{
  "title": "IMF Executive Board Concludes 2023 Article IV Consultation with the Republic of Azerbaijan",
  "publication": "IMF News, February 6, 2024",
  "sourceUrl": "https://www.imf.org/en/news/articles/2024/02/06/pr2441-azerbaijan-imf-executive-board-concludes-2023-article-iv-consultation",
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  "summary": "On January 11, 2024, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Republic of Azerbaijan and endorsed the staff appraisal without a meeting on a lapse of time basis.",
  "publishDate": "2024-02-06",
  "sections": [
    {
      "heading": "Overview",
      "content": "- On January 11, 2024, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Republic of Azerbaijan and endorsed the staff appraisal without a meeting on a lapse of time basis.\n- Press Release No. 24/41; IMF Communications Department; February 6, 2024."
    },
    {
      "heading": "Recent economic developments (2022–2023)",
      "content": "- Real GDP increased by 4.6 percent in 2022, driven by a 9 percent increase in non-hydrocarbon GDP, with recovery in the construction and transportation sectors.\n- Hydrocarbon GDP shrank by 2.7 percent in 2022, with oil production facing technical challenges only partially offset by rising gas production.\n- Growth moderated in 2023, reflecting a deceleration of non-hydrocarbon growth to about 3 percent and declining hydrocarbon production.\n- Inflation: increased sharply to 14.3 percent (yoy) in December 2022, then declined to 3.9 percent in October 2023, driven by a broad-based decline in food, nonfood, and services prices.\n- External and fiscal positions strengthened in 2022 and remained strong into 2023:\n  - Current account balance: surplus of 29.8 percent of GDP in 2022 (from 15.1 percent in 2021) and 10.1 percent of GDP in the first half of 2023.\n  - Combined Central Bank of Azerbaijan (CBA) and Sovereign Oil Fund of Azerbaijan (SOFAZ) reserves reached about $55.5 billion by October 2023.\n  - Overall budget surplus increased to over 6 percent of GDP in 2022, from 4 percent in 2021.\n  - Non-oil primary balance improved by about 1 ½ percent of non-oil GDP in 2022.\n  - During January-October 2023, overall budget surplus remained broadly similar to the same period in 2022."
    },
    {
      "heading": "Outlook and risks",
      "content": "- Growth and inflation projections:\n  - Growth projected to decelerate to around 2.4 percent in 2023 and to 2.3 percent in the medium term.\n  - Output gap expected to close in 2024.\n  - Inflation projected at 4.4 percent by end-2023, and to remain within the CBA target band in the medium term.\n- External position: supported by elevated oil prices, projected to remain strong with trade surpluses and continued foreign reserves accumulation.\n- Risks (broadly balanced but high, with high external uncertainty):\n  - Upside: Intensification of wars could increase hydrocarbon prices and demand, boosting exports and fiscal revenues; a peace agreement with Armenia could increase regional trade.\n  - Downside: Intensified conflicts could raise food prices, posing food security and inflation risks; global slowdown and geoeconomic fragmentation could weaken terms of trade and trading-partner demand.\n  - Domestic risks: pro-cyclical fiscal policy, fiscal risks from state-owned enterprises (SOEs), extreme climate events affecting agriculture, food security, and inflation."
    },
    {
      "heading": "Executive Board assessment (summarized)",
      "content": "- Growth is moderating after the post-pandemic surge in 2022; inflation has eased and returned to the target band of 4 ± 2 percent after peaking in late 2022.\n- Hydrocarbon output projected to continue contracting gradually due to structural decline in oil production, only partially offset by rising gas production.\n- The external position in 2022 is assessed as stronger than implied by fundamentals and desirable policies.\n- Inflation risks remain from potential external shocks and continued strong domestic demand.\n- Overall risk assessment: broadly balanced but high due to uncertain external developments."
