Growth rates slowed in 2025, while inflation accelerated. Hydrocarbon production declined significantly last year, and growth in the non-resource sector decelerated due to the indirect impact of falling hydrocarbon prices and the normalization of investment from previous high levels. Overall, real GDP growth slowed to 1.4%, compared to 4.2% in 2024.
Driven largely by external factors, inflation temporarily exceeded the upper limit of the target range before returning to within that range in the second half of 2025. Credit growth slowed significantly in 2025, while banks remain well-capitalized and profitable. The combined reserves of the Central Bank of Azerbaijan (CBA) and the State Oil Fund (SOFAZ) increased from $70 billion at the end of 2024 to $85 billion by the end of 2025.
Looking ahead, GDP is expected to grow by 2.1% in 2026 amid continued weakness in oil and gas production and a slight acceleration in non-oil GDP growth, before stabilizing at 2.5% in the medium term. Inflation is projected to decline to 5.0% by the end of 2026 and to 4.0% by the end of 2027, provided that external inflationary pressures ease and fiscal consolidation continues.
The external position is expected to weaken, with the trade surplus narrowing due to declining oil production. However, the current account balance is projected to remain positive throughout 2026–2027. The combined reserves of the CBA and SOFAZ will continue to grow, albeit at a slower pace. According to the IMF mission’s February report, risks to the outlook remain generally balanced, though external uncertainty remains high.
"Medium-term fiscal consolidation is appropriate and will ensure equity while supporting external sustainability. A clear and comprehensive strategy, based on the identification of specific revenue-enhancing and expenditure-management measures, will bolster the credibility of fiscal consolidation. It is necessary to continue efforts to improve the profitability of state-owned enterprises (SOEs) and reduce subsidies, rationalize tax incentives, and strengthen tax administration and compliance monitoring," the document states.
“While inflation is projected to decline, careful monitoring of inflationary risks and responsiveness to inflationary surprises will be essential, given heightened external uncertainty and the still-evolving transmission of monetary policy to the economy. Interbank rates remain close to the policy rate, reflecting the Central Bank’s successful management of excess liquidity. Substantially improving the transmission of monetary policy to the broader economy will require further development of the risk-free yield curve and continued efforts to address long-standing structural issues, such as dollarization, high operating costs, and low competition within the banking sector.”
Maintaining the current level of the countercyclical capital buffer is appropriate given the slowdown in credit growth, while the implementation of the Liquidity Coverage Ratio (LCR) and the planned introduction of the Net Stable Funding Ratio (NSFR) will contribute to the resilience of the banking sector. The recent implementation of risk-based supervision will strengthen prudential oversight and, along with the gradual rollout of Basel III and the ongoing improvement of the financial safety net, will bolster financial stability and further enhance public confidence in the banking sector."
"Azerbaijan is appropriately focusing on economic diversification. Expanding the role of the private sector in this diversification, including through the attraction of foreign direct investment, requires deepening capital markets to broaden private sector access to financing and enhancing labor productivity through investment in human capital. Alongside recent progress in monitoring the performance of state-owned enterprises, reducing the role of regulated prices and cutting government subsidies to state-owned enterprises will stimulate competition and facilitate the optimization of their operations," the IMF stated.
