Following a sharp contraction of Azerbaijan’s GDP estimated at about 5% in 2020, economic activity is expected to recover gradually from 2021.

Report informs citing an article of S&P Global Ratings on the sovereign ratings of Azerbaijan.

“We project GDP will expand by about 2.1% in 2021 and average 3.9% over 2022-2024. Growth will be supported by a rebound in hydrocarbon exports, recovery in domestic consumption aided by fiscal stimulus, and higher public investment associated with the government’s investments in Nagorno-Karabakh. Downside risks to our projections remain due to the uncertainty of the duration of the pandemic and its impact on Azerbaijan’s economy,” the S&P article reads.

Broadly mirroring developments on the external side, Azerbaijan’s fiscal general government deficit will narrow to about 2.0% of GDP in 2021 from an estimated 6.4% in 2020.

“In the remainder of our forecast horizon through 2024, we project the fiscal balance will gradually revert to a surplus of 1% of GDP. We expect relatively higher oil prices, a staged increase in crude oil production, and a pickup in non-hydrocarbon revenue as the pandemic’s effects abate will support fiscal revenue. However, partially offsetting this trend, general government expenditure will rise to higher levels than previously assumed, largely due to the government’s reconstruction measures in the Nagorno-Karabakh region’s surrounding territories, and increased funds dedicated to the defense and national security. The state budget for 2021 envisages Azerbaijani manat (AZN) 2.2 billion (or about 2.9% of GDP) for financing reconstruction activities. We also understand that the government will maintain some of the COVID-19-related budget support measures in 2021, including the provision of state guarantees and loans to businesses, and the extension of some tax benefits and holidays. We estimate these measures reflect about 0.8% of 2021 GDP,” the S&P said in the article.

According to S&P, Azerbaijan’s fiscal asset position remains strong, supporting the sovereign ratings. Nevertheless, in line with fiscal flow projections, the agency expects that the government’s net asset position will gradually reduce to about 40% of GDP through 2024 from 50% in 2019.