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- GDP (PPP):
- $165.3 billion
- 2.8% growth
- 3.2% 5-year compound annual growth
- $17,618 per capita
- Inflation (CPI):
- FDI Inflow:
Azerbaijan’s strong economic growth has been driven mainly by development of the energy sector. Openness to global trade and some improvements in regulatory efficiency have aided the transition to a more market-based system. Continued transformation and restructuring are needed both to capitalize on the well-educated labor force and to broaden the production base.
Economic Freedom Snapshot
- 2016 Economic Freedom Score: 60.2 (down 0.8 point)
- Economic Freedom Status: Moderately Free
- Global Ranking: 91st
- Regional Ranking: 16th in the Asia–Pacific Region
- Notable Successes: Fiscal Freedom, Regulatory Efficiency, and Trade Freedom
- Concerns: Property Rights and Corruption
- Overall Score Change Since 2012: +1.3
Challenges to diversification and sustainable growth remain, and deeper systemic reforms are critically needed to foster greater entrepreneurial dynamism and economic development. A decree to privatize a state-owned bank was signed in 2015. The perceived level of corruption in Azerbaijan continues to be substantial.
President Ilham Aliyev was elected to a third term in 2013 amid allegations of electoral fraud. His father, Heydar, ruled Azerbaijan as a Soviet republic and later as an independent country until his death in 2003, when his son succeeded him. Armenia currently occupies the Nagorno–Karabakh region and seven neighboring districts that amount to 20 percent of Azerbaijan’s internationally recognized territory. An upsurge in violence between Armenian and Azerbaijani partisans in 2014 and 2015 threatened to exacerbate regional instability. Falling oil production is expected to be partially offset by increased natural gas exports. In early 2015, construction began on the Trans-Anatolian Natural Gas Pipeline to export Azerbaijani gas through Turkey and ease Europe’s energy dependence on Russia.
Corruption is widespread, although diminishing wealth from oil and gas exports yields fewer opportunities for graft. The corrupt and inefficient judiciary is largely subservient to the president and ruling party. Political opponents, journalists, and civil society activists arrested or sentenced during 2014 reported a variety of due process violations. The state seizes property at will, and options for recourse are extremely limited for ordinary citizens.
The top individual income tax rate is 25 percent, and the top corporate tax rate is 20 percent. Other taxes include a value-added tax and a property tax. The overall tax burden equals 13.3 percent of total domestic income. Government spending amounts to 38 percent of GDP. Large energy revenues enable budget surpluses, and strong non-energy growth has also encouraged fiscal health. Public debt remains low.
Despite progress in streamlining the process for launching a business, other time-consuming requirements undermine overall regulatory efficiency. Labor regulations have become more flexible, but enforcement of the labor code remains uneven. A sharp currency devaluation in 2015 related to falling global oil prices sparked inflation from higher import costs and led the government to increase some subsidies.
Azerbaijan’s tariff rate is 4.6 percent. The government screens investments in some sectors of the economy. The regulatory system and lack of a strong legal system deter trade and investment. The banking sector remains dominated by a large state bank, and small private banks remain fragmented and inefficient. The financial sector has been weathering market volatility relatively well.