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Azerbaijan
Summary
Moody’s Ba1 / S&P BBB+ / Fitch BB+1
Economy: Agriculture 6%, Industry 59%, Service 35%
Azerbaijan has abundant energy resources, low debt levels, political and social stability, and marketfriendly policies. The country has managed its natural resources well, as reflected in fiscal and current
account surpluses and an accumulation of savings. However, the collapse of global oil prices has adversely
impacted Azerbaijan, with growth contracting in 2016, fiscal surpluses turning into sizable deficits,
and double-digit current account surpluses largely evaporating. Azerbaijan’s sovereign wealth fund has
reduced vulnerability to global commodity fluctuations and helped offset economic imbalances. Other
vulnerabilities include a volatile relationship with Armenia, lack of diversification, and exceptionally weak
institutions. Azerbaijan’s oil production is likely to stagnate in the short term, making the performance
of the non-oil sector vitally important, and further progress is needed to improve business conditions. It
is uncertain how successful Azerbaijan will be at diversifying the economy, which is a challenge faced by
other commodity-producing countries. Corruption remains another major constraint on growth.
Economic Indicators
Population (Millions)
GDP per Capita (USD)
Nominal GDP (USD Billions)
2012
2013
2014
2015
2016F
9.2
9.4
9.5
9.6
9.7
2017F
9.6
7,443
7,867
7,941
5,511
3,663
3,663
35.0
68.7
73.6
75.3
52.9
35.6
Real GDP (%)
2.2
5.8
2.8
1.1
-3.1
1.0
Year-End CPI (%)
-0.3
3.6
-0.1
7.7
11.5
6.0
Fiscal Balance (% of GDP)
4.8
1.0
3.2
-6.8
-9.9
-3.9
Interest (% of Revenues)
0.4
0.5
0.4
1.1
1.9
1.8
FC Debt/Public Debt (%)
66.0
91.8
125.3
50.1
40.9
49.1
Government Debt (% of GDP)
13.9
12.8
11.2
28.3
39.6
36.1
Government Debt (% of Revenue)
33.6
32.3
28.7
83.9
120.0
101.0
Current Account (% of GDP)
20.2
16.4
13.9
-0.4
0.7
3.1
1.1
1.5
2.9
1.6
2.4
1.8
13.9
14.0
15.5
16.0
18.5
19.0
Foreign Reserves/External Debt (%) 477.9
586.0
FDI (% of GDP)
External Debt (% of GDP)
486.0
435.0
456.2
566.2
Foreign Reserves (Mo. of imports)
31.0
30.8
31.0
27.1
31.0
31.4
Foreign Reserves (% of GDP)
66.4
68.0
67.6
73.0
104.7
111.3
As of November 2016.
Forecasted or estimated results do not represent a promise or guarantee of future results and are subject
to change.
Source: NB of A, SSC of Azerbaijan, IMF, World Bank, Haver Analytics, Lazard
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Rating History
Below is a history of the country’s foreign and local currency ratings by the major agencies
dating back to 2000. We have also included a chart of the country’s hard currency external
debt spread and the JP Morgan EMBI Global Diversified Index spread for comparison.
Rating History
Hard Currency
Local Currency
BBB
BBB
BBB-
BBB-
BB+
BB+
BB
BB
BB-
BB-
B+
B
2000
2008
Moody’s
2016
S&P
Fitch
B+
2000
2008
Moody’s
S&P
2016
Fitch
As of December 2016
Performance represents past performance. Past performance is not a reliable indicator of future results.
Source: Fitch, Moody’s, Standard and Poor’s, Bloomberg
Bond Spreads
1000
800
600
400
200
0
2008
2010
Azerbaijan
2012
2014
2016
EMBIGD
As of December 2016
Performance represents past performance. Past
performance is not a reliable indicator of future
results.
