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Fitch Ratings says Azerbaijan will continue to experience broad social and political stability.

Fitch has revised the outlook on Azerbaijan's Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) to Stable from Negative and affirmed the IDRs at 'BB+'.

Fitch assumes that that there will be no prolonged escalation in the conflict with Armenia over Azerbaijan’s Nagorno-Karabakh region to a level that would affect economic and financial stability.

Macro-stability improved in Azerbaijan in 2017. The country's external balance sheet has started to recover. The current account balance has turned to a surplus. As a result, FX reserves have risen, assets in the State Oil Fund of Azerbaijan (SOFAZ) have also increased to $35.8 billion at end-2017.

Fitch expects SOFAZ assets to continue rising thanks to steady oil prices and expected limitations of its transfers to the state under a new fiscal rule in 2019.

The 2017 consolidated budget deficit was moderate at 1.5 percent of GDP, due to higher than expected oil revenues and contained current and capital spending. Fitch expects the budget balance to return to surplus from 2018.

Fitch forecasts Brent Crude to average $52.5/b in 2018 and $55/b in 2019. The base price for oil, set in the Azerbaijani state budget for 2018, is $45/b.

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