Economic and Political Overview

flag Azerbaijan Azerbaijan: Economic and Political Overview

In this page: Economic Indicators | Foreign Trade in Figures | Sources of General Economic Information | Political Outline | COVID-19 Country Response

 

Economic Indicators

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 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 78.7276.6478.7581.4484.60
GDP (Constant Prices, Annual % Change) 4.61.12.82.32.3
GDP per Capita (USD) 7,8237,5257,6417,8088,015
General Government Gross Debt (in % of GDP) 17.318.418.318.919.3
Inflation Rate (%) 13.98.23.55.04.5
Unemployment Rate (% of the Labour Force) 5.65.65.55.55.4
Current Account (billions USD) 23.487.606.666.575.21
Current Account (in % of GDP) 29.89.98.58.16.2

Source: IMF – World Economic Outlook Database , Latest available data

Note: (e) Estimated Data

Main Sectors of Industry

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.

 

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Monetary Indicators 20162017201820192020
Azerbaijanian New Manat (AZN) - Average Annual Exchange Rate For 1 MUR 0.040.050.050.050.04

Source: World Bank - Latest available data.

 
 

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Indicator of Economic Freedom

Definition:

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.

Score:
70,1/100
World Rank:
38
Regional Rank:
23

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation

 

Business environment ranking

Definition:

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.

Score:
5.19/10
World Rank:
70/82

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024

 

Country Risk

See the country risk analysis provided by Coface.

 

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Foreign Trade in Figures

Trade represents 77% of Azerbaijan's GDP (World Bank, latest data). However, its foreign trade still relies heavily on the ex-Soviet bloc countries, especially Russia. Oil and gas represent over 90% of the country's exports. A significant part of the country's imports is made of capital goods, from machinery and vehicles to electrical equipment. Primary imports in Azerbaijan include iron and steel, machinery, vehicles, and predominantly meat and dairy food products. Its oil and especially gas reserves provide the country with a degree of confidence for the coming years, but economic diversification remains a major problem to tackle. Other challenges include promoting more economic cooperation and openness and reducing the power of monopolies.

Azerbaijan's main export destinations are Italy (46.6%), Türkiye (9.3%), Israel (4.4%), India (4.4%), and Greece (3.6%), while the main import partners are Russia (18.8%), Türkiye (15.8%), China (14.4%), Germany (4.5%), and Turkmenistan (3.5% - data Comtrade 2022). As per the Azerbaijani State Customs Committee, trade with Russia increased by 17.5% y-o-y in 2023.

As per the WTO, Azerbaijan saw a significant surge in foreign trade of goods in 2022, with a 55.4% increase amounting to USD 52.7 billion. Simultaneously, the nation recorded a notable rise in total net exports, witnessing a 71.6% year-on-year increase to USD 38.1 billion, along with imports rising by 23.9% to USD 14.5 billion. Exports of services amounted to USD 6.4 billion, against 7.7 billion in imports. The total external trade balance was positive by 33% of GDP in 2022, according to the World Bank. In January-December 2023, Azerbaijan's total exports amounted to USD 33.9 billion, as indicated by the Center for Analysis of Economic Reforms and Communication. Moreover, Azerbaijan experienced a 9.8% increase in non-oil exports in 2023 compared to the corresponding period of the previous year, reaching USD 3.3 billion. The combined export value of agricultural and agro-industrial products surged by 6.2% to reach USD 969.2 million. Notably, the value of agro-industrial products, a substantial component of non-oil/gas exports, increased by 3.2% to USD 201 million.

