The year 2024 was remarkable with the achievements in various sectors of Azerbaijan's economy. Against the backdrop of global events, maintaining a stable economy is actually the biggest achievement. However, Azerbaijan has secured significant development in many economic areas and has taken steps into new phases. All this has happened thanks to the reforms carried out, measures taken, and technological innovations. The presence of an effective environment in the economy, significant development pace in the non-oil sector, increase in population income, and significant reduction in inflation are factors contributing to this process. The start of the transition period to a green economy in Azerbaijan promises prospects in terms of environmental protection and efficient and sustainable use of resources.
In this article, Report examines the innovations implemented in Azerbaijan's economy over the past year and looks at the achievements.
Contrary to forecasts: Growth wave in Azerbaijan's economy
This year's GDP growth indicator for Azerbaijan is a bright example of the country's successful economic policy. The Azerbaijani government had forecasted GDP growth at 2.7% for 2024. However, in the first 5 months of the year, the economic growth rate remained stable at approximately 5%. This indicator led the government to review its macroeconomic forecasts in spring.
As a result, the base export price of oil was raised from $60 to $75 per barrel. The annual GDP growth rate increased to 3.8%, and the nominal GDP volume increased by 3 billion manats ($1.76 billion), reaching 121.3 billion manats ($71.35 billion). Notably, the growth forecast for non-oil-gas GDP was raised from 4.6% to 5.5%. With more optimistic expectations in spring, instead of a 1.7% decrease, a 0.8% increase was projected for the oil and gas sector in 2024.
At the end of the summer, it was expected that the government would increase its forecasts again amid positive trends in the economy. These forecasts were confirmed in September: GDP growth rate increased from 3.8% to 4.2%, and nominal GDP was raised by an additional 3 billion manats, reaching 124.4 billion manats ($73.18 billion). The growth forecast in the non-oil sector was raised to 6.4%, while the growth rate in the oil sector was set at 0.3%.
View of International Financial Institutions
The World Bank, International Monetary Fund (IMF), Asian Development Bank (ADB), and European Bank for Reconstruction and Development (EBRD) have emphasized the dynamism of Azerbaijan's economy this year.
The World Bank has forecasted 3.2% economic growth for 2024, positively assessing the country's future development. The IMF has also made similar forecasts, stating that growth will be 2.5% in 2025. Analysts from ADB and EBRD have expressed growth expectations of 2.7% and 3.8% respectively for Azerbaijan this year.
These forecasts once again prove Azerbaijan's economy's resilience to global economic shocks.
In the eleven months of the current year, GDP growth reached 4.1%, with nominal volume reaching 113.3 billion manats ($66.65 billion). Specifically, a 6.4% growth was observed in the non-oil-gas sector, while the oil-gas sector showed a 0.4% increase.
Industrial production increased by 1.1% in January-November, while the average annual inflation decreased from 8.8% in the same period of 2023 to 2% this year. This is below the annual forecast set by the government (2.7%) and aligns with the Central Bank of Azerbaijan's (CBA) inflation corridor (4±2%).
Three key points regarding Azerbaijan's economic growth this year are particularly noteworthy. First, the country's GDP growth rate is significantly higher than 1.1% in 2023. Second, Azerbaijan's economic growth rate is significantly higher than the global average (World Bank - 2.7%, IMF - 3.2%). Third, the stable exchange rate of manat against the US dollar has led to an increase in local currency deposits by 945.3 million manats ($556 million) over 11 months.
Thus, contrary to all forecasts, 2024 was remarkable with new achievements in Azerbaijan's economy.
The main pillar of stability and development
Both domestic and foreign market conditions continue to have a positive impact on Azerbaijan's foreign exchange market. The fundamental pillar of foreign exchange market stability is the balance of payments surplus. According to the Central Bank of Azerbaijan, in the nine months of 2024, the current account of the balance of payments recorded a surplus of $4 billion, which constitutes 7.2% of GDP. Additionally, in the 11 months of the year, the country's trade surplus stood at $5.6 billion.
At this point, it should be noted that maintaining a positive balance in Azerbaijan's current account, even during periods of declining prices and export volumes in the oil and gas sector, should be considered a significant achievement on a regional scale. For Azerbaijan, maintaining this positive balance is one of the most important indicators of economic sustainability.
One of the strategic goals is to increase non-oil exports. The target is to reach $4.7 billion by 2027, which represents significant progress compared to $3.3 billion in 2023.
The foreign exchange reserves further confirm the country's economic power. As of October 2024, Azerbaijan's strategic foreign exchange reserves reached $73.5 billion, which is sufficient to cover 35.5 months of imports of goods and services. The 7.3% increase in these reserves in just 9 months reflects the country's economic stability and potential.
Sustainable fiscal policy
2024 once again demonstrated the strength and sustainability of Azerbaijan's fiscal policy. Budget indicators increased against the backdrop of favorable oil prices in world markets, creating a stable dynamic in the country's financial system. According to the Ministry of Finance, in the 11 months of 2024, state budget revenues increased by 14.9% compared to the same period last year, while expenditure growth was relatively lower at 6.5%. This shows that the government is managing its expenses efficiently.
According to data as of December 1, the budget surplus of more than 3 billion manats ($1.76 billion) provides strong financial reserves for implementing projects aimed at developing various sectors of the economy. These financial reserves will be particularly used for the restoration of liberated territories, expansion of social programs, and increasing the defense budget.
In 2025, it is planned to increase minimum wages, pensions, and other social payments to further improve social welfare. At the same time, the allocation of 4 billion manats ($2.35 billion) for the restoration of Karabakh and Eastern Zangazur will lead to significant progress in the reconstruction of these regions. Azerbaijan's military budget exceeding 5 billion dollars ($2.94 billion) is a strategic step taken to respond to challenges arising from Armenia's increasing militarization policy.
The increase in tax revenues from the non-oil sector in the state budget demonstrates the effectiveness of steps taken towards economic diversification. According to the State Tax Service, tax revenues from the non-oil-gas sector increased by 14.1% in 11 months of 2024, amounting to approximately 10.3 billion manats ($6 billion). Thus, the share of non-oil-gas revenues in state budget revenues reached 68.6%.
This increase is one of the successful results of the Azerbaijani government's policy aimed at sustainable economic development. The significant share gained by the non-oil sector indicates a crucial step in ending the country's oil and gas dependency and encourages further steps towards economic diversification.
Optimistic expectation
As noted earlier, according to assessments by all international financial institutions and rating agencies, Azerbaijan's economy will maintain its sustainability in 2025. True, the GDP growth rate will slow down a bit. However, this is only a preliminary assessment. At this point, it would be appropriate to recall the initial forecast for 2024 and the real situation this year. Additionally, we shouldn't forget that the base oil price for 2025 is projected to be lower compared to 2024 ($70/barrel in 2025, expected average price of $80/barrel in 2024). Therefore, the economic growth rates in the next year will be higher than the government forecasts.
Currently, the main duty of the Azerbaijani government is to continue and accelerate reforms aimed at diversifying the economy, increasing its sustainability and attractiveness for foreign investors, and further developing the non-oil sector. Today, all key foundations exist for the sustainable development of Azerbaijan's economy at approximately 4% per year in the medium term; what remains is to identify and activate resources for this promptly.