerbaijan's Baa3 long-term issuer ratings, which are bolstered by the government's substantial net creditor position. This position is attributed to the sizeable financial assets held by the State Oil Fund of Azerbaijan (SOFAZ), the country's sovereign wealth fund, providing a significant financial buffer and reducing government liquidity and external vulnerability risks.

According to Azeri-Press News Agency, the review noted improvements in Azerbaijan's policy effectiveness, particularly in the monetary and macroeconomic policy framework. This progress promotes stability in the external position and supports the soundness of the financial system amid shocks. The effective use of fiscal buffers has allowed for countercyclical spending, limiting potential deterioration in the government's fiscal and debt metrics. However, long-standing institutional and governance weaknesses continue to impact economic competitiveness. Additionally, the country's strained, though improving, relations with neighboring Armenia (Ba3 stable) underpin existing geopolitical risks.

Azerbaijan's "ba1" economic strength reflects solid medium-term growth prospects, given its significant exposure to the oil and gas sector. The "ba2" score for institutions and governance strength reflects weaknesses in areas such as control of corruption and rule of law, as well as limited voice and accountability. Nonetheless, the country's strong net creditor position supports these scores, as the sovereign wealth assets cover all government direct debt and guarantees, despite a high share of foreign currency debt. Azerbaijan's "ba" susceptibility to event risks is primarily driven by its geopolitical relations with Armenia.

Azerbaijan's ESG Credit Impact Score is negative (CIS-4), indicating a lower rating due to environmental, social, and governance risks, particularly long-term global carbon transition. The governance profile remains moderately weak, though gradual strengthening is evident amid ongoing reforms. The positive outlook signifies that ongoing reforms could further reduce economic and fiscal dependence on the hydrocarbon sector. Additionally, there are prospects for further enhancements in institutional strength and governance through reforms aimed at improving monetary policy transmission, financial sector regulations, public finance management, and transparency in public administrative processes.