 
Foreign Trade Indicators 20192020202120222023
Imports of Goods (million USD) 13,66810,73211,70314,54017,285
Exports of Goods (million USD) 19,63513,73322,20838,14733,899
Imports of Services (million USD) 6,3775,5556,0137,7658,658
Exports of Services (million USD) 3,7612,6263,8025,0676,257
Imports of Goods and Services (in % of GDP) 36.836.429.827.0n/a
Exports of Goods and Services (in % of GDP) 49.135.646.560.1n/a
Trade Balance (million USD) 8,5332,51211,27427,359n/a
Trade Balance (Including Service) (million USD) 5,917-4189,06226,000n/a
Foreign Trade (in % of GDP) 85.872.076.387.1n/a

Source: WTO – World Trade Organisation ; World Bank , Latest Available Data

 

Main Partner Countries

Main Customers
(% of Exports)
2022
Türkiye 9.3%
Israel 4.4%
India 4.4%
Greece 3.6%
Spain 2.6%
See More Countries 75.6%
Main Suppliers
(% of Imports)
2022
Russia 18.8%
Türkiye 15.8%
China 14.4%
Germany 4.5%
Turkmenistan 3.5%
See More Countries 43.0%

Source: Comtrade, Latest Available Data

 
 

Main Products

38.2 bn USD of products exported in 2022
Petroleum oils and oils obtained from bituminous...Petroleum oils and oils obtained from bituminous minerals, crude 51.1%
Petroleum gas and other gaseous hydrocarbonsPetroleum gas and other gaseous hydrocarbons 39.3%
Petroleum oils and oils obtained from bituminous...Petroleum oils and oils obtained from bituminous minerals (excl. crude); preparations containing >= 70% by weight of petroleum oils or of oils obtained from bituminous minerals, these oils being the basic constituents of the preparations, n.e.s.; waste oils containing mainly petroleum or bituminous minerals 1.4%
Mineral or chemical nitrogenous fertilisers (excl....Mineral or chemical nitrogenous fertilisers (excl. those in pellet or similar forms, or in packages with a gross weight of <= 10 kg) 0.5%
Gold, incl. gold plated with platinum, unwrought...Gold, incl. gold plated with platinum, unwrought or not further worked than semi-manufactured or in powder form 0.5%
See More Products 7.2%
14.5 bn USD of products imported in 2022
Motor cars and other motor vehicles principally...Motor cars and other motor vehicles principally designed for the transport of persons, incl. station wagons and racing cars (excl. motor vehicles of heading 8702) 5.8%
Petroleum oils and oils obtained from bituminous...Petroleum oils and oils obtained from bituminous minerals (excl. crude); preparations containing >= 70% by weight of petroleum oils or of oils obtained from bituminous minerals, these oils being the basic constituents of the preparations, n.e.s.; waste oils containing mainly petroleum or bituminous minerals 4.8%
Medicaments consisting of mixed or unmixed...Medicaments consisting of mixed or unmixed products for therapeutic or prophylactic uses, put up in measured doses "incl. those in the form of transdermal administration" or in forms or packings for retail sale (excl. goods of heading 3002, 3005 or 3006) 3.5%
Petroleum oils and oils obtained from bituminous...Petroleum oils and oils obtained from bituminous minerals, crude 3.1%
Wheat and meslinWheat and meslin 3.0%
See More Products 79.8%

Source: Comtrade, Latest Available Data

 
 

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Main Services

Source: United Nations Statistics Division, Latest Available Data

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Sources of General Economic Information

Ministries
InvestBaku - Investment Agency of Baku
Ministry of Finance
Statistical Office
The State Statistical Committee of the Republic of Azerbaijan
Central Bank
Central Bank of the Republic of Azerbaijan
Stock Exchange
Baku Stock Exchange
Search Engines
Search AZ
Azerbaijan Internet links
Azerbaijan International
Economic Portals
The Economist : Azerbaijan
Business Information Service for the Newly Independant States

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Political Outline

Current Political Leaders
President: Ilham ALIYEV (since October 2003, reelected 7 February 2024) - YAP
Prime Minister: Ali ASADOV (since 8 October 2019) - Independent
Next Election Dates
Presidential: 2031
National Assembly: 2025
Main Political Parties
While the parliament is currently led by the YAP party, independents make up the second-largest political presence. Yet, opposition parties in Azerbaijan regularly factionalize and form new parties. The most prominent ones include:
- New Azerbaijan Party (YAP): centre-right, nationalist, secularist
- Civic Solidarity Party (CSP): centre-right, nationalist, conservative
- Motherland Party (AVP): centre-right, nationalist, conservative
- Azerbaijani Popular Front Party: centre-right, reformist, nationalist

Other prominent parties include: Great Order Party, Democratic Reforms Party, Unity Party, Civic Unity Party, Azerbaijan Democratic Enlightenment Party, Republican Alternative, and National Front Party.

