Economic Analysis


Population 10.0 million
GDP per capita 4,814 US$
Country risk assessment
Business Climate
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major macro economic indicators

  2018 2019 2020 (e) 2021 (f)
GDP growth (%) 1.5 2.2 -4.0 2.0
Inflation (yearly average, %) 2.3 2.7 3.0 3.1
Budget balance (% GDP)* 5.5 8.1 -6.3 -5.8
Current account balance (% GDP) 12.8 9.1 -3.6 4.5
Public debt (% GDP) 18.7 17.7 20.1 20.0

(e): Estimate (f): Forecast *SOFAZ transfers included


  • Well-endowed sovereign wealth fund thanks to hydrocarbon production, and the net external credit position of the State
  • Significant gas potential in the Caspian Sea
  • Launch of gas exports to Europe via Turkey and Greece at the end of 2020
  • Strategic position between Europe, Russia and China
  • Some institutional improvements (legal security, reduction of petty corruption)


  • Poor economic diversification, high dependence on hydrocarbons (40% of GDP, 90% of exports and two-thirds of tax revenues), declining oil resources
  • Anticompetitive market structures (multi-sectoral conglomerates with strong ties to the State)
  • Fragile, opaque and dollarised banking system (32% of loans and 59% of deposits), underdeveloped credit to the private sector (13% of GDP)
  • Poor governance (corruption, repression, money laundering, politicisation of the judicial system)
  • Armed conflict with Armenia around the enclave of Nagorno-Karabakh which may give rise to occasional clashes, even after the ceasefire of 9 November 2020

Risk assessment

Risk of occasional military clashes with Armenia

27 September 2020 marked the resurgence of the armed conflict that has opposed Armenia and Azerbaijan for thirty years in Nagorno-Karabakh. This six-week confrontation was the deadliest since the 1994 war, which led to the proclamation of the independence of this enclave which, although internationally recognised as Azerbaijani territory, was at the end of the war populated by Armenians and under the control of forces supported by Armenia. After several unsuccessful attempts, a ceasefire was concluded on 9 November 2020 under the aegis of Russia, leading to the end of hostilities and restoring Azerbaijan's control over the majority of the territories of Nagorno-Karabakh. While both sides may respect the agreement in the short-term, the risk of occasional clashes cannot be excluded. This resumption of control over Nagorno-Karabakh was strongly supported by Azerbaijani public opinion, allowing President Aliyev, re-elected in April 2018 in an election that was neither free nor fair, to consolidate his regime. It was also with this in mind that, under cover of the pandemic, Aliyev intensified the repression of the opposition and the former senior officials who had served under his four terms and those of his father who preceded him. Since 2017, the latter have been replaced in key positions by members of the new guard, younger, influenced by Western management methods and close to the family of the first lady and vice-president. With power concentrated in the hands of the president, his party, the New Azerbaijan Party (YAP) won the February 2020 parliamentary elections


A recovery dependent on the pandemic and hydrocarbons

Azerbaijan, which went into recession in 2020, is expected to experience modest growth in 2021. The impact of the armed conflict on economic activity seems to have been limited. Conversely, the almost uninterrupted restrictions since March 2020 and extended at least until the end of January 2021, including the closure of borders and non-essential shops, have strongly affected domestic demand through private consumption (65% of GDP) and services (40% of GDP). Several measures (4.3% of GDP) have cushioned the shock, such as transfers to the individuals and businesses affected in construction, agriculture and tourism, on which limited efforts to diversify the economy are focused. The rebound in demand in 2021, dependent on the pandemic, could be driven by the extension of these transfers, real wage growth and public investment with the start of reconstruction in Nagorno-Karabakh. Overall investment (22% of GDP), concentrated in hydrocarbons, is expected to decelerate.

The fall in demand and oil prices accentuated Azerbaijan’s recession. Party to the OPEC+ agreement, it has also agreed to reduce its output from April 2020 to April 2022. Growth in 2021 should still be driven by the recovery of oil exports in terms of value and volume, and by the growth of gas production. The Trans-Adriatic Pipeline (TAP), linking Italy to Greece, has been completed and started operating in October 2020. Connected to the Trans-Anatolian Natural Gas Pipeline (TANAP) between Greece and Turkey, and then to the pipeline between Turkey and the Shah Deniz II field in Azerbaijan, it should enable the first gas deliveries to Europe.
The slight increase in oil and food prices should slightly raise inflation, which should remain within the central bank's target (± 2% around 4%). Despite a restructuring of the banking system following the 2015 crisis, weaknesses remain and limit the effects of the cuts in the policy rate (6.25% in December 2020). The high average lending rate (17%), strong dollarisation, and the risk of asset deterioration (7.2% of non-performing loans in September 2020) limit credit to the private sector. Despite a temporary relaxation of prudential rules, four banks with liquidity problems were closed in 2020.


Reduction of the current account deficit, but not the public deficit

Reduction of the current account deficit, but not the public deficit
The public accounts, in deficit due to the decline in oil revenues, are expected to remain in deficit in 2021. Spending is expected to remain high, directed towards the potential extension of transfers to individuals and enterprises and the start of the reconstruction of Nagorno-Karabakh. The deficit should continue to be financed by the sale of assets of the SOFAZ sovereign fund (USD 43.2 billion in October 2020, 90% of GDP), as the rule limiting transfers to the budget has been temporarily lifted to accommodate it. The public debt-to-GDP ratio should therefore remain moderate, while the risk associated with state-owned enterprises, whose deficits and debt are covered by the government, remains high. Concerned about the sustainability of their debt, the president has called for their privatisation, with no concrete progress at this stage.

After going into deficit in 2020 with the decline in oil revenues, the current account is expected to return to a surplus in 2021 with the rebound in oil prices and demand. FDI, declining since 2014 and directed towards hydrocarbons, is not very dynamic. The foreign exchange reserves of SOFAZ and the central bank (USD 7.1 billion in October 2020, 6.5 months of import coverage) have made it possible to finance this deficit, repay the external debt whose ratio to GDP has remained stable (41%), and maintain the fixity of the manat, under pressure, as it is considered overvalued. This could lead to a devaluation at the risk of reliving the 2015 scenario when two successive devaluations led to a recession and the bankruptcy of many banks.


Last updated: March 2021

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