Estudios Económicos


Population 10.1 million
GDP 5,598 US$
Country risk assessment
Business Climate
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major macro economic indicators

  2020 2021 2022 (e) 2023 (p)
GDP growth (%) -4.2 5.6 5.1 3.5
Inflation (yearly average, %) 2.7 6.5 12.3 8.5
Budget balance (% GDP) -0.5 -0.8 4.6 2.8
Current account balance (% GDP) 21.3 26.4 20.7 22.1
Public debt (% GDP) -0.5 15.2 31.7 31.4

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


  • Well-endowed sovereign wealth fund thanks to hydrocarbon production and the state's position as a net external creditor
  • Significant gas potential in the Caspian Sea
  • Launch of gas exports to Europe via Turkey and Greece in late 2020
  • Strategic position between Europe, Russia and China
  • Some institutional improvements (legal certainty, reduction of petty corruption)


  • Poor economic diversification, high dependence on hydrocarbons (50% of GDP, 90% of exports and two-thirds of tax revenues), declining oil resources
  • Anti-competitive market structures (multi-sector conglomerates with close ties to the state)
  • Fragile, opaque and dollarised banking system (30% of loans and 45% of deposits), underdeveloped credit to the private sector (26% of GDP)
  • Poor governance (corruption, repression, money laundering, politicised judicial system)
  • Armed conflict with Armenia over the Nagorno-Karabakh enclave, which may give rise to occasional clashes even after the ceasefire of 9 November 2020
  • Low population growth and ageing population

Risk assessment

A tense regional situation

The 30-year armed conflict between Armenia and Azerbaijan in Nagorno-Karabakh erupted again on 27 September 2020. The latest confrontation was the deadliest since the 1994 war, which led to the declaration of independence for an enclave which, although internationally recognised as Azerbaijani territory, was populated by Armenians by the end of the war and under the control of Armenian-backed forces. After several unsuccessful attempts, a Russian-brokered ceasefire was reached on 9 November 2020, ending hostilities and restoring Azerbaijan's control over the majority of Nagorno-Karabakh territory. Although both sides may abide by the agreement in the short-term, the risk of occasional clashes cannot be ruled out. Azerbaijan is supported by Turkey and Israel, while Armenia has the backing of Iran and Russia, notwithstanding the latter's position as arbiter. There was renewed friction in early September 2021 in the wake of a military exercise by Azerbaijan, Turkey and Pakistan, followed by Azerbaijani and Turkish naval exercises in the Caspian Sea. Concomitantly, Azerbaijani authorities began taxing Iranian commercial trucks on the main road linking Armenia and Iran, disrupting their trade.


Politically, the decision to retake control of Nagorno-Karabakh was strongly supported by the Azerbaijani public, enabling President Aliyev, who was re-elected in April 2018 in an election that was neither free nor fair, to consolidate his regime. Similarly, using the pandemic as an excuse, Aliyev has intensified his repression of the opposition and former senior civil servants who served during his four previous terms and those of his father, who preceded him as leader. Since 2017, these officials have been replaced in key positions by members of the new guard, who are younger, influenced by Western management methods and close to the family of the first lady and vice president. With power concentrated in Aliyev’s hands, the president’s New Azerbaijan Party (YAP) won the February 2020 parliamentary elections.


Growth supported by private consumption and energy

After entering a recession in 2020, Azerbaijan’s economy rebounded in 2021 and growth is set to continue in 2022. This more robust growth stems firstly from surging private consumption (55% of GDP) thanks to an easing of restrictions related to the health crisis and progress in the vaccination campaign, with a health passport coming into effect in September 2021. Secondly, higher global prices and hydrocarbon production will drive an increase in exports (44% of GDP) in both value and volume terms in 2022. In July 2021, the OPEC+ countries reached an agreement to increase production by 400,000 barrels per day each month, starting in August 2021. Gas exports will be supported by the Trans-Adriatic Pipeline (TAP), which came on stream in 2020. 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. Consequently, the trade balance will contribute positively to growth. Overall investment (20% of GDP), which is mostly in hydrocarbons, is expected to continue and net FDI is set to recover to an average of 1.7% of GDP in 2021-2022.


The recovery in domestic demand, as well as the surge in global food and oil prices, affected inflation, which accelerated in 2021. Although slightly above the Central Bank of Azerbaijan's 4% target, inflation was within the ±2% inflation corridor. On December 2021, the central bank increased its main policy rate by 25 basis points to 7,25% in response to rising inflation. In 2022, inflation is expected to ease as the terms of trade improve, reducing pressure on imported prices.


Public and external accounts back to pre-crisis levelsReduction of the current account deficit, but not the public deficit

The current account returned to a significant surplus in 2021, as increased demand and hydrocarbon prices combined with a resumption of expatriate remittances (3% of GDP).


After being suspended in 2020, the fiscal rule was reinstated in January 2022. The rule, which was amended in 2018, sets a limit on the growth of budget spending of 3% year-on-year and provides for a reduction in the non-oil primary deficit. The restored rule also comes with a debt target and an annual decrease of USD 0.2 billion in the transfer from the State Oil Fund of Azerbaijan (SOFAZ) to the budget. This means that increased government revenues and expenditure cuts will probably be needed to reduce the deficit starting in 2022.


SOFAZ's foreign exchange reserves (USD 7.3 billion in the second quarter of 2021, including those of the central bank, or seven months of import coverage) can simultaneously finance this deficit, repay the external debt, and maintain the fixed exchange rate of the manat, which is under pressure and considered overvalued. In this regard, SOFAZ sold USD 4.3 billion at auction between January and September 2021. The fund has assets of more than USD 43.6 billion (about 90% of GDP), which is enough to support the ailing banking sector. That said, the sector is improving slightly, with a Tier 1 ratio of 22%, and a non-performing loan ratio that fell to 6.2% at the end of the first quarter of 2021.


Last updated: February 2022

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