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 Azerbaijan's economic growth from recent years. After entering a recession in 2020, Azerbaijan’s economy rebounded in 2021, with growth estimated at 3%. Private consumption (55% of GDP) was the main driver, coupled with increased energy prices that favoured the country’s exports. In total, the country's oil and gas production is expected to reach 746,000 barrels per day in 2022, up from 565,000 barrels in 2020. The IMF forecasts a gradual deceleration of GDP, at 2.3% this year and 1.7% in 2023.
The current account returned to a significant surplus in 2021, thanks to increased demand and higher prices for hydrocarbon and to the resumption of expatriate remittances (representing 3% of GDP). In early 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. Public debt reached 28.9% in 2021 (from a pre-pandemic level of 17.7%). It is projected to remain stable this year before increasing to 30.9% in 2023 (IMF). The recovery in domestic demand, as well as the surge in global food and oil prices, affected inflation, which surpassed the Central Bank’s 4% target, reaching 4.4% in 2021. The rate is expected to ease in 2022 following the decision of the Central Bank to increase its main policy rate by 25 basis points to 7,25%, whereas pressure on imported prices should reduce, resulting in a rate of around 3.2% over the forecast horizon.
After peaking in 2020, the unemployment rate returned on a downward path last year, standing at 6.4%. For 2022 and 2023, the IMF forecasts a rate of 6.3% and 6.2%, respectively. Azerbaijan’s GDP per capita (PPP) stood at USD 14,856 as of 2021 (IMF). According to Asian Development Bank, 4.8% 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 (e) | 2022 (e) | 2023 (e) | 2024 (e) |
| 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 | 5 | 6 | 6 | 7 |
| 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
Note: (e) Estimated Data
Azerbaijan has a workforce of 4.8 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 6.9% of GDP and employs 36% of the population (World Bank, latest data available). 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 FAO, total 2021 cereal production was estimated at a near‑average level of 3.1 million tonnes. The output of wheat (1.8 million tonnes) was 5% below the five‑year average level due to reduced plantings. By contrast, the 2021 barley production was estimated at 990,000 tonnes, about 7% above the average due to an increase in the area planted.
Industry accounts for 41.4% of GDP and employs 14.8% of the population (World Bank). Besides oil products and its 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 5.7% (World Bank). According to government officials, Azerbaijan's industrial zones produced USD 1.4 billion worth of goods in 2021, 88.3% more year-on-year.
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 State Statistical Committee show that in 2020 the total number of foreign tourists stood at 267,383, compared to 1.31 million one year earlier, as a direct consequence of the COVID-19 pandemic.
| 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) | 6.9 | 41.4 | 42.5 |
| Value Added (Annual % Change) | 2.9 | -6.3 | -3.0 |
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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Latest Update: November 2022
