Azerbaijan: Economic and Political Overview
Azerbaijan’s reliance on hydrocarbons for exports and fiscal revenue is its main vulnerability, with declining oil production, price volatility, and the global shift from fossil fuels posing long-term growth challenges. Moreover, private sector development is hindered by a large state presence, uneven competition, shallow financial markets, and weak human capital. 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 1.1% in 2023 and picked up to 3.2% in 2024, driven by a slower decline in oil output and positive spillovers from Karabakh reconstruction. According to the World Bank, the hydrocarbon sector is set to decline in 2025–2026 due to ageing oil fields, with gas output stabilising. Non-oil growth will slow as reconstruction winds down and consumption weakens. Without reforms, growth is expected to stay near 2.5%.
In recent years, significant efforts were made by authorities to reduce the non-oil fiscal deficit. Fitch Ratings estimates Azerbaijan's consolidated budget surplus dropped sharply to 1% of GDP in 2024, down from 7.8% in 2023, due to strong spending growth offset by non-oil revenue and SOFAZ asset returns. The surplus is expected to remain stable in 2025-2026, with lower oil prices partly offset by higher non-oil revenue, including the end of pandemic-related tax relief. Karabakh-related spending is likely to decrease, but social and defence spending pressures will limit significant cuts. Government debt reached 21.1% of GDP in 2024 and is projected to approach 23.3% by 2026 (Fitch). External debt has declined, with improved currency composition and two-thirds owed to official creditors. Government guarantees and on-lending fell to USD 5.6 billion (7.6% of 2024 GDP), mostly linked to the profitable Southern Gas Corridor project, which is unlikely to need state support. Average annual inflation dropped to 2.2% in 2024 from 8.8% in 2023, within the Central Bank’s target, as food prices rose by 1.3%, non-food products by 1.6%, and services by 4% (official governmental figures). In the medium term, it is expected to hover around 3.2% amid slowing domestic demand, assuming no major external shocks (World Bank).
After peaking in 2020, the unemployment rate returned on a downward path and stood at 5.4% in 2024, 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 24,698 in 2024 by the IMF, and according to the World Bank, less than 6% of the population lives below the national poverty line.
| Main Indicators | 2023 (E) | 2024 (E) | 2025 (E) | 2026 (E) | 2027 (E) |
| GDP (billions USD) | 72.36 | 75.65 | 77.04 | 80.41 | 84.14 |
| GDP (Constant Prices, Annual % Change) | 1.1 | 3.2 | 2.5 | 2.4 | 2.4 |
| GDP per Capita (USD) | 7,145 | 7,381 | 7,428 | 7,661 | 7,921 |
| General Government Gross Debt (in % of GDP) | 21.8 | 20.5 | 20.3 | 18.9 | 17.5 |
| Inflation Rate (%) | 8.8 | 2.1 | 4.8 | 4.5 | 4.0 |
| Unemployment Rate (% of the Labour Force) | 5.5 | 5.4 | 5.3 | 5.3 | 5.2 |
| Current Account (billions USD) | 8.33 | 4.65 | 4.55 | 2.45 | 1.62 |
| Current Account (in % of GDP) | 11.5 | 6.1 | 5.9 | 3.1 | 1.9 |
Source: IMF – World Economic Outlook Database, October 2021
Azerbaijan has a workforce of 5.00 million out of its 10.15 million population (World Bank data). Its economy is based on gas and oil, steel, iron, chemical and petrochemical products, and textiles. Agriculture accounts for 5.5% of GDP and employs 35.5% 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, Azerbaijan's agricultural production amounted to 12.995 billion manat, reflecting a 1.5% increase compared to 2023. Livestock product production grew by 1.7%, reaching AZN 6.833 billion, while crop production rose by 1.1%, totalling AZN 6.162 billion. Furthermore, from January to October 2024, agricultural exports increased by 5.7%, reaching USD 603.5 million, while exports of processed agricultural goods surged by 60.3%, totalling USD 260.9 million.
Industry accounts for 46.6% of GDP and employs nearly 14.8% 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 rather limited, accounting for only 6% of GDP (World Bank). In 2024, industrial production totalled AZN 64.1 billion, a 1.1% increase compared to 2023. Oil and gas sector output rose by 0.5%, while non-oil and gas sector output grew by 7.3%. The mining sector produced 64.3% of industrial goods, followed by manufacturing (29.8%), electricity, gas, and steam production (4.9%), and water supply and waste management (1%). Marketable oil production in mining decreased by 3.6%, while marketable gas production rose by 6.2% (data State Statistical Committee).
Services account for 39.1% of GDP and employ 49.7% of the population. Flourishing subsectors include banking, construction, and real estate. The latest figures from the Azerbaijan Tourism Board show that the country welcomed around 2,626,000 international visitors in 2024, marking a 25.9% rise in comparison to the previous year. 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 40% as of 2023 (data Central Bank). Banks are the primary force in Azerbaijan's financial sector, possessing approximately 95% of its total assets (AZN 51.9 billion). In 2024, retail trade turnover in Azerbaijan reached 62.2 billion manat, according to the State Statistics Committee. Of this, 34.1 billion manat was from food, beverages, and tobacco, while 28.1 billion manat came from non-food products. Compared to 2023, retail turnover increased by 3.9% in real terms, with a 2.1% rise in food-related products and a 6.3% increase in non-food items.
| Breakdown of Economic Activity By Sector | Agriculture | Industry | Services |
| Employment By Sector (in % of Total Employment) | 35.5 | 14.8 | 49.7 |
| Value Added (in % of GDP) | 5.5 | 46.6 | 39.1 |
| Value Added (Annual % Change) | 3.0 | 1.3 | -0.2 |
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.}}
Economic freedom in the world (interactive map)
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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