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 EBRD 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 2018 1.5%

EBRD forecast for Azerbaijan's Real GDP Growth in 2019 3.5%

The ongoing slow economic recovery in Azerbaijan is supported by the higher oil price and macroeconomic stabilization measures. GDP grew by 0.8 per cent year-on-year in the first nine months of 2018 following 0.1 per cent growth in 2017. Non-oil GDP expanded by 1.0 per cent year-on-year in the first nine months of 2018 with the help of output growth in non-oil industry, agriculture, transportation, retail trade and information and communication services. Overall capital investment is in the fifth consecutive year of decline, although in the non-oil sector investment in fixed assets has posted growth in the first nine months of 2018. External balances are improving due to the recovery in the oil price. In the first half of 2018, the current account surplus was driven by a 41.1 per cent year-on-year increase in export receipts from the oil and gas sector. As of the third quarter of 2018, the combined assets of the State Oil Fund of Azerbaijan (SOFAZ) and of the foreign exchange reserves of the Central Bank of Azerbaijan stood at US$ 44.5 billion, up by 8.2 per cent compared to the end-2017 level. The manat exchange rate against the US dollar has been stable since April 2017 despite the positive oil price trend. Inflation decelerated from 12.9 per cent in 2017 to 2.6 per cent year-on-year in the first nine months of 2018, paving the way for looser monetary policy. The refinancing rate was lowered three consecutive times, from 15 per cent in the beginning of the year to 10 per cent in June 2018. The new fiscal rule is expected to reduce pro-cyclicality and further improve fiscal discipline starting from the next year. Strategic energy projects are reportedly on track with a number of milestones achieved in 2018. The ongoing expansion of gas production and export capacity is supportive of the growth outlook, which is projected at 1.5 per cent in 2018 and 3.5 per cent in 2019. On the other hand, the remaining vulnerabilities in the banking sector are a drag on the economic recovery. Conflict in the Nagorno-Karabakh region also poses a risk to the growth outlook.

Azerbaijan in the EBRD’s 2018-19 Transition Report