BAKU

Azerbaijan’s economy expanded by 6.7 percent in the first two months of this year, up from a 3.2 percent contraction a year earlier, supported by the non-oil sector expansion and rising global oil prices.

The rise in the oil sector was 0.6 percent, while the non-oil sector grew by 10.1 percent in January-February, the State Statistics Committee said. In nominal terms, gross domestic product (GDP) reached 19.2 billion manats ($11.3 billion).

Azerbaijan’s GDP grew by 5.6 percent in 2021, up from a 4.3 percent contraction a year earlier as the country eased the majority of the restrictions it had imposed to curb the coronavirus pandemic. The country projects economic growth at 3.9 percent in 2022.

The country’s external debt reached $7.4 billion as of the beginning of this year or 14.9 percent of GDP, while foreign currency reserves exceeded $52 billion, including $45 billion of the state oil fund assets, President Ilham Aliyev said.

The World Bank said Azerbaijan’s economic growth this year should be supported by the stabilisation of oil prices as well as investment and reconstruction spending.

The November 2020 ceasefire agreement between Armenia and Azerbaijan alleviated geopolitical tensions in the region, although risks to stability remain elevated.

Still, economists’ predictions as to the pace of the recovery vary. While the World Bank predicted that Azerbaijan’s economy would grow 3.1 percent in 2022, the International Monetary Fund’s updated projection was less upbeat, forecasting 2.3 percent growth in 2022.

Meanwhile, the Asian Development Bank said in June last year that growth was forecast to accelerate to 2.5 percent in 2022 as demand improved at home and abroad.

In January this year, the international rating agency S&P Global Ratings has affirmed Azerbaijan’s long-term and short-term sovereign credit ratings in foreign and national currencies at ‘BB+’, keeping the outlook ‘Stable’.

“The stable outlook indicates that we expect the ceasefire agreement between Azerbaijan, Armenia, and Russia will continue to broadly hold, while favourable hydrocarbon prices and rising gas exports will support Azerbaijan’s fiscal and balance of payments positions over the next 12 months,” the agency said in a report.

S&P projected economic growth in Azerbaijan at 2.7 percent in 2022.

Nevertheless, oil fields are ageing, and oil production is on a declining trend, which new gas exports are unlikely to fully offset. Over the medium to long term, this could weigh on Azerbaijan’s growth, fiscal, and balance of payments performance. Significant liquid assets, accumulated within the sovereign wealth fund SOFAZ, partially mitigate the risks, the agency said.

S&P considered Azerbaijan’s fiscal and external stock positions to be among the strongest in the ‘BB’ category. The government has accumulated substantial liquid assets, mainly within the sovereign wealth fund SOFAZ.