Source: JP Morgan
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Azerbaijan
Strengths
Abundant Energy Resources
Azerbaijan’s key strength is its abundant energy resources, especially oil and gas. The country
is among the 20 largest oil producers in the world and one of the largest when measuring
per capita oil production. Azerbaijan currently produces 858,000 barrels per day (bpd),2
and has 7 billion barrels of oil reserves that should last more than a decade.3 About 20% of
production comes from the State Oil Company of Azerbaijan Republic (SOCAR), and the
remainder comes from a consortium of 10 companies known as the Azerbaijan International
Operating Company, or AIOC, led by BP. Domestic oil consumption is around 101,000
bpd, which means that most of the oil is exported, mainly through the country’s Baku–
Tbilisi–Ceyhan (BTC) pipeline. In addition, Azerbaijan has 1.2 trillion cubic meters (tcm)
of natural gas reserves and produces 16.9 billion cubic meters (bcm) of gas, some of which it
has recently begun to export. Consumer use of 9.2 bcm and exports, primarily to Turkey and
Russia, account for remaining production. Gas output is expected to more than double with
the Shah Deniz Stage 2 project to be completed in 2017. A new pipeline, at a projected cost
of more than US$11 billion, is under construction and expected to be finished by late 2018,
which will allow Azerbaijan to export gas to Georgia, Turkey, and eventually Europe.4
Strong Balance Sheet
Azerbaijan has one of the strongest government balance sheets in the world. The government
has managed its oil resources well, posting fiscal surpluses averaging 6.4% of GDP between
2005 and 2015, although in the medium term Azerbaijan is expected to post fiscal deficits
due to the oil shock.5 Past fiscal surpluses allowed for the accumulation of savings in the oil
stabilization fund (OSF) amounting to more than US$33 billion, equal to more than 90%
of current GDP. Management of the OSF is unusually transparent, but the amount saved in
the fund remains discretionary. Meanwhile, the stock of public debt has more than doubled
in recent years following the sharp devaluation of the manat in December 2015, but remains
low, at less than 40% of GDP.
Solid Balance of Payments
Azerbaijan’s balance of payments position is solid, notwithstanding a deterioration of the
current account balance in recent years. The country posted large current account surpluses
averaging 19.0% between 2005 and 2015.6 The sharp decline in recent years is largely
due to the collapse of global oil and gas prices, since these products account for the bulk
of Azerbaijan’s exports. The current account surpluses have helped offset sizable financial
account deficits, allowing accumulation of a large amount of external assets totaling an estimated US$39.0 billion, equal to more than 111% of GDP. This is nearly six times the level
of external debt, which is estimated at 19% of GDP.7
Political Stability
Azerbaijan is a politically stable country because one family and one party have been in power
for nearly 25 years. The current president, Ilham Aliyev, began his tenure in 2003 when he
replaced his father, Heydar Aliyev, who took power in October 1993. Aliyev also won the
2013 presidential election with 85% of the vote, although the international community
indicated elections were unfair and rife with fraud.8 Aliyev’s New Azerbaijan Party won the
November 2015 parliamentary elections by a landslide and now holds a majority in the
unicameral National Assembly, with 69 of 125 seats, owing to the opposition’s boycott of the
election.9 The next presidential election is scheduled for 2018.
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Social Stability
Azerbaijan is a highly stable country. Social protests are rare because of strong government
repression, which is not uncommon among the Commonwealth of Independent States (CIS).
Azerbaijan also remains stable because the government has improved social conditions for the
majority of the population. This has probably added to the president’s popularity since significant progress has been made in reducing poverty, which has declined from 50% in 2001 to
5% in 2013, while extreme poverty decreased from 20% to less than 3%.10 Nevertheless, the
deterioration of economic conditions in recent years has led to occasional protests, which have
been quickly suppressed. Although the government has largely maintained social stability, it is
important to note that there is still occasional unrest in the Nagorno–Karabakh region, which
is occupied by an ethnic Armenian majority. Attempts at resolving tensions within the region
have failed. The regional conflict led to a war between Azerbaijan and Armenia that ended
with the signing of a ceasefire agreement in 1994. However, sporadic fighting and confrontation have erupted since then and could easily escalate. Armenia claims the disputed territory as
its own, and Armenian leaders who have attempted to resolve the conflict have been forced to
resign following domestic popular resistance.11
Key Allies
Azerbaijan has maintained a good relationship with Russia, Europe, and the United States.
The US considers Azerbaijan a strategic military ally that has helped with the conflicts in Iraq
and Afghanistan. The importance of ties with the European Union is measured by trade. The
EU is seeking to reduce its reliance on Russian gas and looking to Azerbaijan to fill the gap.
