As the host of COP29, Azerbaijan gained significant global attention in 2024. PASHA Bank explores the transformation of the country's economy and the sectors driving its long-term sustainable growth.</em></p> Azerbaijan’s economy is undergoing a transformative period, with non-oil sectors playing an increasingly critical role in its diversification strategy. Declining oil production, oil price volatility and the global transition away from fossil fuels are push factors behind the acceleration of the transformation process. In the last decade, non-oil sectors grew by 2.9% in aggregate in real annual average terms. Sectors such as manufacturing, agriculture, transportation and hospitality are pivotal in moving Azerbaijan away from its historical reliance on oil, experiencing 6.8%, 3.4%, 5.6%, and 10.2% real annual average growth in the last decade, respectively. Driven by the ongoing reconstruction work in the Karabakh region and its integration into the overall economy of the country, the construction sector is also expected to significantly contribute to economic growth in the coming years.</p> In the first eight months of 2024, Azerbaijan's economy grew by 4.3%, driven by robust activity in transportation, manufacturing and non-residential construction. Projections indicate the non-oil and gas sector could expand by 6.4% by the end of the year. Azerbaijan’s rising importance as an international transit hub, investments in the non-oil sector and construction and strengthening relations with neighbouring countries are potentially critical factors of future economic expansion.</p> "Our primary focus is to support the sectors that will drive long-term sustainable growth in Azerbaijan’s economy," says Deputy CEO of PASHA Bank, Bahruz Naghiyev. "We work closely with businesses in agriculture, retail and construction to help ensure they have the financial tools needed to scale and innovate."</p> Inflation in Azerbaijan remains under control, with a 2024 projection of 2.7%, significantly lower than the global average. This has helped maintain stability in the banking sector, which recorded total assets of $29.6 billion as at the end of Q2 2024. PASHA Bank, holding a 16.8% share of these assets, remains well-positioned to navigate the evolving economic landscape. The country’s trade surplus of $5.47 billion further underscores the resilience of Azerbaijan's non-oil exports.</p> At a macro level, the Azerbaijani banking sector is strengthening in tandem with improved regulatory oversight. The Central Bank’s policies, aimed at curbing excessive consumer lending and enhancing liquidity management, have bolstered financial stability. PASHA Bank, with a loan-to-deposit ratio of 47.2%, is benefiting from the country’s de facto fixed exchange rate, which has been a stabilising force since 2017. In July 2024, Fitch Ratings raised Azerbaijan's long-term foreign currency issuer default rating from "BB+" to "BBB-", with a stable outlook.</p> The bank’s regional footprint is also notable. In Georgia, where the economy expanded by 9.1% in the first half of 2024, PASHA Bank Georgia has been instrumental in supporting businesses through tailored corporate and investment banking services. Georgia's economy is experiencing robust growth, driven by strong performance in the services sector and a boost from the influx of migrants, which has enhanced economic activity and potential growth. The country benefits from sound governance, effective macroeconomic policies, moderate public debt levels and a well-capitalised banking sector. Inflation has fallen significantly, supported by a strong currency and stable monetary policies, while the government remains committed to fiscal discipline with a controlled budget deficit.</p> In neighbouring Turkey, we continue to navigate a complex macroeconomic environment as the country implements significant interest rate hikes and prudential reforms to stabilise inflation and currency volatility. Turkey has made notable economic progress, driven by strengthened external buffers, improved fiscal discipline, and effective monetary policies. Foreign reserves have risen, reflecting reduced dollarisation and robust capital inflows, while projections suggest further increases in 2024 and 2025. Fiscal consolidation, supported by reduced reconstruction spending and improved tax collection, is lowering the government deficit, while low public debt remains a key strength. Economic growth, though moderated, benefits from robust tourism and recovering Eurozone demand. Despite external vulnerabilities and elevated inflation, Turkey’s reforms and strategic policy mix provide a solid foundation for sustained economic stability and resilience.</p> Coming back to Azerbaijan, its hosting of COP29 demonstrated its steadfast commitment to sustainability and global climate action. By welcoming the international community to discuss climate policies, Azerbaijan signalled its dedication to fostering a greener, more sustainable future. Major achievements at COP29 included agreements on accelerating renewable energy adoption, enhancing global climate financing for developing nations, and setting stricter measures to achieve net-zero emissions by 2050.</p> Azerbaijan is accelerating the green transition via investments in solar and wind energy projects. This makes the country more attractive from an investment perspective, and boosts the transition from an oil sector-based economy. These alternative energy projects are often developed in cooperation with other countries, and foreign investments play a key role in this sector. Increasing foreign investment attractiveness, diversification of energy sources and expansion of the non-oil economy will all have a positive effect on the business climate in Azerbaijan.</p>