Type of State
Presidential republic with limited parliamentary democracy where the president enjoys wide powers.
Executive Power
The President is the chief of the state and is elected by popular vote for a five-year term. He holds the executive powers. The President appoints the Prime minister (who is the head of the government) and the Council of Ministers, who have to be confirmed by the National Assembly.
Legislative Power
The legislature is unicameral in Azerbaijan. The parliament, called the National Assembly, has 125 seats with its members being elected by popular vote to serve five-year terms. However, the National Assembly has historically been a weak body with little real influence. Azerbaijan has a strong presidential system in which the legislative and judicial branches have only limited independence. The people of Azerbaijan enjoy limited political rights.
 

Indicator of Freedom of the Press

Definition:

The world rankings, published annually, measures violations of press freedom worldwide. It reflects the degree of freedom enjoyed by journalists, the media and digital citizens of each country and the means used by states to respect and uphold this freedom. Finally, a note and a position are assigned to each country. To compile this index, Reporters Without Borders (RWB) prepared a questionnaire incorporating the main criteria (44 in total) to assess the situation of press freedom in a given country. This questionnaire was sent to partner organisations,150 RWB correspondents, journalists, researchers, jurists and human rights activists. It includes every kind of direct attacks against journalists and digital citizens (murders, imprisonment, assault, threats, etc.) or against the media (censorship, confiscation, searches and harassment etc.).

World Rank:
167/180
 

Indicator of Political Freedom

Definition:

The Indicator of Political Freedom provides an annual evaluation of the state of freedom in a country as experienced by individuals. The survey measures freedom according to two broad categories: political rights and civil liberties. The ratings process is based on a checklist of 10 political rights questions (on Electoral Process, Political Pluralism and Participation, Functioning of Government) and 15 civil liberties questions (on Freedom of Expression, Belief, Associational and Organizational Rights, Rule of Law, Personal Autonomy and Individual Rights). Scores are awarded to each of these questions on a scale of 0 to 4, where a score of 0 represents the smallest degree and 4 the greatest degree of rights or liberties present. The total score awarded to the political rights and civil liberties checklist determines the political rights and civil liberties rating. Each rating of 1 through 7, with 1 representing the highest and 7 the lowest level of freedom, corresponds to a range of total scores.

Ranking:
Not Free
Political Freedom:
7/7

Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House

 

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COVID-19 Country Response

Travel restrictions
Regularly updated travel information for all countries with regards to Covid-19 related entry regulations, flight bans, test and vaccines requirements is available on TravelDoc Infopage.
To find information about the current travel regulations, including health requirements, it is also advised to consult Travel Regulations Map provided and updated on a daily basis by IATA.
Import & export restrictions
A general overview of trade restrictions which were adopted by different countries during the COVID-19 pandemic is available on the International Trade Centre's COVID-19 Temporary Trade Measures webpage.
Economic recovery plan
For the general overview of the key economic policy responses to the COVID-19 pandemic (fiscal, monetary and macroeconomic) undertaken by the Azerbaijan government, please consult the section dedicated to Azerbaijan in the IMF’s Policy Tracker platform.
Support plan for businesses
For an evaluation of impact of the Covid pandemic on SMEs and an inventory of country responses to foster SME resilience, refer to the OECD's SME Covid-19 Policy Responses document.
You can also consult the World Bank's Map of SME-Support Measures in Response to COVID-19.

 

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Latest Update: April 2024