The new Trans-Anatolian natural gas pipeline should allow Azerbaijan to increase gas exports
to Europe.12
Weaknesses
Vulnerable to a Decline in Oil Prices
Oil and gas are the main drivers of the Azerbaijani economy, amounting to 87% of total
exports, 45% of GDP, and 70% of revenues.13 Like other commodity-dependent countries,
changes in oil and gas production, and prices largely determine the direction of economic
growth. However, the government has done a good job of reducing economic volatility
related to the oil sector through the creation of the sovereign wealth fund.14 The government
spends oil funds when oil prices are low and accumulates savings when oil prices are high.
Moderate Economic Growth
After a decade of strong economic growth, the economy has taken a sharp downturn, falling
an estimated 3.1 percent in 2016. If the magnitude of this downturn is confirmed, the economy will have grown at an average annual rate of only 0.3% in the past three years, compared
to average annual growth of 11.2% between 2005 and 2015. The poor performance in recent
years is due to a combination of lower oil production in the Azeri, Chirag, and Guneshli oil
fields, as well as the shock from lower oil prices.15 Gas production is expected to increase
by 2017 as the Shah Deniz Stage 2 project becomes operational.16 Despite the sluggish oil
sector, the non-energy sector is performing well.17
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Azerbaijan
Risk of War with Armenia
Azerbaijan lives with the constant possibility of an intensification of its conflict with Armenia
over the Armenian-occupied territory of Nagorno-Karabakh, which is currently controlled
by the ethnic Armenian majority with the support of the Armenian government. Tension
between the two countries remains high, despite their signing a ceasefire agreement in
1994. Since that time, there has been sporadic fighting and an increase in border tension.
Azerbaijan often threatens to retake the region by force, although international organizations
continue to appeal for a non-violent resolution.18
Weak Institutions
Institutions in Azerbaijan are fragile, which adversely affects growth. The country languishes
in the bottom third of many international governance and corruption indicators, such as
Transparency International’s Corruption Perception Index, where it ranks 125th of 175
countries.19 Transparency International highlights that corruption is a major problem,
hindering economic development and political stability, although this is characteristic of
other countries in the region, including Armenia, Georgia, Moldova, and Ukraine.20
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Country Background
Size
86,600 KM2 (113th)
Capital
Baku
Population
9.9 million
Ethnic Groups
Azerbaijani 91.6%, Lezgian 2%, Russian 1.3%
Religion
Muslim 96.9%
Median Age
30.9 years
Literacy Rate
99.8%
Independence
August 30, 1991
Political System
Republic
Presidents
Ilham Aliyev since October 2013
Presidential Election
October 2018
Legislative Elections
2020
National Assembly
125 seats – YAP 72
Economy
Agriculture 6%, Industry 59.1%, Service 34.9%
Labor Force
Agriculture 38.3%, Industry 12.1%, Service 49.6%
Merchandise Exports
Oil and Gas, Machinery, Foodstuffs, Cotton
Export Partners
Italy 26%, Germany 13.3%, Indonesia 7%, France 7%,
Czech Republic 6%
Currency
Manat (AZN)
As of November 2016
Source: CIA
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Azerbaijan
Country Timeline
Soviet era ends in violence
1988
Nagorno-Karabakh region seeks to become part of Armenia. Ethnic Azeris begin to leave
Karabakh and Armenia and ethnic Armenians leave Azerbaijan. At least 26 ethnic Armenians
and six Azeris are killed in violence in Azerbaijani town of Sumqayit.
1990
Ethnic strife between Armenians and Azeris escalates. Azeri nationalist Popular Front rallies
support amid growing disorder. Trouble flares along border between Nakhichevan exclave and
Iran as rioters destroy border installations. Tension eases after Soviet and Iranian authorities
agree to ease restrictions on crossing between the two countries. Dozens die in interethnic
violence in Baku. Popular Front demonstrators demand resignation of communist authorities.
Soviet troops use force to end unrest, killing at least 100 people. Azeri nationalists put death toll
at several hundred. Ayaz Mutallibov becomes Azeri Communist Party leader. Communist Party
later retains power in multiparty elections but parliament has an opposition for the first time.
1991
After failed coup attempt in Moscow, Azerbaijani parliament votes to restore independence.
