By Parviz Heydarov
The first half of 2025 has turned out to be economically successful for Azerbaijan, despite early-year concerns over slow growth, global oil price fluctuations, and rising inflation. Initial fears that key annual economic targets might fall short have largely been mitigated by a combination of strong fiscal management and favorable market dynamics.
Oil Prices and Budget Performance
A key stabilizing factor has been the average export price of oil, which remained slightly above the benchmark assumed in the state budget. Coupled with cost-effective government spending and inflation control measures, this helped maintain macroeconomic stability and deliver a slight but important positive result.
State budget execution for January–June reflects this progress. Budget revenues reached 19.8 billion AZN, exceeding projections by 704.8 million AZN (3.7%), while expenditures stood at 17.1 billion AZN, resulting in a fiscal surplus of 2.7 billion AZN. Although expenditures came in 1% below forecast, both revenues and spending increased year-over-year by 5.1% and 6.5%, respectively.
Given the expanded size of the 2025 budget, the slight decrease in the surplus compared to the same period last year (down 3%) is seen as expected and explainable.
International Confidence and Diversification Trends
International confidence in Azerbaijan’s fiscal policy also strengthened. Notably, Moody’s Ratings upgraded the country’s sovereign credit rating from Ba1 to Baa3 — an investment-grade level — and maintained a positive outlook. The upgrade reflects a perceived decline in Azerbaijan’s dependency on oil and gas revenues.
This trend is further evidenced by the structure of state revenues:
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Tax revenues totaled 8.7 billion AZN (+5.7% over forecast),
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Customs collections reached 3.1 billion AZN (slightly above target),
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The State Oil Fund (SOFAZ) transfer of 7.24 billion AZN was fully met,
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Other income, including from the State Property Service, exceeded expectations significantly.
Importantly, revenue from non-oil sources has been growing — a critical step in ensuring long-term economic sustainability.
Business Activity and Taxpayer Growth
The number of registered taxpayers reached 1.63 million by July 1 — up 4.8% year-over-year. This includes a 7.7% rise in corporate entities and a 4.4% increase in individual entrepreneurs.
By the end of June, 197,038 commercial entities were officially registered in Azerbaijan, an 8.1% increase over last year. Of these, 91.7% were LLCs, and 88.9% of new entities in the first half of 2025 were locally funded.
This indicates a sustained momentum in business formation, reinforcing the case for ongoing macroeconomic stability.
Challenges Ahead: Reducing Oil Dependency
Despite the positive trajectory, a key vulnerability remains: continued reliance on oil revenues. Any significant drop in oil prices — especially below $50 per barrel — could pose a serious threat to budget stability. While this risk was avoided in H1 2025, structural economic transformation is essential for long-term resilience.
The government’s priority moving forward should be to increase GDP growth through the non-oil and gas sectors. For sustainable budget performance, it’s critical that current expenditures are increasingly funded by these sectors. In 2024, 90.1% of current expenses were met through non-oil revenues — pushing this closer to 100% is now the central policy goal.
Conclusion
If Azerbaijan continues on this path — with structural diversification, business dynamism, and disciplined fiscal management — global market volatility will have diminishing impact. The first half of 2025 has laid a solid foundation, but long-term economic independence depends on shifting further away from hydrocarbons toward a robust, diversified economy.
