Washington, DC: On April 27, 2026, the Executive Board of the International Monetary Fund (IMF) completed the Article IV consultation with the Republic of Azerbaijan and endorsed the staff appraisal without a meeting on a lapse of time basis.[1] The authorities need more time to consider the publication of the Staff Report prepared for this consultation.[2]
Following the strong performance in 2024, growth slowed in 2025. Oil production was hampered by technical issues, causing hydrocarbon GDP to contract by 1.6 percent, compared to flat growth in 2024. In the nonhydrocarbon sector, growth moderated from 6.5 percent in 2024 to 2.7 percent, reflecting the indirect effects of falling hydrocarbon prices, as well as lower investment, coming off elevated levels in the previous years. Overall, real GDP slowed to 1.4 percent in 2025, down from 4.2 percent in 2024. Headline inflation temporarily breached the upper bound of the CBA target range of 4±2 percent in April and May 2025 and it has been oscillating within a 4.9 to 6 percent range since. The increase was largely driven by rising food prices, with food price inflation climbing to 8.2 percent yoy in October 2025, before moderating somewhat. Most recently, increases in the regulated prices led to a pickup in headline inflation to 5.7 percent in January 2026.
Hydrocarbon exports continued to sustain the external surplus in 2025, despite lower oil and gas prices. By 2025 Q3, the current account surplus narrowed to 5.4 percent of GDP from 6.3 percent in 2024, driven by lower oil exports. The decline in oil exports was partially offset by slower imports growth, which moderated to 2.7 percent yoy in the first three quarters of 2025 compared to earlier double-digit growth, reflecting lower investment spending. The combined CBA and SOFAZ reserves rose to $85 billion by end-2025, and the liquid portion is estimated to cover over 38 months of imports and exceed 970 percent of the IMF’s reserve adequacy metric. Nonetheless, considering the need to maintain intergenerational equity, the external position is assessed to be substantially weaker than the level consistent with medium-term fundamentals and desirable policies.
Growth is projected to pick up marginally and inflation to remain within the CBA target band. Staff expect GDP to pick up moderately to 2.1 percent in 2026, amid continued weakness in oil and gas production. Nonoil GDP growth is projected to accelerate to 3.7 percent, before stabilizing at 3½ percent in the medium term. The rebound reflects a slower pace of fiscal tightening expected in 2026 and positive indirect effects of higher oil and gas prices due to the war in the Middle East. These gains are partially offset by weaker business confidence and investment. The output gap in the nonoil sector is expected to fall but remain positive in 2026, before gradually closing over the medium term. The outlook for oil GDP, which is driven by binding production constraints, is projected to decline by 2.0 percent in 2026 before slowing at a moderate pace of 0.5 percent, pushing down overall GDP growth to about 2½ percent in the medium term. Inflation is projected to pick up to 6.0 percent by end-2026, assuming higher imported food inflation amid the war in the Middle East, which could also erode real incomes and reduce demand. Nonetheless, the current account surplus is expected to improve significantly in 2026, owing to the increase in hydrocarbon prices, before weakening gradually over the medium term. SOFAZ reserves will continue to grow, assuming hydrocarbon prices remain elevated.
Risks to the outlook remain broadly balanced, but external uncertainty is high. The intensification of the current war in the Middle East could push hydrocarbon prices up, providing a larger boost to the external and fiscal position. This could, however, also lead to considerable inflationary pressures through the impact on global food prices, affect food security, create migration pressures, require higher spending, and raise business uncertainty, posing a risk to the consolidation and diversification strategies. At the same time, heightened geopolitical and policy uncertainty could lower global growth, weakening growth, the external position, and fiscal revenues. Similarly, deepening global geoeconomic fragmentation and adverse trade shocks could impede prospects for economic diversification, but if trade and investment divert to the region, it could also provide new opportunities. On the domestic side, insufficient commitment to fiscal consolidation could increase inflation and weaken the long-term fiscal position. Limited progress in private sector development, including through SOE reforms, could pose challenges to diversification and lower growth potential. Upside risks stem from progress in the peace agreement with Armenia, which could foster opportunities for stronger economic growth.
