Press Release: Statement by the IMF Mission for the 2005 Article IV Consultation with the Republic of Azerbaijan

December 21, 2005

The following statement was issued today by the International Monetary Fund's (IMF) staff mission after the 2005 Article IV Consultation with the Republic of Azerbaijan:

"A mission of the International Monetary Fund led by Vitali Kramarenko, the mission chief for Azerbaijan in the Middle East and Central Asia Department (MCD), visited Azerbaijan during November 30-December 15, 2005 to conduct the 2005 Article IV consultation discussions. Julian Berengaut, a Deputy Director of MCD, attended policy discussions. The mission had a constructive exchange of views with the authorities on major short-term and medium-term challenges facing the Azerbaijan economy. Following this mission, the IMF staff will prepare a report for discussion at the IMF Executive Board in March 2006.

"The short-term outlook for real GDP growth is favorable, but keeping inflationary pressures at bay represents a major challenge. In this respect, the mission welcomed the authorities' intention to allow for greater exchange rate flexibility, to further develop securities markets, and to increasingly focus monetary policy implementation on the achievement of their inflation objectives. It also advised the authorities to exercise caution in the implementation of the 2006 budget to maintain macroeconomic stability and ensure a high quality of spending.

"The main medium-term challenge is to limit the impact of the Dutch disease in the face of a significant increase in oil revenues. In this regard, the mission highlighted that the long-run oil revenue management strategy approved by the President in 2004 should continue to anchor the medium-term fiscal framework. It also recommended pressing ahead with the following structural reforms that are essential for sustainable non-oil output growth:

• Strengthening the banking system, including through privatization of the two remaining state-owned banks;

• Improving corporate governance of state-owned enterprises;

• Gradually replacing energy subsidies with targeted social assistance;

• Enhancing the business climate through timely passage of the new investment and anti-monopoly laws;

• Continuing to make progress in WTO accession talks and further improving governance at customs; and

• Enforcing anti-corruption legislation, strengthening the chamber of accounts (supreme audit institution), and approving anti-money laundering legislation.

"The mission would like to thank the authorities for their excellent cooperation."


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