Azerbaijan's economy: From challenges to sustainable development Key achievements and future goals

Despite global economic crises and geopolitical instability, Azerbaijan made notable economic progress last year. The country achieved a GDP growth rate that, given the challenging conditions, can be considered robust, with significant momentum observed in the development of the non-oil sector. Foreign exchange reserves grew, external debt declined, and large-scale initiatives for the revitalisation of the Karabakh region were successfully implemented. These accomplishments facilitated the continuation of various social programmes, including measures to boost employment, increase wages and pensions, and support vulnerable segments of society.

On January 7, Azerbaijani President Ilham Aliyev provided an in-depth overview of the socio-economic achievements of 2024 and outlined key priorities for the year ahead during an interview with local television channels.

Successfully overcoming the negative effects of the global recession and inflationary pressures of 2023, Azerbaijan’s economy, particularly its non-oil sectors, demonstrated steady growth throughout the past year. Despite certain challenges in external economic conditions and a decline in exports, 2024 proved to be a promising year for the country’s economic development. Moreover, the level of global risks, including imported inflation, was significantly lower compared to the previous two years.

“Last year was also a successful year in terms of economic development. Azerbaijan’s economy developed. I believe that the pace of development, if we look at today's world in general, can be seen as positive. The gross domestic product has increased by more than 4 percent,” President Ilham Aliyev stated during an interview with local television channels.

President Ilham Aliyev emphasised that the primary indicator of success for Azerbaijan today is the development of its non-oil sector. In 2024, this sector achieved a growth rate of 6%, while non-oil industrial production experienced an impressive 7% increase, reflecting the country’s long-term efforts to boost industrial output. These results indicate that Azerbaijan has achieved sustainable economic development, a trend expected to continue both this year and in the years ahead.

“We have been facing a decline in oil production, and I believe that as a result of the negotiations and efforts made, this decline will be stopped and oil production will remain stable,” President Aliyev stated. He further noted that reduced oil output will no longer negatively impact GDP performance.

Azerbaijan continues to expand the reach and volume of its natural gas exports. Currently, Azerbaijani gas is supplied to 12 countries, ten of which are European, with eight being EU member states. Notably, Azerbaijani gas now accounts for approximately half of the domestic consumption in several EU nations. This expansion into new markets also drives the development of infrastructure projects within Azerbaijan, enhancing the resilience of its extraction and transportation sectors.

According to President Ilham Aliyev, the country’s recent economic achievements stem from a well-thought-out state policy. This includes years of economic reforms, ensuring transparency, combating monopolies, attracting investments, and improving the investment climate. In addition, a new management model has been implemented in state-owned companies in recent years, introducing corporate governance principles and conducting restructuring and personnel changes. As a result, previously loss-making state entities are now generating profits amounting to hundreds of millions of manats. This phase of restructuring and personnel reforms has now been successfully completed.

In November 2024, Azerbaijan established the Azerbaijan Transport and Communication Holding (AZCON), designed to unify the transport sector under a single “umbrella” platform, streamlining coordination among transport structures. Highlighting the importance of this initiative, President Ilham Aliyev noted that in the coming years, transport and communications will serve as both a major source of national income and a key factor in strengthening Azerbaijan’s political influence. To achieve this, it was essential to establish a fully transparent and coordinated operational mechanism in this sector.

Simultaneously, the digitalisation of Azerbaijan’s transport sector is advancing, with processes in customs clearance being optimised to enable real-time tracking of shipments. This will eliminate artificial barriers and natural delays, ensuring greater efficiency. Efforts are also underway to make the East-West Transport Corridor more economically competitive by adjusting tariffs and removing artificial obstacles, enabling faster cargo delivery and boosting the corridor's overall appeal.

One of the key factors ensuring Azerbaijan’s sustainable economic development has been the stability of its financial position. This stability has allowed the country to optimise its revenues, addressing both immediate needs and long-term objectives, such as increasing foreign exchange reserves and reducing external debt. Notably, Azerbaijan achieved a record budget performance last year, successfully allocating significant funds for the restoration of Karabakh.

“Our foreign exchange reserves increased by more than $5 billion. Today, this figure is equal to $72 billion. For a country with a population of 10 million, this is a very large indicator. Because everything is measured in comparison. A calculation of foreign exchange reserves of countries worldwide should, of course, be based on reserves per capita, and according to this indicator, Azerbaijan is among the leading countries in the world,” President Ilham Aliyev stated. 

Another key indicator of Azerbaijan’s economic strength is the ratio of external debt to GDP, where the country stands out as a global leader. Azerbaijan’s external debt amounts to just 7.2% of its GDP, while in most developed countries, this figure exceeds 100%. Just five years ago, Azerbaijan’s external debt was around 20% of GDP, and President Ilham Aliyev set a goal to reduce it to 10%. Today, this ratio stands at 7.2%.

Another significant metric is the comparison between foreign exchange reserves and external debt, with Azerbaijan’s reserves exceeding its external debt by a factor of 14. Reflecting on these figures, President Aliyev noted that no developed countries have a similar situation. This solid financial standing supports the argument that Azerbaijan’s economy is resilient, relying on its own resources and not dependent on external financing. Furthermore, with the reduction of external debt, Azerbaijan now has the capacity to increase foreign borrowing for investment in promising sectors of the economy, thereby easing the burden on the national budget.

The sustainable development of Azerbaijan’s economy and financial stability have opened up greater opportunities for the government to invest in the country’s growth. For instance, the budgetary expenditures for the current year exceed 41 billion manats ($24.1 billion), while the consolidated budget has surpassed 48 billion manats ($28.2).

“This is the largest budget in Azerbaijan’s history, and we have achieved these results solely through domestic resources, thanks to transparency, effective governance, and sound economic policies,” President Ilham Aliyev noted. He also highlighted that these achievements contribute to improving the social conditions of the population.

As of January 1, 2024, the minimum wage has increased by 55 manats ($32), reaching 400 manats ($235), while the minimum pension has risen by 40 manats ($23) to 320 manats ($188), reflecting an average increase of 14-15%.

Over the past few years, four social packages have been implemented, with over 7 billion manats allocated for these initiatives. President Aliyev affirmed that social and economic development will continue to run in parallel, and as Azerbaijan’s economic capacity grows, increasing attention will be paid to addressing social issues, including raising minimum wages, pensions, and social benefits.