Azerbaijan’s Gross Domestic Product (GDP) shrank 1.3 percent in the first quarter of 2021 from a year earlier, according to the State Statistics Committee.

The country’s economy, which relies heavily on oil and gas production, took a serious hit from decline in global oil prices and the COVID-19 pandemic.

The committee said that decline in the oil sector was 7.3 percent, while the non-oil sector grew by 2.1 percent. In nominal terms GDP reached 18.9 billion mantas ($11 billion).

The State Statistics Committee said that Azerbaijan reduced oil and gas condensate production by 5.2 percent year-on-year to 8.816 million tonnes in the first quarter of 2021. Natural gas production rose 5.7 percent to 10.563 billion cubic metres.

According to the committee, annual inflation in March was up 3.9 percent, up from 3.7 percent in February. Azerbaijan forecasts annual inflation at 3 percent in 2021, slightly up from 2.8 percent in 2020.

The government projects GDP growth at 3.4 percent in 2021 after a decline of 4.3 percent last year.

The World Bank said earlier this month that Azerbaijan’s economic recovery was expected to be gradual, with output returning to pre-COVID-19 levels only by the end of 2022.

The early launch of Azerbaijan’s vaccination initiative and significantly higher public post-conflict reconstruction spending suggest that the recovery may materialize faster than previously anticipated.

According to the World Bank, GDP growth is projected at 2.8 percent and 3.9 percent in 2022. In 2021, an acceleration of domestic demand will support economic growth, but this will be conditional on an improved health situation and increased public spending. Higher oil prices are forecast to narrow the fiscal deficit and help the current account return to surplus.

Beyond 2021, without major structural reforms, the pace of the economic revival is likely to be moderate owing to a protracted recovery in oil output and anticipated fiscal tightening (amid rising fiscal pressures).

The International Monetary Fund forecasts Azerbaijan’s GDP to grow 2.3 percent in 2021 and 1.7 percent in 2022. Annual inflation is projected at 3.5 percent this year and the same level in 2022.