Baku: While the Middle Corridor’s development will require more budget expenditure, a track record of fiscal prudence and some fiscal capacity from lower debt levels relative to rated peers suggest modest fiscal implications, Trend reports with reference to Moody’s.
According to Trend News Agency, the latest report by Moody’s reveals that “longer-term, improved economic prospects and diversification benefits could support a wider revenue base, while improving fiscal resilience to shocks.” The rating agency’s analysts note that the core economies along the Middle Corridor, namely Azerbaijan, Georgia, and Kazakhstan, have maintained fiscal soundness despite the significant resources required by infrastructure upgrades.
State-owned enterprises (SOEs) have taken on a substantial share of the burden, particularly the railway companies. Selected projects have been financed on concessional terms by international institutions, which has helped reduce costs. These SOEs benefit from direct budgetary allocations and subsidies. For instance, Kazakhstan’s transport and communication spending grew by 29% annually on average between 2022 and 2024, from around 9% the previous decade. Data from the State Statistical Committee of the Republic of Azerbaijan shows that state capital investment in the transportation and storage sector jumped to 38% year-on-year between 2021 and 2023, compared to an average of 1% in total capital investments in the previous 10 years, said the report.
Moody’s notes that despite this expenditure, overall fiscal performance has been solid. All three sovereigns achieved considerable fiscal consolidation after spending surged during the pandemic. Fiscal deficits narrowed, aided by strong economic growth as pandemic-era support measures were phased out and fiscal discipline curbed spending. In Azerbaijan, oil prices helped generate sizeable surpluses over the past three years. The rapid growth of non-oil revenue is also helping narrow the non-oil primary balance, indicating the economy’s increasing diversification and resilience to oil price changes. Access to concessional financing has also kept external debt affordable, reducing vulnerability.
The Middle Corridor is a transport and trade route that passes through several countries in the region, connecting Asia with Europe. It serves as an alternative to the traditional Northern and Southern corridors. The route begins in China and goes through Central Asian countries such as Kazakhstan, Uzbekistan, and Turkmenistan. It then crosses the Caspian Sea, Azerbaijan, Georgia, and Trkiye before reaching Europe. The Middle Corridor is a land-based route that bypasses longer maritime paths, linking the eastern parts of Asia, including China, with Europe.