IMF improves inflation outlook for Azerbaijan for 2027

The International Monetary Fund (IMF) expects inflation in Azerbaijan to decline to 4.2% in 2027, improving its previous forecast of 5.1% issued in mid-April.

According to IMF, cited by Report, the inflation forecast for 2026 remains unchanged at 6%. The Fund projects inflation of 4.1% in 2028 and around 4% annually during 2029–2031.

The IMF noted that inflation is expected to rise to 6% by the end of 2026 before gradually easing to 4.2% by the end of 2027. This trajectory is expected to be influenced by rising food prices amid higher global commodity costs. The current account balance is projected to remain in surplus in the medium term, although Azerbaijan's external position is assessed as weaker than what would be consistent with medium-term fundamentals.

The Fund warned that risks remain balanced but uncertainty in the external environment is high, particularly due to geopolitical tensions in the Middle East.

IMF analysts also said that an escalation of the conflict could push up hydrocarbon prices, improving Azerbaijan's fiscal and external position, while simultaneously increasing inflationary pressures through higher global food prices. This could affect food security, increase migration pressures, raise public spending needs, and add uncertainty for businesses.

The IMF stressed that the Central Bank of Azerbaijan (CBA) should raise interest rates if inflationary pressure persists.

It also emphasized the importance of clear forward-looking communication and further development of monetary policy transmission mechanisms, including reducing dollarization and improving competition in the banking sector.

For reference, average inflation in Azerbaijan was 5.6% in 2025, up from 2.2% in 2024. The Ministry of Economy forecasts 4.8% inflation in 2026 and 4.5% in 2027, while the Central Bank expects around 5.5% in 2026 and 4% in 2027.