Azerbaijan's Defense, National Security Spending Set to Rise Amid Regional Tensions: Finance Minister

Azerbaijan's defense and national security expenditures are set to increase significantly next year, driven by the need to enhance military capabilities and respond to Armenia's escalating militarization efforts, Finance Minister Samir Sharifov said on Monday.

Speaking at a parliamentary session on economic policy, Sharifov stated that the draft budget for 2025 allocates 20.3% of total state expenditures, or AZN 8.396 billion ($4.94 billion), for defense and national security. This marks an increase of AZN 1.27 billion (17.8%) from the 2024 forecast and AZN 2.542 billion (43.4%) compared to 2023.

“The strengthening of Azerbaijan's defense and national security, along with modernization efforts in military development, has necessitated this rise in expenditures,” Sharifov said during the meeting of the Economic Policy, Industry, and Entrepreneurship Committee.

The minister also outlined plans for social and investment initiatives under the 2022-2026 socio-economic development strategy. A total of AZN 1.993 billion will be allocated, including AZN 893 million for social programs and AZN 1.1 billion for investment projects.

Additionally, the government has earmarked AZN 150 million for the implementation of the "State Program for the Socio-Economic Development of the Nakhchivan Autonomous Republic (2023-2027)."

Samad Bashirli, Deputy Minister of Economy, told the committee that the government's oil price forecast for 2026-2028 stands at $65 per barrel. Based on this projection, the GDP per capita is expected to reach $7,412 in 2025 and increase to $8,522 by the end of 2028.

Bashirli highlighted a projected surplus in the current account balance, forecasting a surplus-to-GDP ratio of 5.6% in 2025 and an average of 3% during 2025-2028, taking into account the current trends in oil and gas production. Crude oil output is forecasted at 28.7 million tonnes, while marketable gas production is expected to reach 38.4 billion cubic meters in 2025.

"The GDP of the oil and gas sector is projected to grow by 0.5% in 2025, with nominal GDP estimated at AZN 129.2 billion, including AZN 92.2 billion from the non-oil sector," Bashirli added.

In the first nine months of 2024, Azerbaijan's economy expanded by 4.7% in real terms compared to the same period last year, with a 7.1% growth in the non-oil sector, Central Bank Governor Taleh Kazimov reported.

“Economic activity remains in the positive zone, reflecting the impact of the Central Bank's real sector monitoring,” Kazimov noted, adding that the outlook for economic growth remains optimistic. The Central Bank’s base scenario projects a GDP growth rate of 3.9% for 2024, including a 6.5% expansion in the non-oil and gas sector.

Kazimov pointed out that 12-month inflation stood at 3.4% in October, remaining within target levels. Food inflation was recorded at 2.6%, non-food inflation at 2.1%, and services inflation at 5.8%.

“The analysis indicates that inflation has been influenced not only by external supply factors but also by the implementation of anti-inflationary measures. In the first nine months of 2024, inflationary pressures from trade partners added 6.2 percentage points, while a strengthening nominal effective exchange rate reduced inflation by 4 percentage points,” Kazimov said.

He also highlighted domestic factors, noting that rising producer prices for agricultural products added 1.3 percentage points to inflation during the period.

The Central Bank's October forecast anticipates continued economic stability, with external and domestic influences expected to balance inflationary pressures.

Azerbaijan's state budget expenditure for 2025 has been proposed at AZN 41.368 billion.