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Azerbaijan's Economic Freedom Score Is 65.4, Making Its Economy

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Azerbaijan's Economic Freedom Score Is 65.4, Making Its Economy WORLD RANK: REGIONAL RANK: 60 13 AZERBAIJAN ECONOMIC FREEDOM STATUS: zerbaijan’s economic freedom score is 65.4, making its economy MODERATELY FREE A the 60th freest in the 2019 Index. Its overall score has increased by 1.1 points, led by a dramatic rise in judicial effectiveness and higher scores for property rights and government integrity that offset declines in labor freedom and fiscal health. Azerbaijan is ranked 13th among 43 countries in the Asia–Pacific region, and its overall score is above the regional and world averages. The government’s goals are to join the World Trade Organization, develop Azerbaijan into a trade and transit hub by continuing invest- ment in road and rail infrastructure, and diversify away from economic dependence on hydrocarbons. Continued market-based improvements in regulatory efficiency and further restructuring are needed to capital- ize on the well-educated labor force and broaden the production base. There has been measurable progress to improve the rule of law in the past year, but corruption remains widespread. ECONOMIC FREEDOM SCORE ( UP 1.1 POINTS ) 65.4 0 50 60 70 80 100 REGIONAL AVERAGE WORLD (ASIA-PACIFIC REGION) 60.6 60.8 AVERAGE RELATIVE STRENGTHS: HISTORICAL INDEX SCORE CONCERNS: Fiscal Health and Tax Burden CHANGE (SINCE 1996): Government Integrity and +35.4 Judicial Effectiveness FREEDOM TREND QUICK FACTS 80 POPULATION: UNEMPLOYMENT: 9.8 million 5.0% 70 GDP (PPP): INFLATION (CPI): 65.4 63.6 64.3 $171.8 billion 13.0% 0.1% growth in 2017 61.0 60.2 5-year compound FDI INFLOW: 60 $2.9 billion annual growth 1.2% $17,492 per capita PUBLIC DEBT: 54.7% of GDP 50 2015 2016 2017 2018 2019 2017 data unless otherwise noted. Data compiled as of September 2018 BACKGROUND: President Ilham Aliyev was elected to a fourth term in 2018 amid allegations of electoral fraud. His father, Heydar, ruled Azerbaijan as a Soviet republic and later as an independent country until his death in 2003, when his son succeeded him. Armenia’s 25-year occupation of 20 percent of Azerbaijan’s internationally recognized territory in the Nagorno–Karabakh region and seven neighboring districts is one of post-Soviet Europe’s frozen conflicts and exacerbates regional instability. Falling oil production is expected to be partially offset by increased natural gas exports. In 2018, the Trans-Anatolian Natural Gas Pipeline, an important section of the Southern Gas Corridor, opened to export Azerbaijani gas through Turkey and ease Europe’s dependence on Russia for energy. 92 2019 Index of Economic Freedom WORLD AVERAGE | ONE-YEAR SCORE CHANGE IN PARENTHESES 12 ECONOMIC FREEDOMS | AZERBAIJAN RULE OF LAW GOVERNMENT SIZE (+5.5) (+16.3) (+4.8) (No change) (+0.1) (–6.1) 100 100 80 80 70 70 60 60 50 50 59.1 53.1 44.7 87.5 59.5 89.4 0 0 Property Judicial Government Tax Government Fiscal Rights Efectiveness Integrity Burden Spending Health Although the state has seized property for devel- The top individual income tax rate is 25 percent, and opment projects and inadequately compensated the top corporate tax rate is 20 percent. Other taxes expropriations, some improvements in property include value-added and property taxes. The overall registration and contract enforcement were made tax burden equals 14.9 percent of total domestic in 2016. The judiciary is corrupt, inefficient, and income. Over the past three years, government subject to political pressure; outcomes often seem spending has amounted to 36.7 percent of the to be predetermined. Corruption is widespread. country’s output (GDP), and budget deficits have Opposition politicians are subject to arbitrary arrest, averaged 1.7 percent of GDP. Public debt is equiva- physical violence, and other forms of intimidation. lent to 54.7 percent of GDP. REGULATORY EFFICIENCY OPEN MARKETS (–2.8) (–8.0) (–2.6) (No change) (+5.0) (No change) 100 100 80 80 70 70 60 60 50 50 69.5 63.9 63.0 74.6 60.0 60.0 0 0 Business Labor Monetary Trade Investment Financial Freedom Freedom Freedom Freedom Freedom Freedom Despite progress in streamlining the process for The combined value of exports and imports is equal launching a business, other time-consuming require- to 90.7 percent of GDP. The average applied tariff ments reduce regulatory efficiency. Labor regula- rate is 5.2 percent. Nontariff barriers impede trade. tions are somewhat flexible, but enforcement of Regulatory barriers impede foreign and domestic the labor code remains uneven. Ongoing subsidies investment in Azerbaijan. The financial sector faces continue to create price distortions for such goods many challenges including currency weakness. The as alcohol, drugs, energy, food and other agricultural banking sector is dominated by a large state bank, products, and electricity. and small private banks remain splintered. The Heritage Foundation | heritage.org/Index 93.
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