PROGRESSING WELL

In Azerbaijan, the budget "race" traditionally begins in September, during which the government reveals its forecasts and vision for economic development for the upcoming year and the following three years. This year, there were no deviations from this timeline, as the government has already prepared the budget package for 2025. The Finance Ministry has even made its preliminary parameters public. "We will maintain the pace of economic development until the end of this year, while also considering that next year's budget is currently under discussion and its parameters will be more impressive. Consequently, the pace of economic development will remain robust next year," President Ilham Aliyev stated at a meeting focused on economic issues.

Achievements and Challenges

Future forecasts are largely contingent upon the current macroeconomic situation both domestically and globally. President Aliyev highlighted that the 4.3 percent economic growth recorded in the first eight months of this year is a highly positive indicator given the prevailing global conditions and geopolitical landscape. "Notably, our non-oil sector expanded by 7 percent, demonstrating that our efforts toward diversifying the economy and implementing well-considered reforms are yielding results," Ilham Aliyev remarked.

He added that numerous incentive projects are underway to attract foreign investment, particularly in the non-oil sector, and the complete restoration of the country’s territorial integrity and sovereignty has further enhanced foreign investors' perceptions of Azerbaijan.

Thanks to a favourable external environment and the successful implementation of the "Socio-Economic Development Strategy for 2022-2026," Azerbaijan has sustained economic activity, evidenced by positive growth rates across all areas within the non-oil and gas sector. Prime Minister Ali Asadov recently provided data supporting this claim. The country's direct external debt remains low; as of September 1, it stands at $5.3b, or 7.5% of GDP, while strategic foreign exchange reserves have surpassed $73b—nearly 14 times greater than external public debt. Azerbaijan ranks among the leading nations globally regarding its external debt-to-GDP ratio of just 7.5%, allowing for potential reductions in future debt repayment expenditures.

"The relative decline and stabilization of global food prices, along with their impact on import prices, maintenance of balance in the foreign exchange market, and strengthening of the nominal effective exchange rate of the manat have kept inflation low. Additionally, anti-inflationary measures are bolstered by implementing a relevant Action Plan approved by the Cabinet of Ministers. For the first eight months of 2024, average annual inflation was recorded at 1.3 percent, with annual inflation at 3.5 percent," stated the Prime Minister.

Regarding challenges facing Azerbaijan's economy, aside from external factors, one of the most significant issues is the decline in oil production resulting from projects carried out by foreign oil companies. Naturally, this impacts state budget revenues. "However, in response to discussions with foreign oil companies regarding shortfalls in oil production, we have emphasized these issues and required them to rectify these problems to ensure stable oil output. Recent months have seen vigorous efforts in this direction, leading to reasonable optimism that there will be no further unjustified reductions in oil production," Ilham Aliyev noted.

Moreover, new projects are currently being developed in the oil and gas sector. It is anticipated that upcoming increases in natural gas and oil condensate production will help restore momentum within the energy sector.

State Expenditures

It is important to mention that according to forecasts from Azerbaijan’s Ministry of Economy presented in August this year, in the baseline scenario, an average annual export price of one barrel of oil is projected at $70 for 2025 and $65 for 2026-2028. Meanwhile, the average annual export price for one thousand cubic meters of natural gas is estimated at $242 for 2025 and $236 for 2026-2028.

By the end of 2025, GDP is expected to reach ₼129.2b (a 3.5% growth). In the medium term, real GDP growth is forecasted at 3.35%, with non-oil and gas GDP growth anticipated to be 5%. In contrast, international financial institutions predict more modest growth; for instance, the Asian Development Bank expects Azerbaijan's GDP to increase by 2.6%, while the European Bank for Reconstruction and Development anticipates a growth rate of 2.7%.

Based on data from international organizations regarding commodity prices, stability in the manat exchange rate, as well as anti-inflationary measures taken, average annual inflation is estimated to be around 4.6% in 2025, gradually declining to 3.8% by 2028.

The manat's exchange rate against the US dollar for the years 2025-2028 is maintained at the level set for this year.

The primary expenditures have already been outlined. As President Ilham Aliyev indicated during a session of the Milli Majlis of the VII convocation, these include enhancing our military capabilities, ensuring security, defending state borders, advancing the military-industrial complex, investing in education, and reconstructing Garabagh and East Zangezur among other projects. "The funds allocated for the revitalization of Garabagh and East Zangezur following the end of hostilities—expected to be spent by year-end—amount to ₼19b. The vast majority of these funds have been directed towards infrastructure projects. Concurrently, efforts are underway to facilitate the return of former displaced persons; over eight thousand individuals have already been resettled in Garabagh and East Zangezur, with numbers expected to rise monthly and annually," stated the head of state.

Most expenditures are concentrated on infrastructure projects: three thousand kilometers of roads have been constructed, alongside 45 tunnels totalling 70 kilometers, 450 bridges, railroads, and two international airports that are now operational. The energy capacity is being enhanced with hydroelectric power plants totalling 270 megawatts commissioned over three years, among other developments.

Simultaneously, there are plans to uphold a social orientation within state expenditures. Since 2018, four social reform packages totalling ₼7 billion have been implemented, benefiting about four million people. "In the past five years, Azerbaijan's minimum wage has increased by 2.7 times while minimum pensions have risen by 2.5 times. I must also inform you that an instruction has already been issued to raise minimum wages and pensions again starting next year," Aliyev added.

In summary, next year's economic policy will prioritize further diversification of the economy while enhancing its sustainable development model. "Azerbaijan’s model of economic development has proven itself on a global scale. By leveraging our own resources, we have established a resilient and independent economy that does not rely on external forces," noted the President.

Economic independence serves as a cornerstone for an autonomous foreign policy which strengthens Azerbaijan’s position on the international stage.