IMF highlights Azerbaijan’s progress on diversification, fiscal resilience

The International Monetary Fund (IMF) highlighted Azerbaijan’s solid financial position and ongoing efforts toward economic diversification, while noting a moderation in growth last year.

Led by Anna Bordon, the IMF mission visited Baku from February 4 to 17, meeting senior government officials, financial sector representatives, and international partners to assess the country’s economic outlook and policy priorities.

The IMF highlighted Azerbaijan’s robust financial buffers, with combined reserves of the Central Bank of Azerbaijan (CBA) and the State Oil Fund of Azerbaijan (SOFAZ) rising from $70 billion at the end of 2024 to $85 billion by the end of 2025. Banks remain well-capitalised and profitable, and inflation, which temporarily exceeded the CBA’s target range, returned within the target band in the latter half of 2025.

At the same time, economic growth slowed to 1.4 per cent in 2025, down from 4.2 per cent in 2024. The slowdown reflected a decline in hydrocarbon output and weaker growth in the non-oil sector, influenced by falling global oil prices and the normalisation of investment following high levels in previous years.

Looking ahead, the IMF projects GDP growth of 2.1 per cent in 2026, supported by a gradual acceleration of non-oil activity, before stabilising at around 2.5 per cent over the medium term. Inflation is expected to decline to 5.0 per cent by the end of 2026 and 4.0 per cent by 2027, while the current account is projected to remain positive despite shrinking trade surpluses from declining oil production.

The IMF praised Azerbaijan’s commitment to fiscal consolidation, noting that clear strategies to enhance revenue, reduce expenditure, and improve the performance of state-owned enterprises (SOEs) would support both external sustainability and intergenerational equity. The mission’s recommendations include:

• Deepening financial markets to expand private sector access to finance.

• Boosting labour productivity through human capital investment and tackling labor market informality.

• Improving SOE efficiency and reducing subsidies.

• Strengthening tax administration and rationalising incentives.

Bordon emphasised: “Azerbaijan is appropriately focused on economic diversification. Expanding the role of the private sector, increasing competition, and improving SOE efficiency will be critical for sustainable growth.”

By Aghakazim Guliyev