Inflation was kept at bay due to a slight fall in consumer prices during 1998 followed by resounding deflation in 1999. Real GDP growth for 1999 significantly exceeded expectations and is expected to continue to grow. This would likely increase further if politically unpopular reforms were ever instituted, and company's personnel numbers were allowed to drop to more efficient levels. Corporate profit tax rates and personal income tax rates, among others, were reduced in hopes of improving tax compliance and increasing budget revenues. The oil and gas industry is the backbone of the economy, which remains excessively one-dimensional.
Agriculture is the second most important sector of the economy after oil and gas.
It was also the largest employer in the country and the second highest source of exports. Azerbaijan's industrial output is often unable to compete with lower priced imports of better quality. Consequently, demand for domestic production is curtailed, and output declines. Fortunately, the majority of imports come from countries with weaker currencies, so imported goods are declining in cost, which prevents local inflation. In 1999 merchandise exports increased over 1998 levels and merchandise imports declined.