IMF Staff Completes 2019 Article IV Mission to Azerbaijan
IMF News, June 27, 2019
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- Published: June 27, 2019
Mission summary and main messages
- An IMF team led by Ms. Natalia Tamirisa visited Azerbaijan during June 12–27, 2019, to conduct discussions for the 2019 Article IV Consultation.
- End-of-Mission press releases convey preliminary findings after a visit; the views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.
- Key high-level recommendations:
- Gradual and growth-friendly fiscal consolidation to share exhaustible oil wealth with future generations and strengthen buffers to deal with future shocks.
- Move towards inflation targeting and continue strengthening financial sector oversight to improve risk management and foster financial market development.
- Continue reforms to ease the business environment and improve policy frameworks, governance, and transparency to support diversified, private-sector led, and inclusive growth.
Macroeconomic outlook and projections
- A gradual economic recovery is underway.
- Recent increases in wages, pensions, and social assistance; and measures to reduce tax and debt burdens are expected to boost nonoil growth to 2.7 percent over the near term.
- Hydrocarbon production will surge this year as the Southern Gas Corridor pipeline becomes operational, before settling on a lower yet stable growth path.
- Inflation is projected at 3.3 percent over the near term.
- The fiscal surplus will rise to 5.8 percent of GDP this year, mainly due to higher hydrocarbon revenues, and remain broadly stable next year.
- The current account surplus is projected to exceed 10 percent of GDP in the near term.
Fiscal policy and public finances
- Continued fiscal consolidation is recommended to save an adequate portion of exhaustible oil income for future generations and build buffers.
- The government’s introduction of the fiscal rule in 2019 is recognized as a major step forward and should be complemented by:
- Stronger public financial management.
- Better fiscal transparency.
- Management of fiscal risks.
- A gradual pace of consolidation, coupled with improving the efficiency of public spending and rebalancing composition toward growth-friendly investment in physical and human capital, is advised to mitigate adverse impacts.
- Close oversight of state-owned enterprises (SOEs) and the financial sector is needed to manage large contingent fiscal liabilities.
Monetary policy and financial sector recommendations
- Continued monetary easing appears appropriate given still tight financial conditions and remaining spare capacity.
- Transitioning to inflation targeting, as the Central Bank of Azerbaijan recently announced, would help absorb shocks and encourage better risk management.
- Complementary measures include modernizing monetary operations and increasing issuance of local currency securities to:
- Foster financial market development.
- Facilitate financial sector liquidity management.
- Provide a benchmark for corporate bonds and a risk-free investment for the private sector.
- Urgent financial sector priorities:
- Tackle high non-performing loans.
- Upgrade financial sector regulations.
- Strengthen financial sector supervision to improve confidence and prevent a build-up of future vulnerabilities.
Structural reforms and inclusivity
- Improving medium-term growth, job prospects, and diversifying the economy require deepening and broadening structural reforms to increase the role of the private sector and improve governance and transparency.
- Recommended actions:
- Complement recent steps to improve the World Bank’s Doing Business Indicators with restructuring of SOEs, promotion of competition, and improvements in procurement and access to finance.
- Enhance quality of education and healthcare to nurture a more productive workforce.
- Ensure social measures are well-targeted.
- Continue improving economic policy frameworks and institutions to align policies with the authorities’ vision of private sector-led, diversified and inclusive economic growth.
Selected Economic Indicators (Projections)
- Output
- Real GDP growth (in percent): 2017: -0.3; 2018: 1.4; 2019: 2.7; 2020: 2.1
- Real non-oil GDP growth (in percent): 2017: 2.4; 2018: 1.8; 2019: 2.8
- Real oil GDP growth (in percent): 2017: -4.4; 2018: 0.6; 2019: 2.5; 2020: 1.2
- Employment
- Unemployment rate (in percent): 2017: 5.1; 2018: ...
- Prices
- Consumer price index (period average): 2017: 12.8; 2018: 2.3; 2019: 3.2; 2020: 3.3
- General government finances
- Revenue (including grants, in percent of GDP): 2017: 34.2; 2018: 38.8; 2019: 39.9; 2020: 39.0
- Expenditure (in percent of GDP): 2017: 35.6; 2018: 33.1; 2019: 34.1; 2020: 34.0
- Current expenditure: 2017: 25.3; 2018: 19.1; 2019: 22.5; 2020: 25.2
- Capital spending and net lending: 2017: 10.3; 2018: 14.1; 2019: 11.6; 2020: 8.8
- Fiscal balance (in percent of GDP): 2017: -1.4; 2018: 5.6; 2019: 5.8
- Non-oil primary fiscal balance (in percent of non-oil GDP): 2017: -30.9; 2018: -32.1; 2019: -31.0; 2020: -30.2
- General government gross debt (direct borrowing): 2017: 18.8; 2018: 19.2; 2019: 17.9
- General government gross debt including guarantees: 2017: 53.2; 2018: 48.4; 2019: 50.3; 2020: 46.2
- Money and credit
- Broad money (including foreign currency deposits, percentage change): 2017: 9.0; 2018: 11.3; 2019: 7.2; 2020: 6.0
- Bank credit to the private sector (percentage change): 2017: -28.1; 2018: 14.9; 2019: 6.8; 2020: 8.2
- Balance of payments
- Current account balance (in percent of GDP): 2017: 4.1; 2018: 12.9; 2019: 10.4; 2020: 10.9
- Foreign direct investment (in percent of GDP): 2017: 0.7; 2018: -1.7; 2019: 4.8; 2020: 4.5
- Gross international reserves (in months of non-oil imports): 2017: 4.7; 2018: 5.7
- Exchange rate
- REER (average, percentage change): …
IMF Communications Department, Press Release No. 19/249, June 27, 2019. IMF staff mission led by Ms. Natalia Tamirisa.
Content in this bundle
- Pr19249 Aze Azerbaijan