Azerbaijan’s Economic Challenges in 2025: Insights from Gubad Ibadoglu

Economist Gubad Ibadoglu provides a sobering analysis of Azerbaijan’s economic prospects as 2025 begins, highlighting a landscape marked by declining oil prices, rising inflation, and expectations of manat devaluation. These pressures, he notes, are poised to undermine real GDP growth, weaken investment, and exacerbate unemployment and poverty rates.

Reflecting on 2024, Ibadoglu criticizes the lack of progress in addressing systemic issues like corruption and monopolization, which have stifled free enterprise and reinforced the dominance of entrenched interests. High-profile corruption cases in the Nakhchivan Autonomous Republic revealed significant misappropriation of state funds but concluded with conditional sentences, raising concerns about accountability and governance.

Fiscal challenges loom large in 2025. The state budget reflects a 7.7% increase in current expenditures, reaching 24.845 billion AZN, while capital investments are set to decline by 8.1%. Ibadoglu warns that non-productive spending on defense and reconstruction will consume nearly 30% of total expenditures, diminishing economic efficiency amid persistent corruption and a lack of transparency.

Azerbaijan’s foreign policy pivot toward BRICS and the Shanghai Cooperation Organization signals a potential cooling of relations with the European Union, its primary trading partner. This realignment, Ibadoglu argues, coupled with geopolitical shifts such as Donald Trump’s second presidential term, could exacerbate economic pressures. Lower oil prices driven by aggressive U.S. energy policies and a strong dollar risk further reducing Azerbaijan’s resource revenues, intensifying fiscal constraints.

While the oil and gas sector remains central—contributing an estimated 28.7% of GDP in 2025—declining revenues and inflationary pressures could erode the State Oil Fund’s reserves. Projections from the Ministry of Economy indicate average oil prices of $70 per barrel in 2025, with natural gas prices also declining, underscoring the need for diversification.

Ibadoglu highlights the urgent need for structural reforms to counter slowing GDP growth, projected to decline from 4.2% in 2024 to an average of 3.3% over the medium term. Without these reforms, he cautions, Azerbaijan faces mounting vulnerabilities, with 2025 shaping up to be a more challenging year than the last.

The analysis underscores the pressing need for policy adjustments to mitigate the economic and fiscal risks confronting Azerbaijan in the year ahead.