Azerbaijan overview

Cityscape at night

In Azerbaijan we focus on:

Promoting market-driven economic diversification. The EBRD will support leading local corporates with direct financing while helping our partner banks to remain active in the corporate segment through MCFF. In the MSME sector the EBRD will place a special emphasis on the agribusiness sector, and will support local banks to develop their capacity to support agricultural and regional lending. Our continued support for regional roads will also help facilitate the development of a viable agricultural sector while facilitating integration of smaller communities.

Developing a sustainable financial sector to support private sector development. The EBRD will aim to strengthen financial intermediation to ensure efficient financing of the private sector, particularly SMEs and MSEs, including in the regions.We will promote high standards of corporate governance and risk management, which should contribute to increased competition, setting new standards and opening new markets for banks, and will support consolidation in the banking sector through potential equity investments. The EBRD will extend its co-operation with existing partner banks and assist in the development and promotion of new financial instruments to target improved access to finance for women-owned and women-run businesses, and will aim to promote energy efficiency investment projects through local banks via the Caucasus Energy Efficiency Programme.To develop local capital markets, we will seek to bring corporate (non-FI) issuers to the corporate bond market and expand the institutional and retail investor base.

Improving governance and the business environment. In order to support the authorities’ goals of promoting competition and improving the business environment, the EBRD will prioritise engagement with private and public sector clients who can demonstrate commitment to high standards of corporate governance and transparency and who have a commitment to improving management practices. In parallel, we will work closely with the Government of Azerbaijan to deepen institutional and regulatory reform. Drawing on the lessons of hydrocarbons and financial sectors, the EBRD will strive to create a more favourable investment climate in the real sector by promoting improvements in the legislative framework, enhancing competition and reducing the incentives for corruption. In order for these measures to be successful, opening new channels for constructive policy dialogue with key government agencies will be crucial. The EBRS will also continue to pursue investments in energy projects that improve energy security, create new generating capacity, stimulate competition, diversify energy sources, increase efficiency, and create wider and larger markets through regional integration.

The EBRD’s latest Azerbaijan strategy was adopted on 30 April 2014

EBRD forecast for Azerbaijan’s Real GDP Growth in 2016 -3.0%

EBRD forecast for Azerbaijan's Real GDP Growth in 2017 1.0%

Azerbaijan’s economy grew by 1.1 per cent in 2015. Stronger growth of 5.7 per cent in the first half of the year was partly due to significant construction projects and to the lower oil production base of 2014. Growth decelerated considerably in the second half of 2015, with the drop in oil prices leading to a contraction of Azerbaijan’s export receipts. Following year-on-year growth of 3.7 per cent in the first half of 2015, capital investment fell by 11.1 per cent year-on-year in 2015. In December 2015, Azerbaijan devalued its currency by 33 per cent (the second devaluation in 2015) and shifted to a more flexible exchange rate regime, with the manat losing almost 50 per cent of its value against the US dollar during the year as a whole. The devaluations led to balance sheet pressures in the real and financial sectors. In the context of the low oil price, the current account balance worsened from a surplus of 13.9 per cent of GDP in 2014 to a deficit of 0.4 per cent of GDP in 2015. In the first quarter of 2016, real GDP fell by 3.5 per cent, with non-oil GDP contracting by 5.7 per cent. Investment in fixed assets – an important contributor to growth in previous years – dropped by close to 34 per cent year-on-year. Liquidity buffers declined but remain sizable. At the end of 2015, the combined assets of the State Oil Fund (SOFAZ) and of the Central Bank’s foreign exchange reserves stood at US$ 38.5 billion, approximately 70 per cent of 2015 GDP and 25 months of imports, providing a safety cushion against liquidity and refinancing risks. Official foreign reserves of the Central Bank fell from US$ 15 billion in November 2014 to US$ 4.1 billion in March 2016. We expect Azerbaijan’s economy to shrink by 3 per cent in 2016 and to grow by 1 per cent in 2017. The conflict in the Nagorno-Karabakh region represents a risk to the growth outlook.

Azerbaijan in the EBRD’s 2015-16 Transition Report