Azerbaijan: Economic and Political Overview
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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. Nevertheless, after entering a recession in 2020, Azerbaijan’s economy rebounded in 2021 (+5.6%) and continued growing in 2022, with an estimated GDP increase of 3.7% according to the IMF thanks to the good performance of the non-oil sector, higher Russian remittances and a boost to the transportation sector following the Russia-Ukraine conflict. For 2023, the IMF expects lower oil and gas prices to weigh on the country’s energy sector (which accounts for more than half of the Azeri economy), with growth projected at 2.5% by the IMF.
The general government surplus was estimated at 10.6% of GDP in 2022, from 4.2% in 2021, driven by higher energy prices and strong non-oil receipts (Fitch Ratings). Additional extractive revenues were used to finance measures in favour of purchasing power, such as a food subsidy and a 20% increase in the minimum wage. As still-high oil and gas prices should counterbalance the increase in inflation-related social spending, the budget surplus is forecast at 6.7% of GDP for 2023. In 2022 Azerbaijan reinstated the limit on the growth of budget spending of 3% year-on-year and committed to a reduction in the non-oil primary deficit. Nevertheless, the debt-to-GDP ratio stood at 20.7% in 2022 but is expected to increase over the forecast horizon, to 22.1% this year and 23.8% in 2024 (IMF). Inflation rose to 12.2% in 2022 fuelled by a steep surge in food prices, exacerbated by disrupted imports from Russia and Ukraine. The central bank has tightened its policy, setting the main rate at 8.25% at the end of 2022. Real effective exchange rate appreciation and easing supply-chain disruptions should contribute to a reduction in inflation, projected at 10.8% in 2023 and 8% the following year. Overall, the country’s economic growth is still hampered by its dependence on the hydrocarbon sector and by the inefficiencies of the many state-owned enterprises.
After peaking in 2020, the unemployment rate returned on a downward path and stood at 5.9% in 2022. For 2023 and 2024, the IMF forecasts a rate of 5.8%. Azerbaijan’s GDP per capita (PPP) was estimated at USD 17,448 in 2022 (IMF). According to Asian Development Bank, 6.2% of the population lives below the national poverty line. Finally, the problem of corruption remains unresolved and may act as an impediment to the country's development.
| Main Indicators | 2020 | 2021 | 2022 | 2023 | 2024 |
| GDP (billions USD) | 42.69 | 54.62 | 70.07 | 71.21 | 75.03 |
| GDP (Constant Prices, Annual % Change) | -4.2 | 5.6 | 3.7 | 2.5 | 2.5 |
| GDP per Capita (USD) | 4,241 | 5,398 | 6,842 | 6,872 | 7,154 |
| General Government Gross Debt (in % of GDP) | 21.3 | 26.4 | 20.7 | 22.1 | 23.8 |
| Inflation Rate (%) | 2.8 | 6.7 | 12.2 | 10.8 | 8.0 |
| Unemployment Rate (% of the Labour Force) | 7.2 | 6.0 | 5.9 | 5.8 | 5.8 |
| Current Account (billions USD) | -0.23 | 8.29 | 22.20 | 22.40 | 18.45 |
| Current Account (in % of GDP) | -0.5 | 15.2 | 31.7 | 31.4 | 24.6 |
Source: IMF – World Economic Outlook Database, October 2021
Azerbaijan has a workforce of 4.9 million out of its 10.1 million population (World Bank data). Its economy is based on gas and oil, steel, iron, chemical and petrochemical products, and textiles. Agriculture accounts for 5.9% 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 official governmental figures, Azerbaijan's agricultural output in current prices amounted to USD 6.46 billion in 2022, up by 3.4% compared to one year earlier. Furthermore, exports of agricultural and agro-industrial products reached USD 912.4 million (+11.8% y-o-y), with vegetables and fruits accounting for 93% of the total export volumes.
Industry accounts for 48.4% of GDP and employs nearly 15% of the population (World Bank). Besides oil products and their derivates, 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 7% of GDP (World Bank). In 2022 industrial products’ output reached AZN 86,0 billion, decreasing by 1,1% compared to 2021; the product output in the oil-gas sector decreased by 2,5%, while in the non-oil and gas sector it increased by 7,1%. 75,4% of industrial products were produced in the mining sector, 20,6% in the manufacturing sector, 3,4% in the production, distribution and supply of electricity, gas and steam, 0,6% in the sector of water supply, waste management and remediation activities (data State Statistical Committee).
Services account for 42.5% of GDP and employ 49.2% 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 1,459,000 international visitors from January to November 2022, marking a 111% 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).
| Breakdown of Economic Activity By Sector | Agriculture | Industry | Services |
| Employment By Sector (in % of Total Employment) | 36.0 | 14.8 | 49.2 |
| Value Added (in % of GDP) | 5.9 | 48.4 | 37.6 |
| Value Added (Annual % Change) | 3.3 | 2.0 | 9.3 |
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
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Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024
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Latest Update: March 2023
