From Crisis to Stability: Azerbaijan’s Political and Economic Development (1990–1993 and 1993–2026)

The first years of independence were, for Azerbaijan, a period of war, territorial loss, hyperinflation and political turmoil. After 1993, however, the country stabilised, experienced rapid oil-driven growth and, in 2020–2023, restored its territorial integrity. In this article we compare the two periods sector by sector, using figures from official and international sources.

1. The macroeconomic picture: from collapse to growth

In 1990–1993 Azerbaijan’s economy went through one of the most severe downturns in the former USSR. The breakdown of Soviet economic ties, the Karabakh war, the transport blockade and instability in governance sharply reduced output. GDP, which stood at about $8.86 billion in 1990, fell to $3.97 billion in 1993. Real growth was –0.7% in 1991, –22.6% in 1992 and –23.1% in 1993.

Financing the budget deficit through Central Bank money issuance led to hyperinflation: prices rose by 1128% in 1993 and by 1662% in 1994. According to the IMF, by 1993 real GDP had fallen to 59.1% of its 1990 level, industrial output to 50.9% and agricultural output to 64.7%.

The turning point was the “Contract of the Century”, signed in September 1994. It was followed by the creation of the State Oil Fund (1999), the commissioning of the Baku–Tbilisi–Ceyhan pipeline (2006) and rising oil revenues, which ensured record economic growth in the mid-2000s. The fall in oil prices in 2015 led to two devaluations of the manat; since 2017 the exchange rate has been held stable at 1 dollar = 1.70 manat.

Indicator

1990–1993

1993–2026 (latest figures)

GDP

$8.86 bn (1990) → $3.97 bn (1993)

AZN 129.1 bn (2025), approx. $76 bn

Real growth

1991: –0.7% · 1992: –22.6% · 1993: –23.1%

2020: –4.3% · 2021: 5.6% · 2022: 4.6% · 2023: 1.1% · 2024: 4.1% · 2025: 1.4%

Inflation

1993: 1128% · 1994: 1662%

2025: annual average 5.6%

GDP per capita

Sharp decline

AZN 12,602 (2025)

Industry

1993: 50.9% of 1990 level

2025: non-oil-and-gas industry +5.5%, oil-and-gas industry –2.0%

Agriculture

1993: 64.7% of 1990 level

Growth is weak; small share of GDP

Source: MPRA (Huseynov), IMF, Ministry of Economy, Azerbaijan Banks Association.

In recent years, however, growth has slowed considerably. In the first quarter of 2026 the economy contracted by 0.3% in real terms, and in the first half of the year it grew by 0.8%. In January–August GDP amounted to AZN 87.7 billion, 1.2% more than in the same period of the previous year. While the non-oil-and-gas sector grew by 2.1%, the oil-and-gas sector shrank by 0.8%.

2. The oil and gas sector: the main engine and the main risk

In the early 1990s onshore fields were depleted, and there was neither the capital nor the technology to develop offshore fields. After 1994, thanks to foreign investment, the Azeri–Chirag–Gunashli and Shah Deniz fields became the country’s main source of revenue.

Oil production peaked in 2010 and has been declining ever since. Output by foreign companies operating under production sharing agreements has fallen from 43.3 million tonnes to 21.5 million tonnes. In 2025 the country produced 27.7 million tonnes of oil including condensate, 4.81% less than in 2024.

• State Oil Fund: by the end of 2025 its assets had grown by 22.5% to $73.5 billion. That year the Fund transferred AZN 14.5 billion to the state budget.

• Export dependence: in 2024 energy products accounted for about 87% of exports.

• Non-oil exports: amounted to only $3.1 billion in the first 11 months of 2024.

3. State budget and fiscal stability

In 1994 the budget deficit reached 13.2% of GDP and was financed mainly by printing money. Today the situation is completely different: the 2025 state budget was executed with a surplus of AZN 580 million.

