Baku: Azerbaijan is expected to maintain a stable exchange rate for its currency, the manat, until 2028, as reported by the APA-Economics citing insights from the ING Group, the largest financial group in the Netherlands. This stability is attributed to the country's economic resilience, bolstered by the recent escalation in the Middle East, which has positively impacted oil prices.

According to Azeri-Press News Agency, an increase of $10 per barrel in oil prices results in a $3 billion boost in Azerbaijan's annual exports, which is approximately 4% of the nation's GDP. This price hike also contributes an additional $1.5-2.0 billion to the country's budget revenues. Such financial gains have mitigated the risks of a negative current account balance or a disruption in the manat's exchange rate peg in the upcoming years of 2026-2027.

Despite potential increases in defense and security expenditures due to Azerbaijan's proximity to Iran, the country's fiscal health remains robust. By 2025, the consolidated budget surplus was at 2.6% of GDP, with sovereign savings surpassing 100% of GDP. However, Azerbaijan is not immune to inflation risks as nearly 46% of its imports originate from developed markets affected by Middle Eastern tensions. A potential 10% surge in global food prices could elevate inflation by about 1.5 percentage points, leaving little scope for further monetary easing.

The report further indicates a slowdown in economic growth, from 4.2% in 2024 to 1.4% in 2025, albeit exceeding expectations. Both oil and non-oil sectors, including transport and industry, faced challenges, with the non-oil sector showing weak performance and oil production remaining volatile. However, consumption-driven sectors displayed resilience, partially counterbalancing the deceleration.

While 2025 experienced a broad-based slowdown, the construction and trade sectors showed relative strength. ING forecasts that if Azerbaijan's fiscal policies remain steady and trade relations with the U.S., EU, and China continue to develop, GDP growth could recover to a 2-3% range by 2026-2027. Yet, the oil sector's growth potential is limited by production capacity constraints.

Household consumption is increasingly credit-reliant amid stagnant income growth. Despite rising real incomes, they do not fully support consumption levels, leading to retail loans comprising 15% of GDP, with real growth rates hitting a multi-year low of 5%.

There are signs of improvement in business sentiment outside the oil sector, although the oil industry continues to pose challenges to industrial growth. However, stabilization in corporate lending growth and a robust industrial confidence index suggest potential recovery in investment activity within non-oil sectors.