Since the presidential election in April 2018, the Government of Azerbaijan has undergone significant changes. These include the nomination of a new prime minister and the appointment of several key ministers in charge of education, tax reforms, agriculture and rural development, the environment, and energy. The new Government has been tasked with continuing the reforms initiated in the aftermath of the economic recession of 2016.
Supported by favorable terms of trade and stabilizing oil production, Azerbaijan’s economy expanded by 1.3% in the first half of 2018. As the effects of the 2015 depreciation faded away, annual inflation moderated to 2.3% in the first half of 2018. The overall economic recovery, though modest, is likely to have contributed positively to employment growth. The poverty rate is expected to continue to decline throughout 2018 after the small spike observed in 2016, the year of the economic recession.
Economic activity in Azerbaijan’s main trade partners – Russia, Turkey, and Iran – is expected to slow, which may adversely impact demand for Azerbaijan’s non-oil exports and, in turn, potentially increase pressure on the exchange rate and reduce market confidence in Azerbaijan.
On the domestic side, a major risk is a slowdown in the implementation of structural reforms and an incomplete macro-fiscal policy framework. Structural reforms to improve the business environment, reduce the state’s economic footprint, and advance the rule of law are necessary for Azerbaijan to transition to a new growth model.