IMF Executive Board Concludes 2026 Article IV Consultation with the Republic of Azerbaijan
IMF News, April 30, 2026
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- Published: April 30, 2026
Recent performance and inflation dynamics
- Real GDP: slowed to 1.4 percent in 2025, down from 4.2 percent in 2024.
- Hydrocarbon sector: hydrocarbon GDP contracted by 1.6 percent in 2025 due to technical issues.
- Nonhydrocarbon sector: growth moderated from 6.5 percent in 2024 to 2.7 percent in 2025.
- Headline inflation:
- CBA target range: 4±2 percent.
- Temporarily breached the upper bound in April and May 2025.
- Oscillated within a 4.9 to 6 percent range since.
- Food price inflation: climbed to 8.2 percent yoy in October 2025, then moderated.
- Headline inflation picked up to 5.7 percent in January 2026 following regulated price increases.
External and reserve positions
- Current account: surplus narrowed to 5.4 percent of GDP by 2025 Q3, from 6.3 percent in 2024.
- Imports growth: moderated to 2.7 percent yoy in the first three quarters of 2025.
- Combined CBA and SOFAZ reserves: rose to $85 billion by end-2025.
- Liquid portion estimated to cover over 38 months of imports.
- Liquid portion exceeds 970 percent of the IMF’s reserve adequacy metric.
- IMF assessment: external position is substantially weaker than the level consistent with medium-term fundamentals and desirable policies, considering intergenerational equity.
Outlook and projections
- Growth:
- Staff projection: GDP to pick up to 2.1 percent in 2026 amid continued weakness in oil and gas production.
- Nonoil GDP: projected to accelerate to 3.7 percent in 2026, then stabilize at 3½ percent in the medium term.
- Oil GDP: projected to decline by 2.0 percent in 2026, then slow decline to 0.5 percent, with overall medium-term GDP around 2½ percent.
- Inflation:
- Projected to pick up to 6.0 percent by end-2026, assuming higher imported food inflation due to the war in the Middle East.
- Projected to decline to 4.2 percent by end-2027 (Executive Board assessment).
- Current account and reserves:
- Current account surplus expected to improve significantly in 2026 owing to higher hydrocarbon prices, then weaken gradually over the medium term.
- SOFAZ reserves expected to continue growing if hydrocarbon prices remain elevated.
Risks and scenarios
- Upside risk:
- Intensification of the war in the Middle East could push hydrocarbon prices up, boosting external and fiscal positions.
- Progress in peace agreement with Armenia could foster stronger economic growth.
- Downside risks:
- Higher hydrocarbon prices could also trigger substantial inflationary pressures via global food prices, affect food security, create migration pressures, and increase spending needs.
- Heightened geopolitical and policy uncertainty could reduce global growth, weakening Azerbaijan’s growth, external position, and fiscal revenues.
- Deepening geoeconomic fragmentation and adverse trade shocks could impede diversification.
- Domestic risks: insufficient fiscal consolidation and limited SOE reform/private sector development could raise inflation, weaken fiscal position, and lower growth potential.
Executive Board assessment and policy recommendations
- Strategic priorities:
- Sustained fiscal consolidation and private sector–led diversification away from hydrocarbon production remain key priorities given declining hydrocarbon reserves.
- Fiscal policy:
- Medium-term fiscal consolidation is appropriate to ensure intergenerational equity and support external sustainability.
- Authorities’ fiscal rule target: reach 13 percent of nonoil GDP in 2029 to achieve constant real annuity across generations over the next decade.
- Requirement: save any windfall from elevated hydrocarbon prices.
- Need for a clear and comprehensive strategy identifying concrete revenue and expenditure measures to enhance credibility.
- Specify more limited escape clauses and an automatic correction mechanism to enhance fiscal rule credibility.
- Continue efforts to reduce SOE subsidies, rationalize tax incentives, and strengthen tax administration and compliance (including TADAT self-assessment and external evaluation).
- Monetary policy:
- The CBA should raise policy rates if inflationary pressures persist.
- Close monitoring of inflation risks and responding to inflation surprises is important given elevated external uncertainty and limited passthrough.
- Need for clear, forward-looking communication as the CBA relies more on inflation forecasts.
- Improve passthrough through development of a risk-free yield curve and address structural issues: dollarization, high operating costs, low banking competition.
- Financial stability and macroprudential policy:
- Active macroprudential policy and gradual Basel III implementation have strengthened the financial sector and minimized disruption.
- Adopted risk-based supervision to optimize resource use; CBA should ensure adequacy of supervisory resources as individual bank risks become better understood through the Basel III pillar II process.
- Continue strengthening financial safety nets, consolidated supervision, and emergency liquidity assistance, including necessary legal changes.
- Structural reforms and diversification:
- Focus on private-sector-led diversification, including attracting foreign direct investment and deepening capital markets to increase private sector access to finance.
- Increase labor productivity via human capital investment and reforms to tackle labor market informality.
- Reduce the role of regulated prices and lower state subsidies to SOEs to stimulate competition and improve SOE performance.
- Improve SOE disclosure, governance, appoint independent supervisory board members, professionalize management, and steadily divest SOEs to the private sector.
- Continue efforts to improve governance, transparency, and integrity.
- Further work needed to close remaining data gaps despite broadly adequate data provision for surveillance.
- Consultation cadence:
- Recommended that the next Article IV consultation take place on the standard 12-month cycle.
Selected key indicators (as reported)
- Real GDP growth: 2024 = 4.2; 2025 = 1.4.
- Hydrocarbon GDP: contracted by 1.6 percent in 2025.
- Nonoil GDP growth: 2024 = 6.5; 2025 = 2.7.
- Current account surplus: 2024 = 6.3 percent of GDP; 2025 Q3 = 5.4 percent of GDP.
- Combined CBA and SOFAZ reserves: $85 billion by end-2025.
- Liquid reserves coverage: over 38 months of imports; exceed 970 percent of IMF reserve adequacy metric.
- Staff projections: GDP = 2.1 percent in 2026; nonoil GDP = 3.7 percent in 2026; oil GDP = -2.0 percent in 2026.
- Inflation projections: 6.0 percent by end-2026; 4.2 percent by end-2027 (Executive Board assessment).
- Food price inflation: 8.2 percent yoy in October 2025.
- Headline inflation: 5.7 percent in January 2026.
Source: IMF Executive Board conclusion of the 2026 Article IV consultation with the Republic of Azerbaijan (Press Release No. 26/131, April 30, 2026).