Economic Analysis


Population 9.9 million
GDP per capita 4,722 US$
Country risk assessment
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major macro economic indicators

  2017 2018 2019 (e) 2020 (f)
GDP growth (%) 0.2 1.5 2.3 -3.5
Inflation (yearly average, %) 12.8 2.3 2.6 3.3
Budget balance * (% GDP) -1.4 5.6 5.3 -6.4
Current account balance (% GDP) 4.1 12.8 9.7 -5.1
Public debt (% GDP) 53.2 48.4 49.7 60.1


(e): Estimate. (f): Forecast. *Including transfers from SOFAZ.


  • Well-endowed sovereign wealth fund thanks to hydrocarbon production
  • Significant gas potential in the Caspian Sea and export prospects to Europe via Turkey and Greece
  • Strategic position between Europe and China
  • Institutional improvements (legal security, reduction of petty corruption)


  • High dependence on hydrocarbons and low diversification of the economy
  • Declining oil resources
  • Anticompetitive market structures (multi-sectoral conglomerates with strong ties to the State)
  • Fragile banking system (dollarization, low profitability, opacity)
  • Poor governance (corruption, repression, money laundering, politicization of the judicial system)
  • Escalation of the armed conflict with Armenia

Risk assessment

A double hit to the econom

While Azerbaijan had gradually been consolidating its macroeconomic and financial situation, COVID-19 hit the economy hard. The first case was diagnosed at the end of February 2020. The state of emergency, declared in end-March, introduced several measures such as the closure of businesses and public spaces. While businesses partially reopened in early August, most restrictions are still in force in urban areas. By the end of September, 40,000 cases and 586 deaths had been recorded in Azerbaijan. From January to July, the economy contracted by 2.8% year-on-year (YoY). The recession could reach -3.5% in 2020, partly due to the fall in private consumption (56% of GDP in 2019). Several fiscal measures amounting to 4.1% of GDP have cushioned the shock, including short-time work schemes, aid to entrepreneurs, as well as tax exemptions for the most affected companies and individuals.

The fall in oil prices - mainly in March and April - accentuated the recession, as the economy is heavily dependent on hydrocarbons, which account for 40% of GDP and 90% of exports. From January to June, export revenues declined by 31.4% YoY. Azerbaijan, as member of OPEC+, agreed to lower its oil production from April 2020 to April 2022. This drop in exports in value and volume, combined with weak demand and low prices that could take several months to return to pre-crisis levels, is weighing on activity. The growth in gas production and exports thanks to the start of operations at the Shah Deniz II field and the TANAP pipeline to Turkey and Greece, which will be extended to Italy in 2021 via the TAP pipeline, does not offset the drop in oil production and prices. Health measures have strongly hit the few sectors that benefited from limited diversification efforts, such as construction, agriculture and tourism.

Despite a restructuring of the banking system following the 2015 crisis, weaknesses remain and limit the effects of the monetary easing initiated in early May. High commercial interest rates, the strong dollarization of deposits and loans, and the deterioration in asset quality induced by the double shock are limiting lending to the private sector. Despite a temporary easing of conditions (lower capital requirements, moratorium on penalties for delays, etc.), four banks with liquidity problems have already been closed.


Public and external accounts in deficit

The public accounts will go into deficit. The collapse of oil prices forced the government to revise the 2020 budget in order to take into account the drop in fiscal revenue, two-thirds of which comes from hydrocarbons, as well as new fiscal measures. The sale of SOFAZ assets (valued at USD 45 billion in June 2020) will finance the deficit. The fiscal rule that limits transfers from the fund to the budget was temporarily lifted. The increase in the public debt-to-GDP ratio should be mainly due to the decline in GDP. Public enterprises, whose deficits and debt are covered by the State, continue to weigh on public finances. Concerned about the sustainability of their debt, the President has called for their privatization, without any concrete progress at this stage.

The current account will enter into deficit, due to the drop in exports and oil prices. FDIs, which have been declining since 2014 and directed towards hydrocarbons, will not be sufficient to finance this deficit. Foreign exchange reserves (USD 51.5 billion at the end of July, of which 88% are held by SOFAZ and 12% by the Central Bank) will take over. However, the pressure to maintain the fixed exchange rate, considered overvalued, is likely to last. This could force a devaluation of the manat, at the risk of reliving the 2015 scenario in which two successive devaluations led to a fall in activity, a sharp rise in inflation and the collapse of many banks.


Internal and external political tensions are intensifying

President Aliyev is using the COVID-19 pandemic as a pretext to intensify repression towards the opposition and former senior officials who served during his four terms and those of his father (who preceded him). Members of the new guard - younger, influenced by Western management methods and close to the family of the first lady and vice-president since 2017 - replaced them in key positions. While the power is concentrated in the hands of the president, neither free nor fair parliamentary elections took place in February 2020 and were won by the president's party, the New Azerbaijan Party (YAP). Corruption remains widespread, particularly in the judicial system, despite some efforts including the introduction of an e-system for filing complaints electronically and the adoption of a consolidated law on voluntary mediation.

Azerbaijan also faces external tensions with its neighbor, Armenia. The two states have been disputing Nagorny Karabakh, an enclave in Azerbaijan populated by Armenians, for thirty years. After several months of escalating tensions and incidents along the border, clashes broke out at the end of September, leading to the establishment of martial law in both countries. This regional conflict indirectly involves Turkey, which supports Azerbaijan, and Russia, which supports Armenia.


Last updated: October 2020

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