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Akbar Novruz

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The Azerbaijan Ministry of Finance released its seven-month budget execution data on Monday in the kind of quiet, matter-of-fact format that fiscal ministries favour when the numbers are good. The budget revenues of the State for January through July 2026 amounted to 23.594 billion manats, which is roughly $13.88 billion, showing an excess over the projection by 855.9 million manats ($503.5 million), or 3.8%. The budget expenditures amounting to 20.174 billion manats ($11.87 billion) exceeded the same period last year by 1.2%, resulting in a budget surplus of 3.42 billion manats ($2.01 billion). The budget surplus of the consolidated budget, consisting of state enterprises and extrabudgetary funds, amounted to 5.1 billion manats ($3 billion), or approximately 4.45% of GDP. This means that Azerbaijan belongs to the category of countries that have become extremely rare today in the world, countries that earn more than they spend.

To appreciate what the Azerbaijani figures represent, it helps to place them alongside the fiscal performance of countries facing comparable global pressures. The IMF trimmed its 2026 global growth forecast by 0.3 percentage points in April, citing tariff wars, trade fragmentation, and the energy shock triggered by the Hormuz blockade. The effects are visible in public finances across most major economies.

Revenue breakdown and oil windfall

Contributions from the State Tax Service made up the biggest chunk of January-July revenue, at 11.474 billion manats ($6.75 billion), which were 8% higher than projected. The State Customs Committee collected 3.752 billion manats ($2.21 billion), or 99.9% of its target, which represents an annual rise of 4.5%, in contrast to last year’s fall. Transfers from SOFAZ, the State Oil Fund, came precisely equal to forecast at 7.490 billion manats ($4.41 billion), representing about 32% of the entire state budget revenue. “Other income” – income from other sources not falling under taxes and customs – came in 54.4% higher than projected at 427.8 million manats ($251.6 million), which is not a rounding error and indicates above-average state revenue from asset sales and services.

It is, therefore, worth analyzing the tax performance of the non-oil sector. Between January and July, the taxes collected from the non-oil sectors were 8.488 billion manats ($4.99 billion) – 11.8% higher than the same period the previous year and 3.1% ahead of projections. Against the background of a budget that had been put together based on an oil price benchmark of $65 per barrel, growth of 11.8% in non-oil tax revenues is a structural indication that the economic diversification strategy is paying dividends.

In regard to the oil windfall headline, the honest reading of the surplus requires acknowledging that elevated global energy prices are doing significant work. The country's budget for 2026 was predicated on oil prices at $65 per barrel, much lower than the price of Brent after the Hormuz blockade started back in February. Under today's spot prices, every dollar above the budget estimate creates extra income that goes partially through SOFAZ transfers and partially through tax receipts from the upstream sector. According to Fitch Ratings, Azerbaijan will keep its current account surplus at 4.5% of GDP for the entire year.

The structural counterpoint is what Finance Minister Sahil Babayev said in May: "While the share of oil in the state budget stood at 48% in 2025, we expect this figure to drop to 42–43% this year. By 2030, we plan for this metric to reach just 30%."

The projection given by him – 48% to 30% oil dependence in five years – is getting confirmed in part by the January-July figures. A year-over-year increase in tax revenue from non-oil sources by 11.8%, in an environment in which the overall economic activity has been buoyed up by the oil price rally, indicates that the non-oil base is growing more quickly than the oil rally itself could have generated. This is the very criterion needed for diversification: not just a simple growth in non-oil taxes, but a faster growth than the growth of the oil windfall in percentage terms.

A 4.45% consolidated budget surplus is a genuinely strong fiscal position by any comparative standard. It is worth noting the conditions that have produced it. The Hormuz blockage, the Red Sea turmoil, and the pipeline constraints in Russia have made the energy market tight and provided great profits for Azerbaijan as an energy exporter in direct proportion to the losses of energy importers in Europe and Asia. Azerbaijan's fiscal strength in 2026 is partially explained by a worldwide disaster that hits other countries harder than Baku. This cannot be taken as criticism – it is a structural feature of being an oil and gas exporter in the supply-constrained environment, and over a decade Azerbaijan created the necessary infrastructure (Southern Gas Corridor, Middle Corridor, renewable energy corridor) to capitalize on this structural advantage. But one should keep in mind that the sustainability of this surplus depends on the development trajectory of the non-oil economy and the duration of the present energy market situation.

The 748,000 payment orders executed by treasury bodies "on time and in full", the Ministry of Finance's lead headline in its release, is the mundane administrative detail that serious fiscal analysts track most closely. Payment execution discipline is the difference between a surplus that improves public services and a surplus that sits on a spreadsheet while government contractors wait for their money. That Azerbaijan's treasury is processing at that volume without arrears, in a year when expenditures are 1.2% above the prior period, is the operational quality indicator behind the headline fiscal performance. It is the number that makes everything else work.