Recently, Fitch Solutions (FS) released its long-term outlook for Azerbaijan, forecasting moderate GDP growth of 2.6% in 2025 and emphasizing the challenges posed by declining oil revenues and global market volatility. The report highlighted a stable banking sector, controlled inflation, and a resilient current account surplus, with expectations that Azerbaijan’s economy would steadily expand while navigating risks from global energy prices, Russian-related sanctions, and regional financial dependencies through 2034.

FS, an international analytical firm within the Fitch Group, forecasted a 2.6% economic growth rate for Azerbaijan in 2025. According to FS, Azerbaijan’s GDP was expected to expand by 2.6% in 2025, 2.4% in 2026, and 2.3% in 2027, placing the country’s average annual growth at 2.43% for the 2025–2027 period. FS emphasized that the projected slowdown reflected weaker revenues in the oil and gas sector, which constituted 38.5% of GDP as of June 2025. The firm’s oil and gas research team anticipated a 15% year-on-year decline in global oil prices in 2025, while risks for 2026–2027 were tilted upward due to the impact of tightening sanctions on Russia, which could disrupt global supply chains.

FS projected that Azerbaijan’s economy would grow by 2.9% in 2028, 3.6% in 2029, 2.8% in 2030, 2.5% in 2031, 2.4% in 2032, and 3% annually in both 2033 and 2034. Nominal GDP was expected to reach $102.4 billion in 2024, rising to $187.5 billion in 2034.

FS noted that the Central Bank of Azerbaijan (CBA) would retain a cautious and data-based monetary approach through 2026–2027. The firm maintained its expectation that the key interest rate would fall to 6.75% by the end of 2025 and to 6.5% by the end of 2026, a level lower than the 7.6% average recorded between 2020 and 2024. FS linked this decline to softer economic growth caused by weakening global oil markets.

The analytical group also updated its inflation projections, estimating average annual inflation at 5.7% in 2025, 5.5% in 2026, and 4.8% in 2027, compared with earlier expectations of 6% in 2025 and 5.1% in 2026. For the longer term, FS expected inflation to hover around 4.7%–5.0% through 2034. Annual (year-end) inflation was forecasted at 5% in 2025, gradually declining to 0.8% in 2034.

Fitch Ratings maintained a neutral sector outlook for banking systems in the CIS+ region—Armenia, Azerbaijan, Georgia, Kazakhstan, Ukraine, and Uzbekistan—through 2026. The agency stated that operating environments remained resilient, with robust loan growth and stable sector-average metrics. While Ukraine continued to face severe challenges, Fitch did not anticipate substantial deterioration there. The agency underlined that strong domestic demand and favorable commodity prices supported economic growth in the region, benefiting oil exporters in particular.

Fitch highlighted the dominance of retail lending in driving double-digit loan growth, although regulatory frameworks, especially in Kazakhstan and Uzbekistan, worked to prevent overheating. Credit penetration remained low or moderate across the region, including in Georgia and Armenia, allowing room for continued banking expansion. Asset quality was expected to show minimal changes, with legacy risks declining and dollarisation gradually decreasing, though Uzbekistan still faced pressures. Profitability remained solid due to healthy interest margins and low impairment costs, while capital and liquidity buffers stayed strong. The agency added that Ukraine’s banking system was supported by effective regulatory oversight and stable liquidity and capital indicators. Fitch also noted that potential spillovers from Russia-related sanctions and volatile commodity prices posed risks, even though banking sectors were likely to remain resilient. Most bank ratings stayed below investment grade due to structural issues and sovereign risk limitations, but their outlooks were predominantly stable.

FS projected that Azerbaijan’s current account surplus would reach $2.7 billion (2.6% of GDP) in 2025 and remain at $2.7 billion (2.4% of GDP) in 2026. The surplus was expected to range between $1.9 billion and $2.7 billion (1.4% to 2.1% of GDP) through 2034. In 2024, the surplus totaled $4.7 billion, equal to 6.3% of GDP.

Fitch Ratings also expected Azerbaijan’s economy to expand by 2.3% in 2025, revising its earlier forecast downward by 1.2 percentage points, while keeping its 2026 projection unchanged at 2.5%. Fitch anticipated that lending growth in Azerbaijan would slow to single-digit levels, largely because regulators in Azerbaijan, Kazakhstan, and Uzbekistan continued tightening credit access to enhance underwriting standards and mitigate overheating risks. The agency noted several macroprudential measures in Azerbaijan, including limits on effective interest rates, caps on unsecured loans, debt-to-income ratio restrictions, and higher risk weights for certain retail products.

Fitch stated that overall financial performance would remain stable in 2026 despite moderated credit growth, with profitability supported by wide—although gradually narrowing—margins. The agency expected the ratio of Stage 3 loans to increase to around 4.5% in 2026 from 3.5% at the end of 2024, driven by portfolio maturation and rising consumer lending. However, banks were considered capable of absorbing potential losses through solid pre-impairment profits.

The agency further estimated that foreign-currency loans would decline to about 12% of total lending by the end of 2026, supported by the manat’s effective peg to the US dollar and strict currency-lending regulations. Customer deposit dollarisation was expected to remain high at around 44%, with de-dollarisation progressing slowly. Liquidity buffers, including foreign-currency reserves, were projected to stay strong, as the sector-average loans-to-deposits ratio remained close to 80%.

Fitch underscored that many economies in the CIS+ region remained heavily dependent on Russia through trade, energy, infrastructure, migration, and remittances, except for Ukraine and, to a lesser extent, Azerbaijan. Risks stemming from Russia—including possible secondary sanctions—continued to challenge banks and companies, though diversification efforts, enhanced compliance practices, and strengthened risk-monitoring systems were seen as mitigating factors.