Executive Board Assessment
Azerbaijan is appropriately focused on diversification, as declining hydrocarbon production weigh on the economic outlook. Growth is expected to pick up only marginally to 2.1 percent in 2026 amid continued weakness in the hydrocarbon sector and some acceleration of the nonhydrocarbon GDP growth. Declining oil production is expected to push down overall growth to about 2½ percent in the medium term. Inflation is projected to pick up to 6.0 percent by end-2026 and to 4.2 percent by end-2027, reflecting rising food prices amid higher global commodity prices. The current account balance is projected to remain in surplus over the medium term. The external position is, however, assessed to be substantially weaker than the level consistent with medium-term fundamentals and desirable policies. While risks to the outlook remain broadly balanced, external uncertainty is high. The intensification of the current war in the Middle East could push hydrocarbon prices further up, providing a large boost to the external and fiscal position. The war could, however, also lead to considerable inflationary pressures through the impact on global food prices, affect food security, create migration pressures, require higher spending, and raise business uncertainty, posing a risk to the consolidation and diversification strategies.
The medium-term fiscal consolidation is appropriate and will ensure intergenerational equity and support external sustainability. The authorities’ fiscal rule target of reaching 13 percent of nonoil GDP in 2029 is consistent with achieving constant real annuity across generations over the next decade. This requires saving any windfall from elevated hydrocarbon prices. A clear and comprehensive strategy that identifies concrete revenue and expenditure measures will enhance the credibility of fiscal consolidation. The new financial monitoring framework for SOEs and the ongoing digitalization and centralization of public payments will strengthen public financial management. The authorities should also continue efforts to reduce SOE subsidies, rationalize tax incentives, and strengthen tax administration and compliance, including through the ongoing TADAT self-assessment and subsequent external evaluation. Specifying more limited escape clauses and an automatic correction mechanism would further enhance fiscal rule credibility.
The CBA should raise policy rates if inflationary pressures persist. While inflation is projected to fall over the forecast horizon, close monitoring of risks to inflation and responding to inflation surprises will be important, given elevated external uncertainty, upside risks to inflation from the ongoing war in the Middle East, and still developing monetary policy passthrough. Clear and forward-looking communication is becoming increasingly important as the central bank relies more on inflation forecasts to guide monetary policy. The interbank market rates remain close to the policy rate, reflecting successful management of excess liquidity by the CBA. Material improvement in the passthrough to the broader economy will require further development of a risk-free yield curve, and continuing progress in addressing long-standing structural issues such as dollarization, high operating costs, and low competition in the banking sector.
The active use of macroprudential policy supports macroeconomic objectives, while addressing emerging risks to financial stability. The gradual move to Basel III implementation has minimized disruption to the financial sector and credit supply, while increasing the ability of the sector to withstand capital and liquidity shocks. The adoption of the risk-based approach to supervision will allow the CBA to optimize its use of resources. However, the CBA should remain vigilant to the adequacy of the resources going forward, especially as individual banks’ risks become better understood through the Basel III pillar II process. The work to strengthen financial safety nets, consolidated supervision, and emergency liquidity assistance should continue to be pursued, including the necessary changes to the laws.
Azerbaijan should remain focused on private-sector-led economic diversification. Expanding the role of the private sector in diversification, including through foreign direct investments, calls for deepening capital markets to increase the private sector’s access to finance, as well as increasing labor productivity through human capital investment, and continuing reforms aimed at tackling labor market informality. Along with recent progress in monitoring of SOE performance, reducing the role of regulated prices and lowering state subsidies to SOEs would stimulate competition and help optimize SOE performance. The authorities should continue to improve SOEs’ disclosure practices and governance structures, including appointing independent supervisory board members and professionalizing management, and at the same time, steadily divest SOEs to the private sector. Efforts to improve governance, transparency, and integrity should continue. While data provision is broadly adequate for surveillance purposes, further work on closing the remaining gaps is needed.
It is recommended that the next AIV consultation takes place on the standard 12-month cycle.
Azerbaijan: Selected Economic and Financial Indicators, 2023–31
|
|
|
|
Est.
