Azerbaijan overview

Cityscape at night

In Azerbaijan we focus on:

Promoting market-driven 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 25 April 2019

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

EBRD forecast for Azerbaijan's Real GDP Growth in 2020 3.3%

Azerbaijan’s economy started reviving in 2018 after decline and near stagnation in the previous two years. GDP expanded by 1.4 per cent in 2018, supported by an increase in the oil price and rises in gas production and exports. The non-oil sector recorded 1.9 per cent growth. Output in transport, real estate, non-oil industry, trade, agriculture, and information and communication services all increased. The loan portfolio contraction levelled off in February 2018 and grew by 12.2 per cent in nominal terms in the following year. Loan and deposit dollarisation has been declining, but remains high at 37.1 per cent and 65.0 per cent respectively, as of February 2019. External and fiscal balances recovered on the back of rising oil prices. The current account surplus widened from 4.1 per cent of GDP in 2017 to 12.9 per cent in 2018, as receipts from the oil and gas sectors increased by 37.3 per cent. The consolidated budget moved from a deficit of 1.5 per cent of GDP in 2017 to a 5.9 per cent surplus in 2018. On the back of a stable exchange rate, supported by growing oil prices and tight management of manat against the US dollar, inflation declined from an average of 12.9 per cent in 2017 to 2.3 per cent in 2018, allowing for further monetary policy relaxation. According to preliminary estimates, GDP grew by 3 per cent year-on-year in the first two months of 2019. The outlook in the near term is shaped by the expected increase in the output of the combined oil and gas sectors. We forecast the economy to grow by 3.5 per cent in 2019 and 3.3 per cent in 2020.

Azerbaijan in the EBRD’s 2018-19 Transition Report