Azerbaijan’s economic growth is now entirely driven by the non-oil and gas sector, Economy Minister Mikayil Jabbarov told a parliamentary committee hearing on the 2026 state budget on November 19 according to APA.

The government is pushing to diversify the economy away from its traditional reliance on hydrocarbons, with the 2026 budget draft prioritising fiscal sustainability, social spending and a reduction in the "oil factor" in public finances. "The GDP growth is entirely ensured by the development of the non-oil and gas sector," Jabbarov said.

The non-oil sector’s share of the economy has risen from 58% in 2018 to a projected 70% by late 2025, the minister added. Average annual GDP growth for the 2022–2025 period is expected to reach 3.3%, with the non-oil sector growing at a faster clip of 6.1%.

Finance Minister Sahil Babayev, appointed earlier this year, highlighted the strategic shift toward fiscal prudence. The budget draft proposes an upper limit for external borrowing of AZN6bn ($3.5bn) and a domestic borrowing limit of AZN2bn for 2026.

"Reducing the impact of the oil factor on the state budget and increasing the share of sustainable financing sources remain key objectives," Babayev said.

He noted that the baseline non-oil deficit is projected to drop to 19% of non-oil GDP in 2026, down from roughly 22.4% in 2025, with a target of 13% by 2029. Public debt is to be maintained at around 30% of GDP.

A massive portion of the budget remains dedicated to the reconstruction of Karabakh and Eastern Zangazur—the so-called "Great Return" programme following the 2020 war.

Total spending on the reconstruction of liberated territories is expected to reach AZN22bn ($12.9bn) by the end of 2025. For 2026 alone, the government has earmarked another AZN3.5bn ($2bn) for these projects.

However, social expenditures remain the largest slice of the pie, accounting for 41% of the total 2026 budget, or AZN17.1bn ($10bn).

• Healthcare: Allocated AZN3.7bn ($2.17bn), a 6.4% increase year-on-year.

• Education: Allocated AZN5.2bn ($3bn), up 14.3%.

• Social Protection: Allocated AZN4.9bn ($2.88bn).

Jabbarov also highlighted the country's "green transition" projects. A major public-private partnership to build a desalination plant for Caspian Sea water is underway, valued at $407mn. The project aims to bolster water security in the arid Absheron peninsula.

Non-oil exports have shown resilience, doubling over the last six years to reach $3.4bn. The number of employment contracts in the non-oil private sector has also surged, with some 200 new jobs created daily.

Central bank governor Taleh Kazimov reported robust activity in the financial sector. Insurance premiums exceeded AZN1.2bn in the first 10 months of 2025.

Kazimov also noted a positive trend in dedollarisation, with the local currency strengthening its position in the economy. Transactions via national payment systems topped AZN66.3bn this year, reflecting a move toward cashless payments.

However, risks remain. Chamber of Accounts chairman Vugar Gulmammadov warned that the budget draft needs to clarify rules regarding subsidy allocations and explicitly disclose inflation risks. The inflation forecast for 2025 has already been revised upward to 5.4% from an initial 4.6%, driven by external cost pressures.