    },
    {
      "heading": "Policy recommendations and authorities’ guidance",
      "content": "- Fiscal policy:\n  - Near term: Fiscal policy should remain prudent. Projected increase in the deficit is unwarranted based on cyclical considerations while the output gap is still positive.\n  - Authorities expected to continue meeting the non-oil primary balance target of -25 percent of non-oil GDP this year.\n  - Save any revenue overperformance or expenditure shortfall to reduce inflation risk and sustain consolidation gains.\n  - Medium term: Continued fiscal adjustment of at least 1.5 percent of non-oil GDP needed to reduce the gap with the permanent-income-hypothesis benchmark of 12.5 percent of non-oil GDP.\n  - Adjustment requires spending prudence and measures to boost non-hydrocarbon revenues.\n  - Authorities encouraged to clarify conditions for revising fiscal targets and correction mechanisms to strengthen credibility of the fiscal rule.\n- Monetary policy and central bank actions:\n  - Monetary stance is appropriate; caution advised before further easing.\n  - Central bank cut policy rates in November 2023 after tightening by 275 points from mid-2021 to May 2023 and increasing reserve requirements.\n  - Further easing should await tightening fiscal stance, decelerating income and wage growth, and absence of adverse food price shocks.\n  - CBA should continue to strengthen the monetary transmission mechanism: launch of new operational framework and liquidity mop-up welcomed; further improvements needed to transmit policy rate changes to bank lending rates, along with better forecasting and communication, to enable greater exchange rate flexibility and a hybrid inflation targeting regime in the medium to long run.\n- Financial sector and structural reforms:\n  - Banking sector remains resilient; financial soundness indicators strong but do not fully capture risks.\n  - Recommendations: continued comprehensive assessments of credit quality (given elevated restructured loans), move to risk-based supervision and consolidated supervision of large banks.\n  - Enhance efforts to deepen financial markets.\n  - Diversification requires reforms: strengthen governance, limit role of SOEs, and de-carbonize the economy.\n  - Progress on fiscal transparency and judicial independence, increase private sector participation in SOEs, and improve SOEs’ financial position to improve the business environment, increase private investment, and enhance productivity.\n  - Implementation of MONEYVAL’s recommendations is crucial.\n  - Climate commitments: authorities’ efforts welcomed; should take stock of associated fiscal burden and reduce it through complementary policies, such as phasing out fossil fuel subsidies."
    },
    {
      "heading": "Selected economic and financial indicators (selected exact figures from table)",
      "content": "- GDP at constant prices: -4.2 (2020); 5.6 (2021); 4.6 (2022); 2.4 (2023); 2.3 (2024–medium term projection).\n- Of which: Oil sector (annual % change): -6.3 (2020); 2.0 (2021); -2.7 (2022); -1.5 (2023); -0.5 (2024).\n- Non-oil sector (annual % change): -2.9 (2020); 7.1 (2021); 9.1 (2022); 4.2 (2023); 3.6 (2024); 3.5 (2025).\n- Consumer price index (period average): 2.8 (2020); 6.7 (2021); 13.9 (2022); 9.4 (2023); 4.7 (2024); 5.0 (2025); 4.5 (2026); 4.0 (2027).\n- Consumer price index (end of period): 2.6 (2020); 12.0 (2021); 14.4 (2022); 4.4 (2023).\n- Domestic credit, net: -2.4 (2020); 20.0 (2021); 25.3 (2022); 17.2 (2023); 9.6 (2024); 8.8 (2025); 7.5 (2026); 7.2 (2027); 6.5 (2028).