INITIAL RESULTS

Azerbaijan's economy successfully navigated the complexities of external geopolitical processes in 2024, achieving a GDP growth rate of 4%. Stronger growth in the non-oil sector, a nominal increase in economic investments, and effective monetary policy helped keep inflation within the target range while improving nearly all other macroeconomic expectations. This year is also expected to be favourable, stable, and sustainable, although GDP growth is projected to slow slightly to 3.5%.

GDP and Inflation

Initially, GDP growth for the past year was forecast at just 2.7%. However, between January and May, economic growth consistently hovered around 5%, leading to two upward revisions of the forecast. Ultimately, the growth rate exceeded 2023 figures by 1.1%.

One of the most significant macroeconomic achievements in recent years has been reducing the dominance of the oil and gas sector, particularly against the backdrop of declining oil production. Notably, the non-oil sector grew by over 6% last year.

This year, the government's outlook aligns closely with that of international organizations. For instance, the United Nations' World Economic Situation and Prospects 2025 report predicts Azerbaijan's economic growth at 3%. According to the report, the country's economy shows positive momentum: Economic growth in Azerbaijan accelerated in 2024 due to stronger domestic demand and the development of the non-oil sector. Rising global demand for Azerbaijani natural gas is expected to continue supporting GDP growth in 2025. Preliminary data indicates that non-oil and gas exports in 2024 increased by 0.3% compared to the same period in 2023, reaching $3.4 billion.

The UN report also forecasts Azerbaijan's average annual inflation at 3.6% in 2025, with a further slowdown to 3.1% in 2026. In contrast, Azerbaijan's Ministry of Economy projects inflation at 4.6% in 2025 and 4% in 2026.

The Central Bank of Azerbaijan (CBA) outlined its monetary policy goals for 2025 in a recent statement, emphasizing its commitment to maintaining annual inflation within the target range of 4±2%, as outlined in the Socio-Economic Development Strategy for 2022-2026. According to the CBA's latest forecasts (October 2024), annual inflation in 2025 is expected to reach 5.8%, within the established corridor. The CBA will continue to update its inflation forecasts regularly, conducting comprehensive analyses of inflationary factors and assessing inflation expectations.

The CBA also highlighted that inflation stability is influenced by both external and internal risks. In 2025, key external factors will include fluctuations in global commodity prices, inflationary trends, and economic activity in partner countries. Internal risks may stem from excessive aggregate demand, changes in state-regulated prices, and rising inflation expectations. In this context, the CBA's interest rate corridor will remain a primary tool for influencing monetary conditions, alongside the exchange rate channel. The CBA predicts that the nominal effective exchange rate of the manat will continue to strengthen in 2025, based on forecasts from international analytical centres.

International experts estimate that the current account balance will remain in surplus over the medium term, albeit with a slight decline. The CBA projects an annual surplus of $5.3–5.5 billion for 2024–2025, ensuring stability in the foreign exchange market.

External Debt

Another key indicator of economic resilience is the growth of the country's foreign exchange reserves, which increased by over $5 billion last year, reaching $72 billion. This is a very high figure for a country with a population of 10 million. Comparisons are essential here. When evaluating global foreign exchange reserves, it's crucial to consider reserves per capita, and by this measure, Azerbaijan ranks among the world's leading countries, President Ilham Aliyev emphasized in a recent interview with local television channels.

He also highlighted the ratio of external debt to GDP as a critical metric: I believe we are also among the global leaders in this regard, as our external debt stands at just 7.2% of GDP. For context, most developed countries have external debts exceeding 100% of GDP, so 7.2% is a remarkable achievement.

Another significant factor is the comparison between foreign exchange reserves and external debt, which also paints a positive picture. Our foreign exchange reserves are 14 times larger than our external debt. If anyone can show me another developed country with such figures, I would be grateful. But no such examples exist among developed nations. This demonstrates that our economy is stable, self-reliant, and does not require external financing, President Aliyev stated.

However, in recent years, particularly due to large-scale projects under the Great Return program in liberated territories, the issue of increasing external borrowing has gained relevance. Five years ago, when our external debt was around 20% of GDP, I set a goal to reduce it to 10%. Today, it stands at 7.2%. So, what would external financing provide? Given the many significant investment needs facing the country, it would ease the burden on the budget. Considering that our external debt repayment schedule is approved and our current external debt of $5.2 billion will decrease further over time, attracting additional financial resources is both logical and prudent. The government has already begun working in this direction, President Aliyev explained.

It is also worth noting that increasing external debt is reasonable given the expected decline in the purchasing power of the US dollar in the near to medium term. Additionally, with global debt at 93% of world GDP, a slight increase in Azerbaijan's external debt ratio would not pose any significant risk.