Azerbaijan, 2019–2023—Promoting Diversified and Inclusive Growth

Abstract

Azerbaijan rose to upper middle-income country (UMIC) status in 2009 and is a major economic and energy power in the South Caucasus. It is strategically located on a transcontinental crossroad that connects large markets to the country’s north, south, and west. An oil price shock in 2014 led to sharp currency devaluation, a finance sector crunch, erosion of fiscal space, and a surge of public debt. It also revealed economic vulnerabilities, institutional inefficiencies, and the urgent need to accelerate economic diversification. Three factors bind the achievement of higher inclusive and sustainable growth in Azerbaijan: (i) low economic diversification because of a weak enabling environment for non-oil private sector development and inefficient finance sector; (ii) public sector inefficiency because of issues with fiscal policy, public financial management, and the public corporate sector; and (iii) inadequate infrastructure and human capital for a diversified and more competitive economy.