In elections boycotted by opposition, Mr Mutallibov becomes president. Heydar Aliyev
becomes leader of the Azerbaijani exclave of Nakhichevan. Leadership of Nagorno-Karabakh
declares the region an independent republic. Inter-ethnic hostilities escalate.
1992
Hostilities develop into full-scale war over Karabakh. More than 600 Azeris are killed as they
flee an Armenian attack on Karabakh town of Khodzhaly. Ethnic Armenian forces break
through Azerbaijani territory to create a corridor linking Armenia to Karabakh. President Ayaz
Mutallibov resigns. Abulfaz Elchibey, leader of nationalist People's Front, becomes president
in Azerbaijan's first contested elections.
1993
Armenia launches offensive into Azerbaijani territory around Karabakh. Rebel army commander Col Surat Huseynov takes control of Azerbaijan's second city, Gyandzha, and
marches on Baku. President Elchibey invites Aliyev to return to the capital and subsequently
flees. Mr Aliyev assumes leadership. Mr Huseynov becomes prime minister and is placed in
charge of defence and security forces. Referendum indicates massive loss of public confidence in Elchibey. Aliyev wins presidential elections boycotted by Elchibey's People's Front.
1994
Armenia, Azerbaijan and Nagorno-Karabakh sign a ceasefire accord. Ethnic Armenians remain
in control of Karabakh and a swathe of Azerbaijani territory around it. Mr Aliyev cracks down
hard on People's Front. Azerbaijani forces mount Karabakh counteroffensive. Armenia,
Azerbaijan and Nagorno-Karabakh sign a ceasefire. Ethnic Armenians remain in control of
Karabakh and a swathe of Azerbaijani territory around it. Prime Minister Huseynov is dismissed and flees to Russia after accusations of involvement in an attempted coup.
“Contract of the century”
1994
Azerbaijan signs what it calls the "contract of the century" with a consortium of international
oil companies for the exploration and exploitation of three offshore oil fields.
1995
Government troops crush rebellion by Rovshan Jovadov, the head of a special police squad.
He and dozens of other rebels are killed. Nagorno-Karabakh, now acting as an independent
republic, holds legislative elections. Robert Kocharian, formerly head of Karabakh's State
Defence Committee, becomes executive president. The New Azerbaijan Party, led by
President Aliyev, wins the majority of seats in independent Azerbaijan's first multi-party
elections, which, observers say, fail to meet international standards. Azerbaijan's new
constitution is approved in a referendum.
1996
Incumbent President Robert Kocharian retains his post in direct presidential elections in
Karabakh.
1997
Robert Kocharian leaves Karabakh to become prime minister in Armenia. Foreign Minister
Arkadiy Gukasian is elected Karabakh president. Former PM Surat Huseynov is extradited
from Russia. Following a lengthy trial for high treason he is eventually sentenced to life
imprisonment. The Armenian leader is criticized at home for making too many concessions
and subsequently resigns. The first oil is produced by the Azerbaijani International Operating
Company under the "contract of the century".
1998
Opposition activists arrested at protests against what they say are unfair elections in which
Heydar Aliyev is returned as president. International observers report irregularities.
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Into the new millennium
2001
Azerbaijan becomes full member of Council of Europe, though council officials criticise it
over human rights record. US lifts aid ban, imposed during Nagorno-Karabakh conflict, after
Azerbaijan provides airspace and intelligence after 11 September al-Qaeda attacks in US.
Azerbaijan, Georgia and Turkey reach agreement on oil and gas pipelines linking Caspian
fields with Turkey. Azerbaijan officially shifts to the Latin alphabet for the Azeri language, in
the fourth alphabet change in a century.
2002
September—Construction work starts on multi-billion-dollar pipeline to carry Caspian oil from
Azerbaijan to Turkey via Georgia.
Political succession
2003
August—Aliyev appoints his son, Ilham, as prime minister.
2003
October—Ilham Aliyev wins landslide victory in presidential poll said by observers not to
reach international standards. Opposition protests met with police violence; hundreds
arrested.
2003
December—Heydar Aliyev dies in a US hospital, aged 80. He was being treated for heart and
kidney problems.