\n- Exports f.o.b. (annual % change): -36.6 (2020); 72.3 (2021); 94.6 (2022); -39.3 (2023); 6.9 (2024); -7.8 (2025); -5.6 (2026); -1.7 (2027); -5.4 (2028).\n- Gross investment (percent of GDP): 23.7 (2020); 17.1 (2021); 12.7 (2022); 21.8 (2023); 21.6 (2024); 21.9 (2025); 22.0 (2026); 23.3 (2027); 23.7 (2028).\n- Consolidated government (percent of GDP): 11.5 (2020); 9.3 (2021); 10.2 (2022); 7.3 (2023).\n- Private sector (percent of GDP): 12.1 (2020); 12.5 (2021); 13.4 (2022); 14.0 (2023); 14.7 (2024); 16.1 (2028).\n- Gross national savings (percent of GDP): 24.5 (2020); 32.8 (2021); 42.1 (2022); 34.1 (2023); 34.9 (2024); 32.4 (2025); 30.3 (2026); 29.2 (2027).\n- Total revenue and grants (percent of GDP): 33.7 (2020); 36.4 (2021); 33.5 (2022); 31.8 (2023); 29.1 (2024); 28.5 (2025); 27.5 (2026).\n- Total expenditure (percent of GDP): 40.1 (2020); 32.3 (2021); 25.9 (2022); 31.5 (2023); 31.4 (2024); 31.1 (2025); 30.6 (2026); 30.0 (2027); 29.8 (2028).\n- Overall fiscal balance (percent of GDP): -6.4 (2020); 4.1 (2021); 0.4 (2022); -1.4 (2023).\n- Non-oil primary balance (percent of non-oil GDP): -30.6 (2020); -23.9 (2021); -22.4 (2022); -24.4 (2023); -22.5 (2024); -20.6 (2025); -18.0 (2026); -16.4 (2027); -15.3 (2028).\n- General government debt (percent of GDP): 26.3 (2020); 17.3 (2021); 18.3 (2022); 18.0 (2023); 18.6 (2024); 19.3 (2025); 20.8 (2026).\n- General government and government-guaranteed debt (percent of GDP): 54.0 (2020); 41.6 (2021); 26.9 (2022); 24.3 (2023); 24.7 (2024); 24.9 (2025); 25.1 (2026); 26.4 (2027).\n- Current account (percent of GDP): 15.1 (2020); 12.4 (2021); 10.5 (2022); 5.9 (2023).\n- Gross official international reserves (in millions of U.S. dollars): 6,369 (2020); 7,075 (2021); 8,996 (2022); 11,281 (2023); 11,481 (2024); 11,681 (2025); 11,881 (2026); 12,081 (2027); 12,281 (2028).\n- Nominal GDP (in millions of manat): 72,578 (2020); 93,203 (2021); 133,826 (2022); 130,617 (2023); 135,534 (2024); 140,720 (2025); 146,474 (2026); 152,568 (2027); 159,409 (2028).\n- Nominal non-oil GDP (in millions of manat): 51,132 (2020); 57,432 (2021); 69,826 (2022); 79,583 (2023); 86,323 (2024); 93,838 (2025); 101,493 (2026); 109,247 (2027); 117,548 (2028).\n- Nominal GDP (in millions of U.S. dollars): 42,693 (2020); 54,825 (2021); 78,721 (2022); 76,833 (2023); 79,726 (2024); 82,776 (2025); 86,161 (2026); 89,746 (2027); 93,770 (2028).\n- Oil Fund Assets (in millions of U.S. dollars): 43,564 (2020); 45,025 (2021); 49,034 (2022); 51,120 (2023); 52,819 (2024); 53,205 (2025); 53,425 (2026); 53,744 (2027); 54,424 (2028).\n- Assumed oil price, WEO plus $2-$3 premium (in U.S. dollars per barrel): 44.8 (2020); 71.2 (2021); 98.4 (2022); 82.5 (2023); 81.9 (2024); 78.0 (2025); 74.7 (2026); 71.9 (2027); 69.5 (2028).\n- Assumed natural gas price, WEO plus a premium (in U.S. dollars per thousands of cubic meters): 173.5 (2020); 368.1 (2021); 740.0 (2022); 384.8 (2023); 393.1 (2024); 291.7 (2025); 362.6 (2026); 322.6 (2027); 319.0 (2028).\n- Exchange rate (manat/dollar, end of period): 1.7 (2020).\n\nIMF Communications Department; Press Release No. 24/41; February 6, 2024.\n\n---\n\n\n References\n\n- https://www.imf.org/-/media/images/imf/bios/imfboard.jpg\n- The Executive Board\n- Republic of Azerbaijan and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2024/02/06/pr2441-azerbaijan-imf-executive-board-concludes-2023-article-iv-consultation"
    }
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    "Published: February 6, 2024",
    "On January 11, 2024, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the Republic of Azerbaijan and endorsed the staff appraisal without a meeting on a lapse of time basis.",