Indicator

1993–1994

2025–2026

Budget balance

Deficit of 13.2% of GDP (1994)

Surplus of AZN 580 mn (2025)

Budget size

Very small, financed by money issuance

2026: revenue AZN 38.6 bn, expenditure AZN 41.7 bn

Debt and reserves

Public debt rose sharply

Public and guaranteed debt at 28% of GDP; external assets of the Central Bank and the Oil Fund at 112% of GDP

Source: IMF, Milli Majlis, EBRD.

4. Social sector and population

Indicator

1990–1993

2025–2026

Refugees and IDPs

230,000 refugees + 778,000 internally displaced persons (1993)

Resettlement to the liberated territories is ongoing

Minimum wage

10.8% of the minimum consumer budget (1993)

AZN 400 (since 2025)

Average monthly wage

Not enough to live on

AZN 1,089 (2025, January–November)

Poverty rate

Mass poverty

5.2% (2025), approx. 534,000 people

Population

~7.4 million

10.25 million (August 2025)

In the early 1990s the social situation was catastrophic. By the end of 1993 the country had registered 230,000 refugees and 778,000 internally displaced persons. While in 1991 the minimum wage amounted to 41.8% of the minimum consumer budget, by 1993 this figure had dropped to 10.8%. By the end of that year a weekly minimum wage was not enough to buy even a loaf of bread.

That said, the average wage figure does not fully reflect the real picture. According to independent estimates, in November 2023 the median wage was about AZN 571, and 67.3% of employees earned less than the average wage.

5. The political system: from competitive chaos to centralised stability

1990–1993: years of instability

The period began with the tragedy of 20 January. On 18 October 1991 state independence was restored. Within three years power changed hands several times: the resignation of Ayaz Mutalibov, interim leaders, Abulfaz Elchibey elected in 1992, the Ganja rebellion in June 1993 and Heydar Aliyev’s return to power. Political competition and an opposition press existed, but state institutions were weak and the army lacked a unified command.

1993–2026: stability and centralisation of power

After 1993 political stability was established. Ilham Aliyev has been president since 2003. The 2009 referendum removed presidential term limits, in 2016 the term was extended to 7 years, and in 2017 the post of First Vice-President was established.

• Government position: stability, security, the restoration of territorial integrity and economic development are presented as the main achievements.

• International assessments: Freedom House has classified Azerbaijan as “Not Free” since 2002; over two decades the country’s score has fallen from 33 to 6.

• Economic freedom: in the Heritage Foundation’s 2025 index Azerbaijan ranked 75th in the world with a score of 62.5 and falls into the “moderately free” category.

6. Territorial integrity and security

In 1992–1993 Shusha, Kalbajar, Aghdam, Fuzuli, Jabrayil, Gubadly and Zangilan were occupied. About 20% of the country’s territory fell out of its control, and more than one million people became refugees and internally displaced persons.

Subsequent stages:

• 1994: the Bishkek ceasefire.

• 2020: the 44-day war and the 10 November statement.

• September 2023: counter-terrorism measures and the full restoration of sovereignty.

• 8 August 2025: in Washington the foreign ministers of Azerbaijan and Armenia initialled the text of the peace agreement.

The agreement has not yet been signed. Baku demands that Armenia’s constitution be amended before signing. In October 2026 Prime Minister Pashinyan called the signing of peace one of his government’s most important tasks.

Final comparison

Area

1990–1993

1993–2026

Economy

Collapse: GDP fell to ~59% of the 1990 level

Multifold growth; weak growth after 2015

Prices

Hyperinflation

Managed inflation, stable exchange rate

Public finances

Large deficit, money issuance

Surplus or small deficit, large reserves

Territory

About 20% under occupation

Fully restored

Political system

Competitive but chaotic

Stable, strong centralisation

Main risk

Collapse of the state

Dependence on oil and gas and declining production

Key conclusion: The structural problem that persisted across both periods is the economy’s dependence on one or two sectors. After 1993 this dependence became an advantage thanks to oil revenues. As production declines, however, it is turning into a source of risk again: in the first quarter of 2026 the oil-and-gas sector shrank by 1.2%, while the non-oil sector grew by only 0.2%. The key to future development is a real increase in the share of non-oil sectors in GDP.