Mixed Fortunes: Azerbaijan's Economy, Social Challenges, and Evolving Geopolitical Stance

Azerbaijan is currently navigating a complex period marked by shifting economic indicators, persistent social challenges, and significant developments in its regional and international relations. Recent reports from various state committees and ministries paint a picture of an economy facing headwinds, a society undergoing demographic and social shifts, and a country actively engaging in regional diplomacy and security measures.

Economic Performance and Concerns

Azerbaijan's economy is showing signs of slowdown, with the average export price of Azerbaijani oil at $73.8 per barrel in the first half of 2025, a decrease from over $77 in the first quarter of the year. While this figure is still 5.4% above the budget's projected price of $70, independent economists warn that continued declines could pose problems for the state budget, given that oil and gas constitute 90% of Azerbaijan's exports.

The Ministry of Finance has revised its macroeconomic forecasts for 2025, now expecting real GDP growth of 3%, a reduction from the initial projection of 3.7%. This comes as the State Statistics Committee (DSK) reported that GDP growth for the first seven months of this year was only 0.9%. The forecast for non-oil GDP growth has also been lowered from 4.9% to 4.6%, attributed to lower expected growth in the agriculture and transport sectors. Independent economists, such as Natig Jafarli, cast doubt on the 3% GDP target, stating that a 0.9% increase is "not actually growth" as economic theory considers anything below 2% abnormal. Inflation expectations have risen to 5.4% for 2025, up from an initial 4.6%, with the DSK reporting 5% inflation for the first seven months.

Poverty and Cost of Living

Economic challenges are directly impacting the population's well-being. In 2024, approximately 13.2% of Azerbaijan's population earned less than 270 manats, which was the official minimum living wage. This proportion was higher in rural areas (17%) compared to urban areas (10%). Data reveals that the average monthly income per person was 359.2 manats, while consumption expenditures were slightly higher at 363.5 manats. For 52.2% of the population, monthly incomes were insufficient to cover daily consumption expenses, with food expenditures making up the largest portion of spending at 43.5%.

In the housing market, prices have seen a significant increase, rising by up to 14% overall in January-June 2025 compared to the previous year. Despite this, the number of registered property rights actually decreased during the same period.

Demographic and Social Shifts

Azerbaijan is experiencing a rapid decline in its birth rate, with 45,616 live births recorded in the first half of 2025, marking a 6.3% decrease from the previous year. The birth rate per 1,000 people has fallen from 9.6 to 9.0. Over the last decade, births have dropped by a dramatic 60%. While the total population continues a slight increase, reaching 10,241,722 by July 1, 2025, the decline in births is notable. The disproportionate number of male births is attributed to selective abortions, which have seen a "serious increase". Independent economists suggest that rising inflation eroding real wages, coupled with the abolition of monthly child benefits in 2006, contribute to these social factors affecting birth rates.

Concerns are also growing over drug use. The number of individuals registered for the first time with drug addiction has increased, with 4,967 people registered last year, up from 2,723 in 2020. In total, 40,490 people were registered in medical institutions for drug addiction in the past year, an increase of 3,831 from 2023. Experts, however, believe the actual number of drug users is higher than official figures suggest.

Employment and Justice

The employment landscape in Azerbaijan is shifting. The number of state employees has decreased by 23,300 over the last year, while the non-state sector has seen an increase of 33,300 employees. As of July 1, 2025, 864,200 people worked in the state sector, and 906,600 in the non-state sector. Independent economists remain critical of official unemployment figures, stating that it is harder to officially register as unemployed than to find a job.

The country's justice system continues to draw scrutiny. Muhammad Kekalov, a journalist arrested in the high-profile "AbzasMedia case," has reportedly been denied telephone communication with his lawyer. He was sentenced to 7 years and 6 months in prison on charges including smuggling and financial crimes, alongside six other journalists and a researcher. All defendants maintain their innocence, asserting that their arrests are politically motivated due to their investigations into corruption. Since November 2023, over 30 journalists and public activists have been arrested on smuggling charges, and human rights organizations estimate over 370 political prisoners are currently held in Azerbaijan.

In other legal news, the arrest period for Haji Valiyev, chairman of the suspended "Gənc Qazilər" Public Union, has been extended by an additional 20 days. Valiyev was arrested on April 1st and is accused of hooliganism and intentional property destruction. His union, known for publicizing issues faced by veterans and their families, suspended its activities after his arrest.

Crime statistics show mixed trends: while 19 people escaped from correctional facilities in 2024, 10 fewer than in 2023, the number of individuals evading punishment increased. Furthermore, the number of persons declared wanted has significantly risen, from 3,932 in 2015 to 8,911 last year.

Foreign Relations and Regional Security

Azerbaijan's geopolitical activities have intensified. The Azerbaijani Naval Forces recently conducted tactical exercises in the Caspian Sea, focusing on the "Protection and Defence of Marine Energy Infrastructure". These exercises occur during a period of strained relations with neighbouring Russia, following Russian law enforcement operations targeting Azerbaijani nationals in Yekaterinburg, and subsequent detentions of Russian citizens in Azerbaijan on drug and cybercrime charges, including the leadership of Sputnik-Azerbaijan. Russia's Foreign Ministry has expressed a desire to work with Baku for the speedy release of detained Russian citizens, viewing it as a "significant step" towards stabilizing relations.

Meanwhile, diplomatic efforts between Azerbaijan and Armenia are advancing. On August 8, 2025, Azerbaijan, the US, and Armenia signed a Joint Declaration in Washington aimed at establishing unimpeded communication between Azerbaijan's main territory and its Nakhchivan region via Southern Armenia. The European Union has expressed strong support for these agreements, with the President of the EU Council, Antonio Costa, highlighting the "significant step" taken towards a peace agreement and the establishment of interstate relations.

Sectoral Developments

In the automotive sector, automobile imports into Azerbaijan surged by 23.9% in quantity and 24.1% in value in the first seven months of 2025 compared to the previous year. Conversely, domestic automobile production declined by 12.7%, with 2,292 passenger cars manufactured, 232 fewer than in 2024. Experts suggest that local production is largely assembly-based, with most parts imported, and criticise the government for maintaining high customs import duties to "protect the domestic market".

In agriculture, despite a 5.7% decrease in the harvested area for certain grain and leguminous crops, the overall yield increased by 1.2%. However, the wheat harvest specifically fell by 5.8%. The Ministry of Finance has noted inconsistencies between the over 2.2 billion manats allocated for agricultural subsidies between 2020-2024 and actual production volumes, with declines in output despite increased subsidies. Farmers have also reported an increase in harvesting costs, partially due to a rise in diesel fuel prices. Starting in 2025, additional subsidies will be provided for areas utilising modern irrigation systems to promote efficient water use.