AZE.US
Azerbaijan’s economy is slowing, but alarmist claims about an imminent economic collapse do not reflect the real picture, economist Natig Jafarli said during an appearance on the YouTube program “Novosti Kavkaza.”
According to Jafarli, Azerbaijan spent many years accustomed to rapid economic growth, especially after the large inflow of oil revenues in the 2000s. Against that background, the current slowdown is being felt more sharply by society and business.
“Azerbaijan was used to very high GDP growth for many years. Now the economy has slowed,” Jafarli said.
He noted that economic growth was effectively zero in the first five months of the year, while the first quarter showed a decline of 0.3 percent. Government and Central Bank forecasts, he said, point to possible growth of around 1.2 percent by the end of the year. But for developing countries in the South Caucasus, including Azerbaijan, Georgia and Armenia, growth below 3 percent is not enough to be meaningfully felt by the economy.
Jafarli said one of the objective reasons for the slowdown is the decline in oil production. He stressed that this was not unexpected and had been discussed for years, but the economy was not sufficiently prepared for the new reality.
Another factor, he said, is the scale of spending on the reconstruction of Karabakh and Eastern Zangezur. According to Jafarli, around 26 billion manats, or nearly $16 billion, have been spent there in recent years.
He emphasized that rebuilding the liberated territories is a necessary national task. At the same time, concentrating such a large share of public spending in one direction naturally reduces investment flows to other regions of the country.
Jafarli also pointed to the limits of Azerbaijan’s previous economic model, which relied heavily on oil revenues and large state-funded infrastructure projects. In the past, he said, public spending created a broad multiplier effect: construction companies, subcontractors, suppliers, logistics firms, small businesses and workers all benefited from major government projects.
That model, he argued, no longer works with the same force.
The main problem, according to Jafarli, is not only economic but also administrative. He said Azerbaijan has outgrown the old management system that was effective at a certain stage but no longer matches the country’s new challenges.
He called for a new governance model, including a reassessment of regional executive authorities, the powers of municipalities and the overall structure of public administration.
Jafarli also suggested that Azerbaijan could consider administrative consolidation based on the country’s 14 economic regions. In his view, a small country does not need around 80 districts, each with its own executive authority and large administrative staff.
The economist also focused on tax and customs policy. He said bringing the economy out of the shadow sector is correct in principle, but if it is not accompanied by lower tax and customs burdens, it ultimately leads to higher prices for consumers.
Businesses, he said, are ready to operate transparently, but they need simpler and more flexible rules. He cited VAT, customs duties and complex import procedures as examples of areas where reform is needed.
Jafarli argued that Azerbaijan needs a deep reform of its tax and customs codes. Rules for business, he said, should be simple, clear and stable, rather than changing several times a year.
He also criticized the growing number of supervisory bodies and public legal entities that are moved to self-financing. Even without corruption, he said, such a system creates pressure on business because these institutions become interested in fines as a source of revenue.
At the same time, Jafarli stressed that Azerbaijan has a serious financial cushion. He pointed to the country’s foreign currency reserves, low external debt and positive trade balance.
In his view, these resources give Azerbaijan room to carry out difficult but necessary reforms: reduce taxes, simplify business procedures, cut the oversized public sector and create better conditions for small and medium-sized enterprises.
Jafarli said discussions about optimizing state structures are already underway. However, he warned that any reduction of the inflated public administration system must be accompanied by new opportunities for people who could move into the private sector.
“Azerbaijanis know how to work, trade and earn money. Conditions simply need to be created,” he said.
According to Jafarli, the state should not act as the main distributor of resources, but as a fair and strict referee that sets clear rules and ensures they are followed.
He concluded that there is no reason for panic, because Azerbaijan remains strong at the macroeconomic level. However, the old development model has exhausted itself, and without systemic reforms the country will not be able to fully use its potential.
Jafarli said Azerbaijan has already achieved the historic task of restoring its territorial integrity and sovereignty. The next stage, he argued, should be a transition to a new level of development through reforms in governance, the economy and legislation.
AZE.US