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Moody's assessment reaffirms Azerbaijan's progress in navigating economic challenges

9 July 2024 16:07 (UTC+04:00)
Moody's assessment reaffirms Azerbaijan's progress in navigating economic challenges

By Zara Araz

Moody's recent affirmation of Azerbaijan's sovereign rating at 'Ba1' with a positive outlook underscores significant strides in the country's economic stability and financial resilience. The report highlights pivotal reforms and effective policy measures that have bolstered Azerbaijan's economic foundations amidst global uncertainties.

One of the key achievements noted by Moody's is Azerbaijan's successful reduction in economic dependency on the dollar. This strategic move has played a crucial role in mitigating the sensitivity of loans to foreign risks, thereby diminishing exposure to volatile currency markets. The shift away from dollar reliance reflects Azerbaijan's proactive approach to enhancing financial stability and reducing external vulnerabilities.

Moody's analysts also acknowledge ongoing dollarization trends within Azerbaijan's financial system, accompanied by stringent prudential measures aimed at mitigating banks' foreign currency risks. The enhancement of financial sector regulations has significantly contributed to greater stability within the banking sector. Despite facing various economic shocks, Azerbaijan has witnessed a steady improvement in asset quality over recent years. This improvement is supported by robust reserves that fortify the banking sector's resilience against potential severe disruptions. Furthermore, banks in Azerbaijan maintain strong capital and liquidity positions, further solidified by the phased implementation of Basel III standards.

The report highlights the efficacy of Azerbaijan's monetary policy framework, particularly from 2022 to 2023. The policy tightening measures adopted during this period proved more effective in curbing inflationary pressures compared to previous economic shocks. Moody's attributes this success to a proactive approach to monitoring and managing macroprudential risks. The credibility of Azerbaijan's monetary policy has been strengthened by reforms aimed at increasing transparency in policy decision-making processes. These reforms, including the introduction of a new operational framework in late 2022, signify Azerbaijan's commitment to further enhancing the effectiveness of its monetary policy. Looking ahead, these efforts are expected to pave the way for a gradual transition towards an inflation-targeting regime, ensuring long-term economic stability and resilience.

Moody's assessment reaffirms Azerbaijan's resilience and progress in navigating economic challenges through strategic reforms and effective policy interventions. The combination of reduced dollar dependency strengthened financial sector regulations, and proactive monetary policy management positions Azerbaijan favorably amidst global economic uncertainties. As Azerbaijan continues on its path of reform, maintaining policy effectiveness and transparency will be critical in sustaining economic stability and fostering long-term growth.

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