Azerbaijan: Economic and Political Overview
Declining global gas and oil prices and the armed conflict between Armenia and Azerbaijan in Nagorno-Karabakh took a toll on the country’s economic growth in recent years. Following the strong rebound from the pandemic (+4.6% of GDP in 2022), growth moderated to 2.4% in 2023, attributed to a decrease in non-hydrocarbon growth to approximately 3% and a decline in hydrocarbon production. The IMF projects medium-term growth to hover at approximately 2.5%, buoyed by public investment, while the drag from the energy sector may alleviate with new oil production. However, advancements in economic diversification face hurdles due to the significant state presence, restricted financing access, governance issues, and limited non-energy foreign investment.
In recent years, significant efforts were made by authorities to reduce the non-oil fiscal deficit, surpassing targets in 2022 and aiding in curbing inflation. This surplus provided fiscal room for high-priority capital spending in 2023. Consequently, the non-oil primary deficit rose from 22.4% of non-oil GDP in 2022 to around 24.4% in 2023, slightly below the 25% target. The overall budget surplus decreased from 6.3% of GDP in 2022 to 2% in 2023, partly due to lower-than-expected oil prices. Azerbaijan has postponed its commitment to reduce the non-energy primary deficit to 17.5% of non-oil GDP by one year, now targeting 2027, as per its fiscal rule. This adjustment allows for expenditure commitments linked to Karabakh and defense. Additionally, the government has raised its public debt ceiling to 30% of GDP from the previous 20%. In 2023, government debt increased to 21.8% of GDP after assuming 8% of GDP domestic guaranteed debt from Agrarkredit. Fitch anticipates debt to stabilize at an average of 21.6% of GDP during 2024-2025. External government guarantees and on-lending decreased to USD 6 billion (8.2% of GDP) in 2023, primarily associated with the Southern Gas Corridor project, which remains profitable and unlikely to necessitate sovereign support. In 2023, average inflation decreased to 9%, buoyed by a robust manat compared to Azerbaijan's primary trading partners and reduced international food prices. Fitch forecasts a further easing to 4.5% in 2024.
After peaking in 2020, the unemployment rate returned on a downward path and stood at 5.9% in 2023, and is expected to remain stable over the forecast horizon (IMF). In Azerbaijan, inequality is deemed moderate in comparison to other transition and petroleum-rich nations. The majority of Azerbaijani citizens have reaped the rewards of the country's remarkable economic expansion: the GDP per capita (PPP) was estimated at USD 17,828 in 2022 by the World Bank, and according to the Asian Development Bank, only 5.9% of the population lives below the national poverty line.
| Main Indicators | 2022 | 2023 (E) | 2024 (E) | 2025 (E) | 2026 (E) |
| GDP (billions USD) | 78.72 | 77.39 | 80.98 | 84.29 | 87.93 |
| GDP (Constant Prices, Annual % Change) | 4.6 | 2.5 | 2.5 | 2.5 | 2.5 |
| GDP per Capita (USD) | 7,751 | 7,530 | 7,786 | 8,008 | 8,254 |
| General Government Gross Debt (in % of GDP) | 17.3 | 18.2 | 18.0 | 20.8 | 22.9 |
| Inflation Rate (%) | n/a | 10.3 | 5.7 | 5.0 | 4.5 |
| Unemployment Rate (% of the Labour Force) | 5.9 | 5.9 | 5.8 | 5.7 | 5.7 |
| Current Account (billions USD) | 23.48 | 12.64 | 12.71 | 9.92 | 9.03 |
| Current Account (in % of GDP) | 29.8 | 16.3 | 15.7 | 11.8 | 10.3 |
Source: IMF – World Economic Outlook Database, October 2021
Azerbaijan has a workforce of 5.43 million out of its 10.14 million population (World Bank data). Its economy is based on gas and oil, steel, iron, chemical and petrochemical products, and textiles. Agriculture accounts for 4.8% of GDP and employs 36% of the population (World Bank, latest data available). The main crops include wheat, barley, corn, fruits (wine grapes), potatoes, cotton, tea, silk, and tobacco. The country also produces other potentially valuable crops, including indigenous pink grapes and persimmon. According to the State Statistical Committee, in January–November 2023, Azerbaijan's agricultural production amounted to USD 6.5 billion: crop production in Azerbaijan saw a 2.8% rise to USD 3.4 billion, while livestock production increased by 3.3% to USD 3.4 billion. Furthermore, figures from the Azerbaijan Export and Investment Promotion Agency show that the country’s exports of agricultural reached USD 1.1 billion in 2023, of which USD 878 million accounted for unprocessed agricultural products.
Industry accounts for 55.9% of GDP and employs nearly 15% of the population (World Bank). Besides oil products and their derivatives, Azerbaijan produces cement, machinery, cotton, and foodstuffs. The oil and gas industry accounted for around 95% of all industrial activity in the early 2000s, but the Azeri government has since implemented efforts to diversify the economy. The manufacturing sector is estimated to account for only 5% of GDP (World Bank). In 2023, industrial enterprises and individual entrepreneurs in Azerbaijan produced USD 39.17 billion (State Statistical Committee). According to the Ministry of Energy, in 2023, natural gas production surged by 37% to 48.3 bcm, while crude oil output, including condensate, dipped by 7% to 30.2 million metric tons.
Services account for 32.2% of GDP and employ 49% of the population. Flourishing service sectors include banking, construction, and real estate. The latest figures from the Azerbaijan Tourism Board show that the country welcomed around 1,893,000 international visitors from January to November 2023, marking a 29.8% rise in comparison to the same period one year earlier. The size of the banking sector relative to the economy in Azerbaijan is still small: the ratio of total banking sector assets to GDP stood at 47% as of 2020 (Black Sea Trade and Development Bank – latest data available). Banks are the primary force in Azerbaijan's financial sector, possessing approximately 95% of its total assets.
| Breakdown of Economic Activity By Sector | Agriculture | Industry | Services |
| Employment By Sector (in % of Total Employment) | 34.2 | 15.4 | 50.4 |
| Value Added (in % of GDP) | 4.8 | 55.9 | 32.2 |
| Value Added (Annual % Change) | 3.4 | 0.4 | 12.8 |
Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.
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The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}
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Source: Index of Economic Freedom, Heritage Foundation
The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.
Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024
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