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Azerbaijan’s Macro-Economy Prospects

* Dr. Mehmood Ul Hassan Khan

The Republic of Azerbaijan has 75-80 percent GDP of South Caucasus Region (SCR). Its macro-economy is strong, stable and sustainable. Its macro-economy’s current and future prospects are very healthy in which non-oil sector will be further productive and strengthened. According to different published reports of IMF & World Bank (2006-2017) its national economy outperformed other regional economies i.e. GDP 34.5 %, 25 %, 9.3 % 2010 5 %, 0.1 %, 2.2 % , 5.8 % , 2.8 %, 1.1 % , 2.4 % and 1.4 percent during 2006, 2007, 2008, 20019, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017 respectively. Furthermore its GDP per capita (current prices) are USD 4,028 and GDP per capita (PPP) USD 18,179.4 which is the highest in the region and beyond.  Its GDP composition is diversified because of which agriculture stands for 6.4 %, industry 61.1 % and Services 32.5 %.

According to its State Statistics Committee most recent report (October, 2018), the GDP totaled 37,009 billion manat ($21.77 billion USD) in the first half of 2018. Non-oil GDP increased by 2.0 percent while oil GDP increased by 0.1 percent in the same period compared with the first half of 2017. Furthermore, Azerbaijan’s GDP volume reached almost 37.01 billion manat in January-June 2018 that is 1.3 percent more than in January-June 2017. The volume of GDP per capita stood at 3.77 million manat.

During (January-June 2018) the volume of GDP produced by the non-oil sector of Azerbaijan increased by 2.0 percent compared to the first half of 2017, while in the oil and gas sector there was an increase of 0.1 percent. Upward growth was observed in all spheres of the economy. Thus, the sphere of agriculture, forestry and fisheries grew by 7.6 percent, accommodation of tourists and catering by 7.4 percent.

According to Global Competitiveness Report (October, 2018) of the World Economic Forum (WEF) Azerbaijan along with Turkey, Serbia, Georgia, South Africa and Croatia entered the list of top seventy countries which is indeed a great achievement. Successful implementation and institutionalized economic reforms are main factors of its global recognition mentioned in the most recent published report of WEF 2018.

Its competitiveness and business environment in the context of global changes and challenges have been elevated, transformed and connected. Its humanity based social policy; business friendly policies and the status of the socio-economic system supported and geared its macro-economy during (2017-18) fiscal year.

Its macro-economy is not inclusive rather it is comprehensive, compact and sustained in which “Strategic Road Map” has played a vital role. Azerbaijan continues the policy of sustainable economic development and a solid base has been created in the country to continue economic reforms.

Azerbaijan has significantly improved its position in the ranking by three indicators "Infrastructure", "Education and Skills", "Dynamism of Business". It is stressed in the report that Azerbaijan is a country where social equality is ensured at the highest level in the world. Azerbaijan is the real champion of multiculturalism where every person and sect has equal rights. Its tolerance level and interfaith harmony is its real strength and essence. Azerbaijan received 100 points, being placed on the first place by the level of electricity supply to the population. Azerbaijan has retained its leading position under “environmental impact” and “inclusive development” indicators.

Among 140 countries, Azerbaijan ranked 31st in the business dynamism rating. It was possible to achieve such a high result thanks to the economic reforms conducted by President of Azerbaijan Ilham Aliyev.

It has also been rated as "the required number of days to start a business" sub-indicator 17th place, "Regulatory and legal framework for bankruptcy" sub-indicator 17th place, "Business risks" sub-indicator  21st place, "Influence of ideas on the company" sub-indicator 25th place.

Although "Global Competitiveness Report 2018" is termed as the first report of the new generation still Azerbaijan is able to show good results in most of the indicators.

In its most recently published the IMF has forecasted the GDP growth in Azerbaijan by 1.3 percent in 2018. IMF has further estimated that during (2019-2023) it may achieve 3.6 and 2 percent, respectively. Nevertheless, Azerbaijani government expects the growth of the country’s GDP at the level of 2 percent for this year, 3.19 percent for 2019, and 3.5 percent for 2020. Due to better economic reforms and financial management, inflationary ratios may be 3.5, 3.3 and 3 percent in 2018, 2019 and 2023 respectively. The inflation in Azerbaijan will be one of the lowest as compared to the CIS region and Georgia. Azerbaijan is the avatar of economic of humanity and social development due to which it has achieved and subsequently, sustained highest position in terms of qualitative life, clean drinking water, sanitation, medications, pensions, wages and social protection in the CIS and the South Caucasus.    

Most recently, the World Bank (WB) has also published its report on Azerbaijan’s economy which expects inflation rate in Azerbaijan to remain below 3 percent. It predicts that in the medium term, the economy of Azerbaijan will be strengthened thanks to the export of gas and the acceleration of GDP growth. Moreover, the growth of Azerbaijan’s non-oil sector, which is expected at an average level of 2.7 percent, will be facilitated by stabilization of oil prices, increased market confidence, gradual recovery of investments and improvement of the banking sector. Until 2020, the current account surplus will be 10 percent of GDP as predicted by the WB 2018.

