S&P Global Ratings has confirmed Azerbaijan's long- and short-term sovereign credit ratings in foreign and domestic currencies at “BB+,” with the outlook remaining “Stable.”

"The stable outlook indicates that we expect the ceasefire agreement between Azerbaijan, Armenia, and Russia to remain broadly in place over the next 12 months," the agency said in a report. "Favourable hydrocarbon prices and rising gas exports will support Azerbaijan's fiscal and balance of payments positions."

Azerbaijan's economic growth is expected to be 2.7% in 2022, according to S&P.

Nonetheless, oil fields are aging, and output is falling, which new gas exports are unlikely to entirely compensate for. This might have an impact on Azerbaijan's economic, fiscal, and balance of payments performance in the medium to long term. Significant liquid assets held by the sovereign wealth fund SOFAZ help to limit the risks, according to the agency.

Azerbaijan's fiscal and external stock positions, according to S&P, are among the best in the “BB” category. The government has amassed significant liquid assets, most of which are held in the sovereign wealth fund SOFAZ.

"Through 2025, we project that the government will have access to liquid assets equal to close to 70% of GDP, and that general government debt will remain below 30% of GDP," it stated. "Azerbaijan's fiscal and balance of payments characteristics are now supported by favourable oil prices."

S&P stated that inadequate institutional effectiveness, the country's small and concentrated economic base, and limited monetary policy flexibility continue to hinder Azerbaijan's ratings.

In terms of economic growth, the agency stated that medium-term growth prospects were bleaker due to decreased oil output due to aging oil fields, with increased gas exports likely only partially offsetting this trend.

"We expect moderate yearly growth of 1.3% between 2023 and 2025," it stated.

The institutional framework in Azerbaijan is fragile, and political power is concentrated in the presidential administration. The economy of Azerbaijan is heavily reliant on the hydrocarbon industry, which is now benefiting from low world oil prices.

S&P Global Ratings changed its outlook for Azerbaijan from negative to stable in January 2021.