Azerbaijan’s economic resilience amid global turbulence  IMF forecasts positive outlook

In January–February 2026, several leading international financial institutions and rating agencies released their latest outlooks for the global economy, along with updated forecasts for Azerbaijan. Among them was the International Monetary Fund, whose mission visited Azerbaijan from February 4 to 17 and presented projections for the country’s economic performance in 2026 and over the medium term.

Despite an anticipated slowdown in the extractive sector, IMF experts forecast positive GDP growth, rising investment activity, and continued stability in the financial system.

At the same time, the broader global backdrop remains highly turbulent. Geopolitical confrontation and military conflicts across various regions have intensified long-standing structural imbalances in the world economy. Under mounting pressure from trade disputes and tariff wars, the global economic system is increasingly fragmenting, with countries gravitating toward tighter regional blocs and strategic partnerships.

Persistent supply chain disruptions and renewed inflationary pressures are weighing heavily on commodity markets. These trends are affecting nearly all developing economies, including those in the post-Soviet space.

To a considerable extent, these negative trends will also be felt in 2026. Nevertheless, according to research data published by the International Monetary Fund at the end of January, positive momentum in global economic growth is expected to persist: the Fund has revised its forecast upward to 3.3%, which is 0.2 percentage points higher than projected in October last year.

“Global economic growth continues to show notable resilience despite significant US-led trade disruptions and heightened uncertainty,” the IMF noted, adding that the world economy is expected to expand by 3.2% in 2027.

Among the positive trends, the IMF highlights the rapid growth of technology-related investment, including in artificial intelligence, which is more pronounced in North America and Asian countries than in other regions. Accordingly, the main drivers of current growth are the U.S. economy, with expected growth of 2.4%, and China, projected to expand by 4.5%. By contrast, eurozone countries are expected to post only modest growth of 1.3%, indicating that recessionary processes continue to weigh on the Old Continent.

As for Azerbaijan, GDP growth also slowed in 2023 and 2025, amounting to 1.1% and 1.4% respectively. These negative trends were largely driven by the high volatility of global hydrocarbon prices, as well as a decline in oil production and exports, which led to a reduction in the trade surplus and a slowdown in industrial activity.

However, thanks to the unique resilience of the national economy to external shocks, Azerbaijan has managed to avoid serious downturns throughout the entire period of global turbulence in recent years. Owing to preferential regimes supporting non-oil production, a prudent monetary and fiscal policy framework, and the stability of key macroeconomic indicators during 2022–2025, the domestic economy has been able to adapt and transform in response to changing conditions.

Notably, IMF experts expect positive trends in Azerbaijan’s economic development this year, according to forecasts published on February 19 by the International Monetary Fund.

The most active phase of cooperation between Azerbaijan and the IMF took place in 1995–2005, when the Fund provided the country with loans totalling $577.3 million in support of its economic reform programme. In the years that followed, the Azerbaijani government fully repaid its debt to the IMF and, since 2006, has not undertaken any new borrowing.

Since then, cooperation with the IMF has continued within the framework of Article IV consultations and technical missions conducting research on the key areas of the country’s macroeconomic policy.

The latest mission, led by IMF Resident Representative Anna Bordon, took place from February 4 to 17 of this year.

“In 2026, Azerbaijan's GDP is expected to grow by 2.1%, reflecting continued weakness in oil and gas production alongside slightly faster growth in the non‑oil sector,” said the head of the IMF mission, Anna Bordon. “In the medium term (through 2032), growth rates are projected to stabilize at around 2.5%. Inflation is forecast to decline to 5% by the end of 2026 and to 4% by the end of 2027, provided that external inflationary pressures ease and fiscal consolidation continues.”

The representative of the Fund believes that despite a reduction in the trade surplus due to lower oil production, the current account balance will remain positive in 2026–2027. In the following period, the combined reserves of the Central Bank of Azerbaijan and the State Oil Fund of Azerbaijan are expected to continue growing, albeit at a slower pace, reaching $86.46 billion by the end of 2031.

According to the Fund’s projections, investment growth is set to recover from 2026 onward, amounting to 16.3% of GDP this year. The IMF also notes that expanding the role of the private sector in economic diversification — including through the attraction of foreign direct investment — requires deepening capital markets to improve private sector access to financing, enhancing labour productivity through investment in human capital, and continuing reforms aimed at reducing informal employment in the labour market.

The need to continue reforms aimed at supporting the non-oil sector of the national economy is critically important, as according to research by the IMF, oil and gas price dynamics in the coming years are unlikely to show any significant growth.

According to the Fund’s projections, the average price of Azerbaijan’s exported natural gas will stand at $380.4 per thousand cubic metres in 2026. By comparison, in 2025 the figure was higher, at $425.4. Moreover, a downward trend is forecast through 2032, with the average price expected to decline to $287.1 per thousand cubic metres within six years.

The outlook for oil prices is only slightly more favourable. The IMF estimates the average export price of Azeri Light crude at $66.7 per barrel in 2026. In subsequent years, prices are expected to increase only marginally, reaching $68.5 per barrel by 2031.

In this context, IMF experts emphasise that Azerbaijan’s key medium- and long-term objective is to reduce dependence on the hydrocarbon sector and advance economic diversification, with a strong role for the private sector.

According to Anna Bordon, Azerbaijan is rightly prioritising this diversification. She notes that, in addition to the progress already achieved in monitoring the performance of state-owned enterprises, further measures—such as reducing the share of regulated prices and cutting budget subsidies—would help enhance competition and improve efficiency. Continued rationalisation of tax incentives, strengthened fiscal administration, and better compliance by taxpayers are also essential to support sustainable economic development.

Regarding the country’s credit system, the IMF mission’s research confirmed that Azerbaijani banks remain well-capitalised and profitable. Overall, domestic lending grew by 29.7% in 2025 compared to the previous year.

The Fund also expects stronger performance in private sector lending, projecting growth of 8.9% in 2026, followed by a steady annual increase of around 9% from 2027 to 2031.

“Maintaining the current parameters of the countercyclical capital buffer is appropriate given the slowing pace of credit growth, while the introduction of the liquidity coverage ratio and the planned implementation of the net stable funding ratio will support the resilience of the banking sector,” emphasised Anna Bordon. She added that the recent adoption of risk-based supervision by the Central Bank of Azerbaijan will strengthen prudential oversight and, together with the gradual implementation of Basel III standards and ongoing improvements in the financial safety framework, will enhance the country’s financial stability.

The IMF studies also highlighted other important aspects concerning potential risks to the country’s development. In particular, careful monitoring of inflationary risks and timely responses to unexpected price fluctuations—especially those driven by imported inflation—are necessary in an environment of high external uncertainty and the ongoing development of monetary policy transmission mechanisms.

Overall, this will require further development of the risk-free yield curve and continued progress in addressing long-standing structural issues, such as persistent dollarisation, high operating costs, and low competition within the banking sector.