2017 Index of Economic Freedom

Azerbaijan

overall score63.6
world rank68
Rule of Law

Property Rights50.5

Government Integrity37.6

Judicial Effectiveness33.0

Government Size

Government Spending57.5

Tax Burden87.7

Fiscal Health97.4

Regulatory Efficiency

Business Freedom71.5

Labor Freedom75.0

Monetary Freedom73.6

Open Markets

Trade Freedom74.4

Investment Freedom55.0

Financial Freedom50.0

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Quick Facts
  • Population:
    • 9.5 million
  • GDP (PPP):
    • $169.4 billion
    • 1.1% growth
    • 2.4% 5-year compound annual growth
    • $17,993 per capita
  • Unemployment:
    • 4.7%
  • Inflation (CPI):
    • 4.0%
  • FDI Inflow:
    • $4.0 billion
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Openness to global trade and investment, supported by some improvements in regulatory efficiency, has aided Azerbaijan’s transition to a more market-based economic system. Continued transformation and restructuring are needed to capitalize on the well-educated labor force and broaden the production base. Economic growth has been driven mainly by development of the energy sector.

Challenges to diversification and sustainable growth remain substantial. Deeper systemic reforms are critically needed to advance and institutionalize economic freedom more firmly. Despite some progress, property rights are weak, and corruption remains widespread. State involvement in banking is still excessive, and lingering financial instability adds to uncertainty.

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Background

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 almost 20 percent of Azerbaijan’s internationally recognized territory. An upsurge in violence between Armenian and Azerbaijani forces in April 2016 threatened to exacerbate regional instability. Falling oil production is expected to be partially offset by increased natural gas exports. In 2015, construction began on the Trans-Anatolian Natural Gas Pipeline to export Azerbaijani gas through Turkey and ease Europe’s energy dependence on Russia.

Rule of LawView Methodology

Property Rights 50.5 Create a Graph using this measurement

Government Integrity 37.6 Create a Graph using this measurement

Judicial Effectiveness 33.0 Create a Graph using this measurement

The state has seized property for development projects that involved forced evictions and unlawful and inadequately compensated expropriations. The corrupt and inefficient judiciary is largely subservient to the president and ruling party. Outcomes frequently appear to be predetermined. Corruption is widespread. Opposition politicians are subject to arbitrary arrest, physical violence, and other forms of intimidation.

Government SizeView Methodology

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 14.2 percent of total domestic income. Government spending has amounted to 37.6 percent of total output (GDP) over the past three years, and budget surpluses have averaged 0.3 percent of GDP. Public debt is equivalent to 36.1 percent of GDP.

Regulatory EfficiencyView Methodology

Despite progress in streamlining the process for launching a business, other time-consuming requirements reduce regulatory efficiency. Labor regulations have become somewhat more flexible, but enforcement of the labor code remains uneven. After two steep devaluations, the central bank moved to a managed float exchange rate regime and raised interest rates in 2016 to address rising inflation.

Open MarketsView Methodology

Trade is important to Azerbaijan’s economy; the value of exports and imports taken together equals 73 percent of GDP. The average applied tariff rate is 5.3 percent, and bureaucratic and regulatory barriers impede international trade and investment. The financial sector faces a range of challenges that include a currency devaluation. The banking sector is dominated by a large state bank, and small private banks remain fragmented.

Country's Score Over Time

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Regional Ranking

rank country overall change
1Hong Kong89.81.2
2Singapore88.60.8
3New Zealand83.72.1
4Australia810.7
5Taiwan76.51.8
6South Korea74.32.6
7Malaysia 73.82.3
8Macau70.70.6
9Brunei Darussalam69.82.5
10Japan69.6-3.5
11Kazakhstan695.4
12Vanuatu67.46.6
13Thailand 66.22.3
14Philippines65.62.5
15Azerbaijan63.63.4
16Fiji63.44.6
17Tonga633.4
18Indonesia61.92.5
19Kyrgyz Republic 61.11.5
20Cambodia59.51.6
21Bhutan58.4-1.1
22Samoa58.4-5.1
23Tajikistan58.26.9
24China57.45.4
25Sri Lanka57.4-2.5
26Nepal55.14.2
27Solomon Islands558.0
28Bangladesh 551.7
29Mongolia54.8-4.6
30Micronesia54.12.3
31Laos544.2
32Pakistan 52.8-3.1
33India52.6-3.6
34Burma52.53.8
35Vietnam52.4-1.6
36Uzbekistan52.36.3
37Papua New Guinea50.9-2.3
38Kiribati50.94.7
39Maldives50.3-3.6
40Afghanistan48.9N/A
41Turkmenistan47.45.5
42Timor-Leste46.30.5
43North Korea4.92.6
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