Economic Analysis


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

  2020 2021 2022 (e) 2023 (f)
GDP growth (%) -4.2 5.6 4.6 3.2
Inflation (yearly average, %) 2.7 6.5 13.8 10.5
Budget balance (% GDP) -0.5 -0.8 4.6 2.8
Current account balance (% GDP) 21.3 26.4 20.7 20.5
Public debt (% GDP) -0.5 15.2 31.7 31.4

(e): Estimate (f): Forecast *SOFAZ transfers included **Not including the guaranteed debt of public enterprises


  • 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
  • Natural gas exports to Italy, Greece, Bulgaria and Turkey, via Turkey and Georgia
  • De facto pegging of the manat to the US dollar


  • Landlocked and dependent on Turkey and Russia
  • Low economic diversification, high dependence on hydrocarbons (50% of GDP, 90% of exports and ~66% of tax revenues), declining oil resources
  • Fragile, opaque and dollarised banking system, underdeveloped private sector credit
  • Poor governance (corruption, low competition, repression, politicisation of the judiciary, weak links with international institutions)
  • Armed conflict with Armenia over Nagorno-Karabakh
  • Low population growth and ageing population

Risk assessment



Energy growth trickling down to the economy

Coface expects continued high oil and gas prices and a slight increase in pipeline exports to the EU to support Azeri exports in 2023. Despite the depletion of the South Caspian oil fields, a strong gas outlook should boost investment in this sector. In addition, existing hydro-electric dams will soon be joined by large-scale photovoltaic capacity. A 230 MW Emirati project near Baku and its Garadagh industrial zone received USD 114 million in support in August 2022 from the EBRD and the Asian Development Bank, among others. Furthermore, the reconstruction of Karabakh is expected to give a strong boost to the construction and infrastructure sector. Last, nestled between Kazakhstan and Georgia/Turkey in the Middle Corridor linking China and Europe, Azerbaijan is expected to continue to attract investment as an alternative transit route due to the political risk associated with the Russian route. However, despite a competitive advantage in energy, the lack of skilled labour, due to an insufficient network of technical schools, is a factor preventing the emergence of an industrial base, which the authorities are seeking. In addition, food dependence, particularly on Russian cereals, highlights the vulnerability of many households. Agriculture still employs a third of the workforce but contributes only 7% to GDP. In this sense, the modernisation of the agricultural sector is imperative and the government is working on mechanisation, health security and the development of a processing industry. Thanks to the additional extractive revenues, the government has been able to finance measures in favour of purchasing power, such as a food subsidy and a 20% increase in the minimum wage. These measures should support consumption. The central bank has tightened its policy (main rate at 8.25% at the end of December 2022), but weak development of the interbank market and strong dollarisation are limiting its impact, and are keeping inflation high. A high starting point should mechanically moderate growth, as 2022 was a good year.


Balances ensured by hydrocarbon revenues, favourable in the short-term

After being suspended in 2020, the fiscal rule was reinstated in January 2022. Amended in 2018, it limits the growth of budgetary expenditure by 3% from one year to the next and aims to reduce the non-oil primary deficit. The restoration also implies a debt target and an annual reduction of USD 0.2 billion in funds from the State Oil Fund of Azerbaijan (SOFAZ) to the budget. In conjunction with less public spending, windfall revenues from hydrocarbons have been spared. Significant inefficiencies remain in the operation of the many state-owned enterprises, resulting in debt of about 30% of GDP in 2020.
A robust balance of payments supports the manat's peg to the dollar. Accordingly, foreign exchange reserves covered 7 months of imports in July 2022. The current account will remain very vulnerable to hydrocarbon exports, which represent on average more than 90% of goods exports, with the non-oil current account remaining stable at around a deficit of -20% of GDP.


An authoritarian government that exerts its domination over its neighbours

After its victory over Armenia in Nagorno-Karabakh in 2020, Baku took advantage of Russian attention diverted by the war in Ukraine to maintain pressure on Yerevan. Numerous ceasefire violations occurred in 2022, culminating in Azeri territorial advances in September. Azerbaijan aims to regain full control over the breakaway region, as well as a "corridor" to its exclave of Nakhchivan wedged between Armenia and Iran. Courted by Turkey and Israel, President Aliyev appears on track to successfully resolve the conflict that brought his father to power in 1993.
The government exercises tight control over the country: laws on media registration and the appointment of imams were passed in February 2022. The 2020 legislative elections gave the president an absolute majority against a disorganised opposition.


Last updated: February 2023

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