Currently, it is not possible to connect to Postgres running on Azure via Entra ID.
When using psql, the usual way is to export PGPASSWORD from az-cli.
export PGPASSWORD=$(az account get-access-token --resource-type oss-rdbms --query accessToken -o tsv)
It would be nice if there is a way to implement passwordless connection in sqlit (if needed, I can try submitting a PR)