Economic Studies


Population 9.4 million
GDP per capita 5,739 US$
Country risk assessment
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major macro economic indicators

  2014 2015  2016 (e) 2017 (f)
GDP growth (%) 2.8 1.1 -3.8 0.5
Inflation (yearly average) (%) 1.4 4.0 12.0 10.0
Budget balance (% GDP) 2.8 -6.8 -7.0 -4.0
Current account balance (% GDP) 13.9 -0.3 -0.9 0.4
Public debt (% GDP) 11.2 28.3 37.5 37.4


(e) Estimate (f) Forecast


  • Abundant hydrocarbon resources (above all gas)
  • Development of new energy transit routes to the EU
  • Skilled labour force


  • Inadequate economic diversification
  • Risk of armed conflict with Armenia
  • Governance problems and high level of corruption

Risk assessment

Very modest recovery after a year 2016 marked by the first recession in the country for twenty years

The hydrocarbon sector (40% of GDP) especially that of gas, benefitting from a slight recovery in prices on the global market, will drive Azerbaijan's economy in 2017. With the exception of infrastructure projects already launched (notably pipeline construction), public investment is likely to be revised downwards given the budgetary constraints. Activity in services (25% of GDP) and construction (10% of GDP), strongly supported by government spending in recent years, is likely to be hit. The sharp interest rate hike implemented in 2016 (up from 3% in February to 15% in September) and the weakness of the banking sector, which limits lending, will put pressure on private investment.

The contribution of exports is expected to remain weak with both the prices and production of hydrocarbons showing little increase. Household consumption is not likely to be much more dynamic in 2017 than in 2016 because of the policy of spending restraint announced by the government. Moreover, the rise in prices is expected to remain sharp because of the continuing depreciation of the manat against the dollar.


Improvement in the public finances and the external accounts

The 2017 draft budget includes a cut in transfers from the Sovereign fund (SOFAZ) for the fourth consecutive year, thus reducing budgetary revenues. Tax revenues are also expected to remain low, given the sluggish growth. Revenues from the hydrocarbon sector (over 50% of the total) are, in contrast, expected to rise slowly, benefiting from a rise, though modest, in prices.

The government has announced a sharp cut in spending after an increase in spending in 2016 which failed to have the hoped for effect in supporting growth. Capital investment is likely to be revised downwards and the wage increases and social spending introduced in 2016 will not be repeated.

Azerbaijan could avoid another current account deficit in 2017, given the slight rise in hydrocarbon prices (95% of total exports). However, export volumes are not expected to grow by much, with oil production having peaked and an increase in gas production not expected before 2018, when the second phase of the Shah Deniz project is launched. Imports are expected to grow very slightly, because of moderating demand and public investment.

Having lost about 50% of its value against the dollar in 2015, the manat's exchange rate continued to weaken in 2016, but much more moderately (-6% between January and early November 2016). The lack of foreign exchange, associated with low export income restrained by low hydrocarbon prices, could persist, implying ongoing downward pressure on the exchange rate. The government's desire to maintain its foreign exchange reserves, which fell by two thirds between early 2015 and late 2016, could lead to another devaluation in 2017.

SOFAZ assets (around USD 34 billion, or 50% of GDP in October 2016) and reserves which, taken together, remain satisfactory (4 months of imports), limit the country's risk of a liquidity crisis. In contrast, the banking sector, highly dollarized (over 80% of deposits), is exposed to such risk. Another depreciation would further weaken the balance sheets of institutions whose access to foreign exchange is moreover limited by the central bank. 


Political stability, which does not exclude social tensions

President Ilham Aliyev (55 years old), in power since 2003 and re-elected in 2013, is expected to remain as leader of the country at least until 2020. The result of the referendum, organised in September 2016 (80% of votes cast, in favour) effectively allows him to amend the Constitution and extend his term from 5 to 7 years. His party (New Azerbaijan Party - NAP) will thus continue to dominate the political scene, in the absence of an opposition.

While the government has managed to maintain a degree of social and political stability to date, thanks to significant oil resources, growing inequalities and an economic slowdown are heightening popular discontent. The risks of repression and the weakness of the opposition are, however, limiting protest activity.

Despite some progress, performance on governance remains less good overall than that of the other CIS countries, especially regarding the fight against corruption (ranked 167th according to the World Bank, while Kazakhstan is 158th).

Finally, the risk of regional political instability remains high, because of tensions with Armenia over the status of Nagorno-Karabakh, as evidenced by the resumption of armed conflict in early April 2016. No scenario for resolving the conflict seems to be in sight in the short term.




Last update : January 2017

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