|
Projections
|
|
|
|
2023
|
2024
|
2025
|
2026
|
2027
|
2028
|
2029
|
2030
|
2031
|
|
| |
(Annual percentage change, unless otherwise specified)
|
|
|
National Income
|
|
|
|
|
|
|
|
|
|
|
|
GDP at constant prices
|
|
4.2
|
1.4
|
2.2
|
2.5
|
2.5
|
2.5
|
2.5
|
2.5
|
|
|
Of which: Oil sector 1/
|
-2.0
|
0.0
|
-1.6
|
-2.0
|
-0.5
|
-0.5
|
-0.5
|
-0.5
|
-0.5
|
|
|
Non-oil sector
|
4.5
|
6.5
|
2.7
|
3.7
|
3.6
|
3.5
|
3.5
|
3.5
|
3.5
|
|
|
Consumer price index (period average)
|
8.8
|
2.2
|
5.6
|
6.0
|
5.1
|
4.1
|
4.0
|
4.0
|
4.0
|
|
|
Consumer price index (end of period)
|
2.1
|
4.9
|
5.2
|
6.0
|
4.2
|
4.0
|
4.0
|
4.0
|
4.0
|
|
|
Money and Credit
|
|
|
|
|
|
|
|
|
|
|
|
Domestic credit, net
|
25.3
|
-1.3
|
29.7
|
11.2
|
12.1
|
10.1
|
10.1
|
10.0
|
9.7
|
|
|
Of which: Credit to private sector
|
14.8
|
15.9
|
8.7
|
8.9
|
9.0
|
9.0
|
9.0
|
9.0
|
9.0
|
|
|
Manat base money
|
19.6
|
0.2
|
7.4
|
7.2
|
8.5
|
9.0
|
9.0
|
9.0
|
9.0
|
|
|
Manat broad money
|
19.7
|
3.6
|
10.2
|
7.7
|
8.4
|
8.3
|
8.2
|
8.4
|
8.4
|
|
|
Total broad money
|
5.4
|
3.1
|
7.2
|
7.0
|
7.8
|
7.2
|
7.1
|
7.1
|
7.1
|
|
|
External Sector
|
|
|
|
|
|
|
|
|
|
|
|
Exports f.o.b.
|
-30.8
|
-11.0
|
-3.7
|
15.9
|
-9.7
|
-9.0
|
0.6
|
0.5
|
2.0
|
|
|
Of which: Oil sector
|
-34.0
|
-12.3
|
-5.9
|
17.1
|
-12.6
|
-12.8
|
-1.7
|
-2.3
|
-0.1
|
|
|
Nonoil sector
|
11.1
|
-0.8
|
11.9
|
8.9
|
8.8
|
10.2
|
10.1
|
10.7
|
8.7
|
|
|
Imports f.o.b.
|
21.4
|
4.7
|
2.8
|
6.2
|
4.0
|
4.0
|
4.2
|
5.1
|
5.4
|
|
|
Of which: Oil sector
|
12.2
|
-13.3
|
3.6
|
2.8
|
1.0
|
2.2
|
2.5
|
2.8
|
2.8
|
|
|
Nonoil sector
|
23.5
|
8.5
|
2.7
|
6.8
|
4.4
|
4.2
|
4.4
|
|
|
|
|
Real effective exchange rate
|
6.1
|
-1.7
|
-3.0
|
…
|
…
|
…
|
…
|
…
|
…
|
|
| |
(In percent of GDP, unless otherwise specified)
|
|
|
Gross Investment
|
18.2
|
21.1
|
15.7
|
16.2
|
16.4
|
16.7
|
16.6
|
16.3
|
16.0
|
|
|
Consolidated government
|
12.2
|
11.9
|
11.1
|
10.9
|
10.3
|
9.9
|
9.5
|
9.0
|
8.5
|
|
|
Private sector
|
6.0
|
9.1
|
4.5
|
5.3
|
6.1
|
6.9
|
7.1
|
7.3
|
7.5
|
|
|
Of which: Oil sector
|
-0.3
|
-0.3
|
-0.4
|
-0.2
|
0.0
|
0.1
|
0.1
|
0.1
|
0.1
|
|
|
Gross National Savings
|
29.7
|
27.3
|
21.2
|
25.9
|
21.8
|
18.8
|
18.2
|
17.3
|
16.6
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Consolidated General Government Finances 2/
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue and grants
|
40.6
|
37.9
|
37.1
|
38.8
|
36.6
|
35.0
|
34.3
|
33.7
|
33.2
|
|
|
Total expenditure
|
32.8
|
33.9
|
34.6
|
37.0
|
36.4
|
35.6
|
34.8
|
34.3
|
33.7
|
|
|
Current expenditure
|
20.6
|
21.9
|
23.4
|
26.1
|
26.1
|
25.7
|
25.3
|
25.3
|
25.2
|
|
|
Net acquisition of non-financial assets
|
12.2
|
11.9
|
11.1
|
10.9
|
10.3
|
9.9
|
9.5
|
9.0
|
8.5
|
|
|
Overall fiscal balance
|
7.9
|
4.1
|
2.6
|
1.8
|
0.2
|
-0.6
|
-0.5
|
-0.6
|
-0.5
|
|
|
Overall fiscal balance (excluding SOFAZ CBA transfer) 5/
|
7.9
|
4.1
|
2.6
|
1.8
|
0.2
|
-0.6
|
-0.5
|
-0.6
|
-0.5
|
|
|
Non-oil primary balance, in percent of non-oil GDP
|
-22.2
|
-20.0
|
-18.6
|
-18.0
|
-16.3
|
-14.5
|
-13.2
|
-12.2
|
-11.2
|
|
