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Quick Facts
- Population:
- GDP (PPP):
- $165.5 billion
- 1.1% growth
- 1.6% 5-year compound annual growth
- $17,439 per capita
- Unemployment:
- Inflation (CPI):
- FDI Inflow:
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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.
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.
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.
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.
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.
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.