IMF Staff Country Reports

The 2023 Article IV Consultation with the Republic of Azerbaijan discusses that growth is moderating following a strong post-pandemic rebound, and inflation is easing. The near-term challenge is to resume fiscal consolidation following a temporary easing and to ensure that inflation—, which has recently returned to the target band—does not reignite amid external risks and domestic pressures. In the medium to long term, Azerbaijan’s biggest challenge is to reduce dependence on the hydrocarbon sector and advance private sector-led economic diversification. The paper recommends pursuing fiscal adjustment. Following the fiscal easing in 2023, fiscal consolidation should resume. The report also highlights that it is important to strengthen financial supervision. Financial soundness indicators point to a sound banking sector, but vigilance is needed. Diversification will entail reforms to strengthen governance, limit the role of the state-owned enterprises (SOEs), and de-carbonize the economy. Progress on increasing fiscal transparency and judicial independence, as well as ongoing efforts to increase private sector participation in SOEs and improve their financial position, will help improve the business environment, increase private investment, and enhance productivity.