2005
March—Thousands mourn after journalist Elmar Huseynov, an outspoken critic of the authorities, shot dead in Baku.
2005
November—Ruling New Azerbaijan Party wins parliamentary elections by large margin.
International observers say vote failed to meet democratic standards. Police use violence to
disperse opposition protesters demanding a rerun.
2006
July—Baku-Tbilisi-Ceyhan pipeline formally opened at ceremony in Turkey after Caspian oil
starts flowing along it.
2007
January—Azerbaijani state oil company stops pumping oil to Russia in dispute over energy
prices.
2008
March—The worst fighting in recent years breaks out in Nagorno-Karabakh. Azerbaijan and
Armenia accuse each other of starting the clashes, which leave several dead on each side.
Ilham Aliyev re-elected
2008
October—Ilham Aliyev wins a second term as president. Western observers say conduct
of the election, boycotted by the main opposition parties, was an improvement on previous
votes but still fell short of democratic standards.
2008
November—Armenia and Azerbaijan sign a joint agreement aimed at intensifying efforts to
resolve their dispute over territory of Nagorno-Karabakh.
2009
March—Referendum initiative to abolish a law limiting the president to two terms is passed
with nearly 92% of the vote; the move means President Ilham Aliyev would be able to stand
for a third term.
2009
November—Azerbaijani-Armenian talks on Nagorno-Karabakh end without achieving major
breakthrough.
2010
April—Head of the Armenian church, Garegin II, makes first visit by senior Armenian cleric
since the Nagorno-Karabakh conflict in the 1990s.
2010
November—President Aliyev's New Azerbaijan Party (NAP) wins increased majority in parliamentary elections; European monitors said the vote was flawed.
2010
September—BP announces plans for gas pipeline from Azerbaijan to Europe, by-passing
Russia.
2011
May—Azerbaijan wins Eurovision Song Contest. International human rights groups launch
boycott campaign of 2012 contest in Azerbaijan over the country's human rights record.
2012
June—Clashes on the Azerbaijani-Armenian border result in the death of soldiers on both
sides.
2012
September—Armenian-Azerbaijani tension flares after Azerbaijan pardons and gives a hero's
welcome to an army officer who was jailed in Hungary for killing an Armenian colleague.
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Azerbaijan
2013
October—Presidential elections. President Aliyev wins another third five-year term.
2014
August—Deadly clashes between troops from Azerbaijan and Armenia over the disputed
enclave of Nagorno-Karabakh.
2014
September—British Petroleum announces start of construction of Southern Gas Corridor to
deliver gas to Europe directly, bypassing Russia. Pipelines scheduled for completion in 2018.
Pressure on media
2014
October—Non-governmental organisations complain of official harassment, seeing it as the
culmination of months of measures against the opposition and independent media.
2014
December—The government shuts down the Azerbaijani service of US-funded Radio Free
Europe / Radio Liberty, accusing it of working for a foreign security service. The US State
Department expresses concern over what it describes as a crackdown on civil society.
2015
March—The human rights group Amnesty International says dozens of pro-democracy activists, journalists and lawyers have been detained by the authorities over the past twelve months
in an effort to quash dissent. The government denies the arrests are politically motivated.
2015
June—First European Games open in Baku. Azerbaijan was the sole bidder to host the event,
attracting criticism at home over the cost and abroad over its rights record.
2015
November—Ruling New Azerbaijan Party wins parliamentary elections, which main opposition
parties boycotted in protest at arrests of activists and reporters. The Organisation for Security
and Cooperation in Europe leading election monitoring group declined to send observers.
2016
April—Dozens killed in worst flare-up of fighting in the enclave of Nagorno-Karabakh.
2016
September—Voters in a referendum approve constitutional changes which extend the powers
of the president.
Source: BBC
Notes
1 As of December 2016.
2 “Azerbaijan,” U.S. Energy Information Administration, accessed October 14, 2016, http://www.eia.gov/
countries/analysisbriefs/Azerbaijan/azerbaijan.pdf.
3 “BP Statistical Review World Energy 2015,” BP, accessed October 14, 2016, http://www.bp.com/en/global/
corporate/energy-economics/statistical-review-of-world-energy.html.
