2018 Index of Economic Freedom

Azerbaijan

overall score64.3
world rank67
Rule of Law

Property Rights53.6

Government Integrity39.9

Judicial Effectiveness36.8

Government Size

Government Spending59.4

Tax Burden87.5

Fiscal Health95.5

Regulatory Efficiency

Business Freedom72.3

Labor Freedom71.9

Monetary Freedom65.6

Open Markets

Trade Freedom74.6

Investment Freedom55.0

Financial Freedom60.0

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Quick Facts
  • Population:
    • 9.5 million
  • GDP (PPP):
    • $165.5 billion
    • 1.1% growth
    • 1.6% 5-year compound annual growth
    • $17,439 per capita
  • Unemployment:
    • 5.1%
  • Inflation (CPI):
    • 12.4%
  • FDI Inflow:
    • $4.5 billion
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Azerbaijan’s economic freedom score is 64.3, making its economy the 67th freest in the 2018 Index. Its overall score has increased by 0.7 point, with improvements in the property rights, judicial effectiveness, and government integrity indicators outweighing declines in monetary freedom and labor freedom. Azerbaijan is ranked 14th among 43 countries in the Asia–Pacific region, and its overall score is above the regional and world averages.

Openness to global trade and investment, supported by some improvements in regulatory efficiency, aided Azerbaijan’s transition to a more market-based economic system during the commodity boom. Continued transformation and restructuring are needed to capitalize on its well-educated labor force and broaden the production base, especially in view of the financial and macroeconomic repercussions of the 2014–2016 collapse in oil prices that included a currency devaluation and a serious banking crisis. Despite some progress, property rights are weak, and corruption remains widespread.

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Background

Azerbaijan, with its predominately Turkic and Shia Muslim population, was forcibly incorporated into the Soviet Union in 1921. President Ilham Aliyev was elected to a third five-year term in 2013 amid allegations of electoral fraud and rising authoritarianism. His father, Heydar, ruled from the Soviet era until his death in 2003, when his son succeeded him. Armenia occupies the Nagorno–Karabakh region and seven neighboring districts—almost 20 percent of Azerbaijan’s internationally recognized territory—and an upsurge in violence in April 2016 threatened to exacerbate regional instability. Oil exports remain the main economic driver. It is expected that increased exports of natural gas will partly offset falling oil production. Construction of a gas pipeline to Europe through Turkey began in 2015.

Rule of LawView Methodology

Property Rights 53.6 Create a Graph using this measurement

Government Integrity 39.9 Create a Graph using this measurement

Judicial Effectiveness 36.8 Create a Graph using this measurement

Azerbaijan’s bureaucratic property registration system is generally regarded as inefficient and prone to corruption. The inefficient judiciary is subject to lengthy delays and largely subservient to the president and ruling party. Judicial outcomes frequently appear predetermined. Corruption is widespread. In 2017, government officials as far away as Malta and the Council of Europe were accused of accepting multimillion-dollar government bribes.

Government SizeView Methodology

The top individual income tax rate is 25 percent, and the top corporate tax rate is 20 percent. Other taxes include value-added and property taxes. The overall tax burden equals 15.0 percent of total domestic income. Over the past three years, government spending has amounted to 36.8 percent of total output (GDP), and budget deficits have averaged 1.0 percent of GDP. Public debt is equivalent to 37.7 percent of GDP.

Regulatory EfficiencyView Methodology

Starting a business is relatively easy in Azerbaijan, although access to credit remains difficult. The labor market has been hurt by the fall in the price of oil, and the government is making efforts to diversify the economy away from oil. Subsidies create price distortions in the pharmaceutical, alcoholic beverage, food, public utilities, energy, and manufacturing sectors.

Open MarketsView Methodology

Trade is significant for Azerbaijan’s economy; the combined value of exports and imports equals 90 percent of GDP. The average applied tariff rate is 5.2 percent. Nontariff barriers impede trade. Government openness to foreign investment is less than average. The financial sector is dominated by banks and remains stable and relatively well capitalized.

Country's Score Over Time

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Regional Ranking

rank country overall change
1Hong Kong90.20.4
2Singapore88.80.2
3New Zealand84.20.5
4Australia80.9-0.1
5Taiwan76.60.1
6Malaysia 74.50.7
7South Korea73.8-0.5
8Japan72.32.7
9Macau70.90.2
10Vanuatu69.52.1
11Kazakhstan69.10.1
12Thailand 67.10.9
13Philippines65-0.6
14Azerbaijan64.30.7
15Indonesia64.22.3
16Brunei Darussalam64.2-5.6
17Tonga63.10.1
18Kyrgyz Republic 62.81.7
19Fiji62-1.4
20Bhutan61.83.4
21Samoa61.53.1
22Cambodia58.7-0.8
23Tajikistan58.30.1
24China57.80.4
25Sri Lanka57.80.4
26Solomon Islands57.52.5
27Mongolia55.70.9
28Papua New Guinea55.74.8
29Bangladesh 55.10.1
30India54.51.9
31Pakistan 54.41.6
32Nepal54.1-1.0
33Burma53.91.4
34Laos53.6-0.4
35Vietnam53.10.7
36Micronesia52.3-1.8
37Uzbekistan51.5-0.8
38Afghanistan51.32.4
39Maldives51.10.8
40Kiribati50.8-0.1
41Timor-Leste48.11.8
42Turkmenistan47.1-0.3
43North Korea5.80.9
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