The latest World Bank Human Capital Index brings bad news for policymakers in Baku. According to the latest HCI+, released in April 2026, Armenia has scored 224 out of a total of 325 in the ranking, followed by Georgia at 215 points, while Azerbaijan comes at 208 points, 16 points better than Iran's 180 points. While both Caucasus countries fare lower than the 240-point Europe and Central Asia average, they still manage to score higher than the 204-point average for upper-middle-income countries.

This outcome may appear rather unexpected. Azerbaijan has been quite generous in investing in its human capital, even in comparison to the neighboring countries. Public spending on education has been estimated at 5.06 billion manats [around USD 2.9 billion] in 2025, which is around 2.5 percent more than in the previous year and is expected to rise further through 2029. Schools, university buildings, and hospitals have been built throughout the country, including areas captured from the Armenians.

The answer is that what the HCI+ captures but the original does not is the key. The original World Bank index gauged the input, the number of years of schooling, learning achievements, child survival, and stunting. The augmented one considers a tougher aspect, which is what becomes of the human capital after it reaches the labor market. The aspect includes whether the university education leads to relevant jobs, whether people manage to get jobs, and what share of the workforce works in productive sectors and not less productive ones. In this regard, Armenia has developed a better human capital production line from the classroom to the paycheck despite having a state budget and population only a third of that of Azerbaijan.

Perhaps, the clearest example would be that of technology jobs. The IT industry in Armenia is currently estimated to employ some 58,700 people, or almost 7% of the total Armenian labour force, according to the latest market survey carried out by the Armenian Code Academy. The Azerbaijani workforce in ICT is estimated to include some 22,000 experts, which is a lower number overall in a much larger economy (almost four times larger) with some 1.76 million workers employed. In terms of their labour markets' size, technology in Armenia is a much bigger sector, as well as a highly productive one.

Azerbaijani auditors have simultaneously been documenting where public money goes astray. The Chamber of Accounts' 2025 annual report identified 584.8m manat in compliance violations, a further 626.3m manat in financial distortions and 342.9m manat specifically classified as inefficient expenditure, across audits spanning the state budget, the oil fund and the compulsory health insurance system. The pattern has not eased this year: in the first half of 2026 the chamber flagged 160.3m manat in violations, more than in the equivalent periods of both 2024 and 2025, with some infractions tied to capital projects in the reconstruction zones. A separate university-level audit, launched in May, is the first in what officials describe as a broader review of financial transparency across state higher-education institutions.

This is not to say that the investments that Azerbaijan has made in education and health have been entirely wasted because these institutions do actually represent real infrastructure investments. However, the HCI+ score indicates that there is a mismatch between the investment in infrastructure and the quality of institutions. In other words, the quality of institutions depends upon what happens within these buildings rather than their mere existence. The instruction given by President Ilham Aliyev earlier this year for universities to tailor their programs according to the demands of the labor market directly addresses this problem.

Nevertheless, the comparisons with comparable neighbours are not a case for austerity. The message for Baku in the HCI+ is not how many manats are allocated but whether there is a job available the next day for the graduates, using the knowledge gained at their university.