4 “Azerbaijan,” U.S. Energy Information Administration, November 23, 2015, http://www.eia.gov/countries/
analysisbriefs/Azerbaijan/azerbaijan.pdf and “Shah Deniz Stage 2,” BP, accessed on October 14, 2016, http://
www.bp.com/en_az/caspian/operationsprojects/Shahdeniz/SDstage2.html.
5 “Azerbaijan,” International Monetary Fund, World Economic Outlook Database October 2016, accessed
October 14, 2016, https://www.imf.org/external/pubs/ft/weo/2015/02/weodata/index.aspx.
6 “Azerbaijan,” International Monetary Fund, World Economic Outlook Database October 2016, accessed
October 14, 2016, https://www.imf.org/external/pubs/ft/weo/2015/02/weodata/index.aspx.
7 As of November 2015, Source: Lazard estimates.
8 Herszenhorn, David M., “Observers Differ on Fairness of Election in Azerbaijan,” The New York Times,
October 10, 2013, accessed on November 23, 2015, http://www.nytimes.com/2013/10/11/world/asia/
observers-say-azerbaijan-election-marred-by-fraud.html.
9 “Azerbaijan election: Ruling party wins amid boycott,” BBC News, November 1, 2015, accessed on
November 23, 2015, http://www.bbc.com/news/world-europe-34692390.
10“World Bank Group Azerbaijan Partnership Program Snapshot,” World Bank Group, April 2015, accessed on
November 23, 2015, http://www.worldbank.org/content/dam/Worldbank/document/Azerbaijan-Snapshot.pdf.
11“Armenia, Azerbaijan Move Closer To Settling Frozen Conflict,” Stratfor Global Intelligence, November 17,
2015, accessed on November 23, 2015, https://www.stratfor.com/image/armenia-azerbaijan-move-closersettling-frozen-conflict.
12Chazan, Guy and Daniel Dombey, “Total and Statoil pull out of Tanap gas pipe deal,” Financial Times,
December 16, 2013, http://www.ft.com/intl/cms/s/0/2d2e749a-666d-11e3-8675-00144feabdc0.
html#axzz2nkJbtQcP.
13“Republic of Azerbaijan 2014 Article IV Consultation,” IMF Country Report 14/159, June 2014, http://www.
imf.org/external/pubs/ft/scr/2014/cr14159.pdf.
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14“Azerbaijan- Country Partnership strategy for the period FY11-14,” World Bank. September 15, 2011 http://
www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2010/09/23/000334955_2010092
3012251/Rendered/PDF/562460CAS0P1191Official0use0Only161.pdf, “Sovereign Wealth Funds Generally
Accepted Principles and Practices ‘Santiago Principles’, Self-Assessment,” State Oil Fund of Azerbaijan, April
2013, http://www.oilfund.az/uploads/SOFAZ_self-assessment(eng).pdf, and “State Oil Fund of Azerbaijan,”
SWF Institute, http://www.swfinstitute.org/swfs/state-oil-fund-of-azerbaijan/.
15“Azerbaijan 2016 oil, gas production to be steady around 2015 levels,” Reuters, September 21, 2015,
accessed on November 23, 2015, http://www.reuters.com/article/2015/09/21/us-azerbaijan-oil-outputidUSKCN0RL17I20150921.
16“Azerbaijan,” U.S. Energy Information Administration, November 23, 2015, http://www.eia.gov/countries/
analysisbriefs/Azerbaijan/azerbaijan.pdf.
17“Republic of Azerbaijan 2014 Article IV Consultation,” IMF Country Report 14/159, June 2014, http://www.
imf.org/external/pubs/ft/scr/2014/cr14159.pdf.
18“Fatal clashes between Azerbaijan and Armenia-backed Karabakh stir tension, "Reuters, September 28,
2015, accessed on November 23, 2015, http://www.reuters.com/article/2015/09/28/us-armenia-azerbaijanidUSKCN0RS1LO20150928.
19“Corruption by Country/Territory: Azerbiajan,” Transparency International, Corruption Perceptions Index:
2014, accessed on November 23, 2015, https://www.transparency.org/country/#AZE.
20Accessed on November 23, 2015, http://www.transparency.org/whatwedo/publication/the_state_of_corruption_armenia_azerbaijan_georgia_moldova_and_ukraine.
146
Important Information
Published on 24 February 2017.
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