diff --git a/azurerm/internal/services/apimanagement/api_management_resource.go b/azurerm/internal/services/apimanagement/api_management_resource.go
index 97643d4c93a94..2e9d47e7808fe 100644
--- a/azurerm/internal/services/apimanagement/api_management_resource.go
+++ b/azurerm/internal/services/apimanagement/api_management_resource.go
@@ -1343,7 +1343,7 @@ func expandApiManagementPolicies(input []interface{}) (*apimanagement.PolicyCont
 	if xmlContent != "" {
 		return &apimanagement.PolicyContract{
 			PolicyContractProperties: &apimanagement.PolicyContractProperties{
-				Format: apimanagement.XML,
+				Format: apimanagement.Rawxml,
 				Value:  utils.String(xmlContent),
 			},
 		}, nil
diff --git a/azurerm/internal/services/apimanagement/tests/api_management_resource_test.go b/azurerm/internal/services/apimanagement/tests/api_management_resource_test.go
index 976e06b4097a9..115124177f14e 100644
--- a/azurerm/internal/services/apimanagement/tests/api_management_resource_test.go
+++ b/azurerm/internal/services/apimanagement/tests/api_management_resource_test.go
@@ -626,6 +626,7 @@ resource "azurerm_api_management" "test" {
     xml_content = <<XML
 <policies>
   <inbound>
+    <set-variable name="abc" value="@(context.Request.Headers.GetValueOrDefault("X-Header-Name", ""))" />
     <find-and-replace from="xyz" to="abc" />
   </inbound>
 </policies>