Whereas, the government of Azerbaijan has pinpointed six factors of economic development during 2018 i.e. natural resources, population growth, human capital development, institutional reforms, promotion of the development of technologies and comprehensive measures to diversify the Azerbaijani economy. Azerbaijani government has also determined the main priorities of the socio-economic development policy for (2017-2020). It has emphasized the provision of macroeconomic stability, development of the non-oil sector, strengthening of the competitiveness of the national economy and improvement of the business environment. The acceleration of the economic diversification, expansion of non-oil exports, increasing the country's export potential and continuation of socially oriented policies are also among the other main priorities.


Azerbaijan is rigorously pursuing further diversification of economy by launching a various diversified but integrated initiatives to promote non-oil sectors and regional development throughout the country. It initiated a balanced regional and sectoral development drive which is now paying its dividends. According to the European Bank for Reconstruction and Development (EBRD) its economy is on the right growth path and its future prospects are solid and strong. It predicts that GDP growth rising from 2.5 percent this year to 3.5 percent in 2019. Azerbaijan’s diversification of economy is primarily based on tourism, agribusiness, manufacturing, services and small and medium-size enterprises (SMEs).

According to EBRD during 2018 (January-July) Azerbaijan’s non-oil sectors grew much faster than the economy as a whole. Investments by the state oil fund SOFAZ, and more capital lured in from foreign investors, have upward pushed for non-oil GDP growth this year.” The sovereign wealth fund is investing outside the sector by which it is funded, to ensure the nation’s future after hydrocarbons are depleted.

Azerbaijan is also an ideal hub of regional connectivity having modern transportation system. Its transportation infrastructure ranks high among the strategic priorities. It desires to build a North-South corridor connecting Russia, Azerbaijan and Iran, thus opening up an overland freight route between Europe and South Asia. A new port, railways and roads are being built to fulfil President Ilham Aliyev’s aim to create a regional transport and logistics hub. It is hoped after the completion of mega project of North-South Corridor (NSC), Azerbaijan’s national drive of diversification of economy will be further strengthened in the days to come. Baku Port has been functional and operative.  It serves as a hub for Eurasian-Silk Road commerce. Baku Port may be turn into a free economic zone in the near future.  Investments in Baku airport will make it a hub for cargo shipment.

Investments in power infrastructure in terms of generation, distribution and upgradation of the electricity grid will ensure easy and smooth supplies throughout the country. There has also been a push to upgrade telecom capabilities, which has potential to further open the market for private investments. Agriculture is more liberalized, open to both local and foreign investors. Together with the new transport infrastructure will spread economic activity away from the Baku.

Being regional expert on Azerbaijan & South Caucasus it is suggested to further liberalize the financial sector of the country.  There is a huge scope and potential in the existing banking and financial system of the country. There is an urgent need to introduce models of good governance and corporate management in the national banking and financial industry of the country. Foreign banks may also be permitted to operate in the country especially in the rural areas. Domestic insurance market may also be further opened for seeking FDIs where currently only joint ventures with local companies are permitted.  New investors/players would provide access, for both SMEs and households, to alternative financial instruments such as guarantees, leasing and factoring.

In order to speed up the economic growth in the far-flung areas in the country it is strongly suggested to provide alternative sources of corporate funding, currently dominated by a few banks. Development of local stock exchange and capital markets would play contributory role in achieving the desired goals of socio-economic prosperity in the days to come. Diversification of currency reserves may be a good move to absorb any financial shock in the future because dollarization of economy remains high. 

Most recently signed historic agreement on “Caspian Sea” would produce positive impacts on Azerbaijan’s national economy and would also support its national drive of diversification of economy. It has enhanced Azerbaijan’s role as a transit country linking European markets to Central Asia’s huge reserves of oil and gas. It is predicted that proposed Trans-Caspian Pipeline would transport natural gas from Turkmenistan, linking up with the Southern Gas Corridor to carry it onward to Europe.

Other joint projects with Kazakhstan include an undersea oil transportation pipeline from Aktau to Baku. It is hope that the signing of the convention will further strengthen the role of Azerbaijan as an international transit country and will increase its economic power. The signing of the document has created a solid legal basis for Azerbaijan, which has a wide maritime border and is actively engaged in economic activities in the Caspian Sea.

Weak regional economies and more precisely US sanctions on Turkey and Iran may create some unpleased trends in Azerbaijan’s economy. But being expert on Azerbaijan & South Caucasus I personally such negative spillover repercussions should be manageable for the economy of Azerbaijan because of integrated macroeconomic policies in terms of sizable foreign exchange liquidity, boom to tourism, rampant growth to SMEs and service sectors.

Azerbaijan has a much tighter fiscal policy than most of the regional countries especially Turkey and Iran having sensible control on the exchange rate would stop any unwanted short and long term fluctuations in the currency markets. Furthermore, Azerbaijan has the hottest real estate industry in the region due to which neighboring countries have invested in Azerbaijan. Azerbaijan bid to host EXPO 2025 has generated tremendous economic activity in the region. Hopefully to be selected for hosting Expo 2025 would surely gain from the boost to the tourist industry.