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Ulviyya Poladova

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The expansion of the Middle Corridor is becoming increasingly important for the economic prospects of Central Asia and the South Caucasus. What was initially viewed mainly as an alternative transport route between Asia and Europe is gradually gaining wider economic importance, affecting financing conditions and the development of domestic financial markets.

The corridor connects China with Europe through Central Asia, the Caspian Sea, Azerbaijan, Georgia and Türkiye. Its growing importance is closely linked with the restructuring of regional trade flows since the outbreak of the Russia-Ukraine war in 2022. As businesses kook for routes that bypass Russia, countries along the Middle Corridor have gained an opportunity to increase their share of transit activity, trade, and related investments.

Azerbaijan and Kazakhstan could use this advantage to push ahead with economic diversification and reduce dependence on hydrocarbons. According to Moody’s, the non-oil sectors of both economies are showing steade growth, supported mainly by national banks and government diversification programmes. This combination has created a favorable environment for financial institutions, while also supporting lending to companies outside the traditional commodity sectors.

The improvement in banking-sector performance is not simply a result of increased economic activity. Tighter regulation, better credit quality, sustained profitability and liquidity reserves have strengthened banks’ ability to absorb shocks. These factors are important as the region is gaining an increasing role in cross-border trade and infrastructure investment, where financing requirements tend to be significant and projects often have long payback periods. Corporate conditions have also benefited from steady economic growth, government reforms and relatively good access to domestic financing.

Moody’s expects real GDP growth across much of Central Asia and the Caucasus to remain strong, with many economies continuing to expand at rates above 5 percent. Diversification and regional integration are expected to account for an increasing share of this growth, with the further development of the Middle Corridor becoming one of the more important factors.

Inflation, however, remains a significant variable. Moody’s expects inflation in 2026 to differ considerably across the region, ranging from about 4 percent in Tajikistan to more than 11 percent in Kazakhstan. Such differences will affect monetary policy, borrowing costs and the ability of banks and companies to obtain affordable long-term funding.

Another notable development is the growing movement of economic activity and financing away from Russia toward other markets. According to Moody’s, this has continued to improve operating conditions for regional banks and companies. Government development programmes are creating additional lending opportunities, while an increasing number of financial institutions and corporations are turning to international capital markets.

Kazakhstan remains the regional leader in this respect. Its access to international and Asian capital markets has supported a rise in cross-border placements and helped diversify funding sources. During the first half of 2026, the volume of cross-border placements had already come close to the total recorded for all of 2025. This points to stronger investor interest, but also reflects a growing requirement among banks for longer-term financing.

For lenders, access to such funding is increasingly important. Longer maturities and lower funding costs allow banks to extend investment loans at home and respond to rising demand from companies. At the same time, international investors remain sensitive to geopolitical developments, meaning that access to external capital cannot be treated as permanently assured.

Uzbekistan provides a different example. Its eurobond-market activity was relatively limited during the first half of 2026. This is not so much due to limited market access, but rather to a transitional period in regulation and reduced financing requirements.

Taken together, these trends suggest that the Middle Corridor should be viewed as part of a broader reallocation of trade and capital across Eurasia. Significant investments are needed to fully realize the potential of the corridor. The main risks include limited transportation opportunities across the Caspian Sea, infrastructure constraints, project implementation, and increased debt burden. Despite this, the countries of Central Asia and the Caucasus may also be indirectly influenced by geopolitical processes, primarily through the inflationary channel. Rising prices for energy and other commodities may delay monetary policy easing and lead to continued high interest rates and borrowing costs.