On March 21, 2025, the International Monetary Fund's (IMF) Executive Board completed its Article IV consultation with Azerbaijan, giving its endorsement to the staff's appraisal and the 2024 Financial System Stability Assessment.
Azerbaijan's economy witnessed a growth revival in 2024, with a real GDP increase of 4.1 percent, a notable improvement from the 1.4 percent growth in 2023. Sectors such as construction, communication, transportation, and hospitality led this upturn. In contrast, the hydrocarbon GDP stabilized in 2024 after a 2 percent decrease in the previous year. Inflation rose to 4.9 percent by the end of the year but remained within the Central Bank of Azerbaijan's (CBA) target range.
"The 2024 Financial Sector Assessment Program (FSAP) found the financial sector to be broadly resilient against severe shocks," the IMF noted. However, the decline in oil and gas prices impacted Azerbaijan's external surplus. The current account balance is expected to weaken in 2024, with the surplus being about 50 percent lower in the first three quarters compared to the same period last year.
The IMF forecasts a slowing growth rate to 3.5 percent in 2025 due to reduced investments and steady hydrocarbon production. Medium-term projections anticipate a 2.5 percent growth aligned with potential growth rates. Inflation is expected to stay within the CBA's target, assuming stable international food and energy prices. Azerbaijan's FX reserves are projected to stay strong despite potential external position weakening.
"The Executive Board agreed with the thrust of the staff appraisal, noting that Azerbaijan's growth has been resilient, supported by robust non-oil sector activity, and inflation is contained. Directors concurred that risks to the outlook are broadly balanced but are subject to significant uncertainty."
Fiscal credibility and sustainability were points of emphasis. "Directors welcome the authorities' adherence to the fiscal targets under the fiscal rule," adding that the 2025 budget could prove procyclical, hence urging for continued fiscal adjustments to support inflation containment and fiscal sustainability.
Assessments of Azerbaijan's financial resilience were positive. "Directors welcomed the 2024 FSAP’s assessment that Azerbaijan’s financial system is broadly resilient, and the banking sector is well-capitalized." They commended regulatory reforms and the bolstering of banks’ capital and liquidity buffers. Further steps were recommended to strengthen financial stability, such as enhancing prudential oversight and developing systemic risk analysis frameworks.
The need for private sector development to bolster economic diversification was also discussed. "Directors emphasized the need for private sector development to support economic diversification." They highlighted the importance of reforms in state‑owned enterprises and improving governance, alongside efforts to combat corruption.
In conclusion, the IMF's assessment urged ongoing reforms and prudent policies to foster diversified and sustainable economic growth in Azerbaijan over the medium term.