|
General government debt 3/
|
21.8
|
21.6
|
20.1
|
20.0
|
20.0
|
19.9
|
19.9
|
20.0
|
20.2
|
|
|
General government and government-guaranteed debt
|
31.1
|
30.3
|
28.2
|
24.6
|
23.5
|
22.8
|
22.4
|
22.1
|
21.5
|
|
|
External Sector
|
|
|
|
|
|
|
|
|
|
|
|
Current account (- deficit)
|
11.5
|
6.3
|
5.5
|
9.7
|
5.4
|
2.0
|
1.6
|
1.0
|
0.6
|
|
|
Foreign direct investment (net)
|
-2.9
|
-1.3
|
-1.5
|
-1.3
|
-1.0
|
-0.7
|
-0.5
|
-0.3
|
-0.1
|
|
|
Memorandum Items:
|
|
|
|
|
|
|
|
|
|
|
|
Gross official international reserves (in millions of U.S. dollars)
|
11,613
|
10,959
|
11,515
|
14,392
|
15,079
|
14,164
|
13,125
|
11,734
|
9,660
|
|
|
in months of next year's non-oil imports f.o.b.
|
6.1
|
7.1
|
7.1
|
8.6
|
8.8
|
7.9
|
7.1
|
6.0
|
4.7
|
|
|
Nominal GDP (in millions of manat)
|
123,128
|
126,524
|
129,094
|
133,233
|
141,201
|
149,898
|
159,320
|
169,320
|
180,069
|
|
|
Nominal non-oil GDP (in millions of manat)
|
78,990
|
86,241
|
92,307
|
101,466
|
110,480
|
119,081
|
128,178
|
137,971
|
148,512
|
|
|
Nominal GDP (in millions of U.S. dollars)
|
72,429
|
74,426
|
75,938
|
78,372
|
83,060
|
88,175
|
93,718
|
99,600
|
105,923
|
|
|
Oil Fund Assets (in millions of U.S. dollars)
|
56,070
|
60,031
|
73,542
|
76,052
|
77,901
|
79,169
|
80,625
|
82,298
|
84,236
|
|
|
Assumed oil price, WEO plus $2-$3 premium (in U.S. dollars per barrel) 4/
|
85.9
|
84.0
|
69.7
|
84.2
|
78.0
|
76.2
|
75.9
|
75.7
|
77.2
|
|
|
Assumed natural gas price, WEO plus a premium (in U.S. dollars per thousands of cubic meters)
|
460.1
|
389.0
|
425.4
|
521.9
|
424.3
|
312.1
|
312.1
|
312.1
|
312.1
|
|
|
Exchange rate (manat/dollar, end of period)
|
1.7
|
1.7
|
1.7
|
…
|
…
|
…
|
…
|
…
|
…
|
|
|
Sources: National authorities; and IMF staff estimates and projections.
|
|
|
1/ Includes the production and processing of oil and gas.
|
|
|
|
|
|
|
|
|
|
|
|
2/ Consolidates State Budget, State Oil Fund of Azerbaijan (SOFAZ), Nakhchevan Autonomous Region (NAK) and State Social Protection Fund.
|
|
|
|
|
3/ Starting in 2021, includes guarantees issued to Aqrakredit for its acquisition of distressed assets from the IBA.
|
|
|
|
|
|
|
|
4/ Oil prices for 2023 and 2024 are actual data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[1] Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis of discussion by the IMF Executive Board. Both staff’s discussions with the regional institutions and the Board discussion of the annual staff report subsequently are considered an integral part of the Article IV consultation with each member. The Executive Board takes decisions under its lapse-of-time procedure when the Board agrees that a proposal can be considered without convening formal discussions.
[2]Under the IMF's Articles of Agreement, publication of documents that pertain to member countries is voluntary and requires the member consent. The authorities have requested additional time to decide on the publication of the staff report. A final decision is expected not later than 28 days from the Board consideration date.
