In Azerbaijan, a hugely ambitious infrastructure and economic development program is taking shape, aimed at establishing the country as a core hub of Central Eurasia.
Much is working in Baku’s favor. Azerbaijan has already built one of the strongest sovereign balance sheets in the region, and external interest in funding the country’s development agenda is strong. However, what Azerbaijan lacks is the financial ecosystem that would allow it to connect with international capital markets. As a result, the country has made comparatively limited use of the international financing channels that have become increasingly important elsewhere in the region.
In its next growth phase, the country needs to fund major investments across transport, energy, logistics, digital infrastructure, and regional connectivity. The question is whether it can develop the institutions, capabilities and systems, and market relationships needed to mobilize capital at scale quickly enough to support those ambitions.
Azerbaijan's investment challenge isn't capital
Many emerging economies struggle because they lack financial resources. Azerbaijan enters its next phase of development from a different position. With access to sufficient initial capital, the country instead faces a shortage in the expertise and infrastructure needed to deliver many of its planned investment projects.
Azerbaijan's combined sovereign reserves are estimated at approximately US$85 billion, exceeding its annual gross domestic product. Public debt remains relatively low, and sovereign credit ratings have strengthened in recent years. By most conventional measures, Azerbaijan's fiscal position compares favorably with other regional peers.
Yet even a strong sovereign balance sheet has limits when governments need to invest simultaneously in a host of major infrastructure projects. Delivering adequate outcomes requires investment at a scale that often exceeds what governments can comfortably finance through public budgets alone.
Financing Azerbaijan’s next phase of growth
The scale of Azerbaijan's economic development ambitions is significant. In the coming years, the country plans major investments in reconstruction of the Karabakh and East Zangezur regions, Middle Corridor transport infrastructure, renewable energy generation and transmission, logistics facilities, aviation infrastructure, industrial development, and digital transformation.
While collectively these investments could require tens of billions of dollars, Azerbaijan does not face a shortage of potential funding partners. Multilateral development banks and export credit agencies show significant interest in financing infrastructure and development projects and in supporting other strategic investments across the region. Global infrastructure investors are also actively seeking opportunities linked to energy transition, logistics, and connectivity.
Across Central Asia and the Caucasus, governments are increasingly supplementing sovereign funding with project finance, export credit facilities, strategic investment partnerships, and public-private partnership structures. These approaches have helped attract not only capital but also expertise, networks, and institutional capabilities.
Azerbaijan has access to many of the same funding routes, yet most remain underutilized relative to the country's ambitions and potential. The challenge is accessing the most appropriate form of capital for each project while preserving fiscal flexibility and managing risk efficiently.
Three steps to shape Azerbaijan's development
As neighboring countries continue to strengthen their financial ecosystems, Azerbaijan has an opportunity to reinforce its own position. We believe three key actions, taken together, could drive major progress towards the creation of a repeatable, well-defined, and well-structured process for Azerbaijan’s funding and investment capabilities.
1. Establish a dedicated team for non-budget financing
A central team of senior professionals with explicit responsibility for coordination of all non-budget financing routes could help own end-to-end funder relationships, both domestically and internationally, aligning ministries, the Central Bank and other institutions through one single point of accountability.
In addition to converting ideas into fully funded transactions, such a unit could also be responsible for the development and coordination of pipeline projects, with completed feasibility studies, environmental and social safeguards, and structured financing plans.
2. Engage investors and financing partners proactively
It is important that Azerbaijan opens new channels of dialogue with international banks, export credit agencies (ECAs), international financial institutions (IFIs), project sponsors, and capital-market participants to establish a more efficient financing pipeline.
Building on that dialogue, we would recommend targeting a first wave of two to three ECA-backed transactions, using the momentum they generate to help change the perception of Azerbaijan as a counterparty for investment.
3. Establish a Baku International Financial Center
The establishment of a dedicated Baku International Financial Center (IFC) would significantly boost Azerbaijan’s ability to host the in-country bankers, lawyers, structurers, and arbitrators needed to convert fiscal capacity into closed deals.
Establishing a Baku IFC is not an audacious idea, but an approach in line with new regional norms, enabling the visa, employment, and currency regimes needed to support inbound international professionals.
With both Kazakhstan and Uzbekistan having established their own legal and regulatory financial enclaves, the absence of a Baku IFC could soon become a measurable competitive disadvantage.
The next phase of Azerbaijan's investment story
Azerbaijan's fiscal achievements have created a strong platform for growth. The priority now is to match that financial strength with the institutions, expertise, and financing frameworks that can convert capital into investment outcomes.
Successful infrastructure programs require more than financial resources. They depend on institutions capable of developing projects, engaging investors, coordinating stakeholders, and executing transactions consistently over time. Those capabilities ultimately determine how effectively capital can be converted into economic outcomes.
For Azerbaijan, building that financing ecosystem may become one of the most important development priorities of the coming decade.