    "Press Release No. 24/41; IMF Communications Department; February 6, 2024.",
    "Real GDP increased by 4.6 percent in 2022, driven by a 9 percent increase in non-hydrocarbon GDP, with recovery in the construction and transportation sectors.",
    "Hydrocarbon GDP shrank by 2.7 percent in 2022, with oil production facing technical challenges only partially offset by rising gas production.",
    "Growth moderated in 2023, reflecting a deceleration of non-hydrocarbon growth to about 3 percent and declining hydrocarbon production.",
    "Inflation: increased sharply to 14.3 percent (yoy) in December 2022, then declined to 3.9 percent in October 2023, driven by a broad-based decline in food, nonfood, and services prices.",
    "External and fiscal positions strengthened in 2022 and remained strong into 2023:",
    "Growth and inflation projections:",
    "External position: supported by elevated oil prices, projected to remain strong with trade surpluses and continued foreign reserves accumulation.",
    "Risks (broadly balanced but high, with high external uncertainty):",
    "Growth is moderating after the post-pandemic surge in 2022; inflation has eased and returned to the target band of 4 ± 2 percent after peaking in late 2022.",
    "Hydrocarbon output projected to continue contracting gradually due to structural decline in oil production, only partially offset by rising gas production.",
    "The external position in 2022 is assessed as stronger than implied by fundamentals and desirable policies.",
    "Inflation risks remain from potential external shocks and continued strong domestic demand.",
    "Overall risk assessment: broadly balanced but high due to uncertain external developments.",
    "Fiscal policy:",
    "Monetary policy and central bank actions:",
    "Financial sector and structural reforms:",
    "GDP at constant prices: -4.2 (2020); 5.6 (2021); 4.6 (2022); 2.4 (2023); 2.3 (2024–medium term projection).",
    "Of which: Oil sector (annual % change): -6.3 (2020); 2.0 (2021); -2.7 (2022); -1.5 (2023); -0.5 (2024).",
    "Non-oil sector (annual % change): -2.9 (2020); 7.1 (2021); 9.1 (2022); 4.2 (2023); 3.6 (2024); 3.5 (2025).",
    "Consumer price index (period average): 2.8 (2020); 6.7 (2021); 13.9 (2022); 9.4 (2023); 4.7 (2024); 5.0 (2025); 4.5 (2026); 4.0 (2027).",
    "Consumer price index (end of period): 2.6 (2020); 12.0 (2021); 14.4 (2022); 4.4 (2023).",
    "Domestic credit, net: -2.4 (2020); 20.0 (2021); 25.3 (2022); 17.2 (2023); 9.6 (2024); 8.8 (2025); 7.5 (2026); 7.2 (2027); 6.5 (2028).",
    "Exports f.o.b. (annual % change): -36.6 (2020); 72.3 (2021); 94.6 (2022); -39.3 (2023); 6.9 (2024); -7.8 (2025); -5.6 (2026); -1.7 (2027); -5.4 (2028).",
    "Gross investment (percent of GDP): 23.7 (2020); 17.1 (2021); 12.7 (2022); 21.8 (2023); 21.6 (2024); 21.9 (2025); 22.0 (2026); 23.3 (2027); 23.7 (2028).",
    "Consolidated government (percent of GDP): 11.5 (2020); 9.3 (2021); 10.2 (2022); 7.3 (2023).",
    "Private sector (percent of GDP): 12.1 (2020); 12.5 (2021); 13.4 (2022); 14.0 (2023); 14.7 (2024); 16.1 (2028).",
    "Gross national savings (percent of GDP): 24.5 (2020); 32.8 (2021); 42.1 (2022); 34.1 (2023); 34.9 (2024); 32.4 (2025); 30.3 (2026); 29.2 (2027).",
    "Total revenue and grants (percent of GDP): 33.7 (2020); 36.4 (2021); 33.5 (2022); 31.8 (2023); 29.1 (2024); 28.5 (2025); 27.5 (2026).",
    "Total expenditure (percent of GDP): 40.1 (2020); 32.3 (2021); 25.9 (2022); 31.5 (2023); 31.4 (2024); 31.1 (2025); 30.6 (2026); 30.0 (2027); 29.8 (2028).",
    "Overall fiscal balance (percent of GDP): -6.4 (2020); 4.1 (2021); 0.4 (2022); -1.4 (2023).",
    "Non-oil primary balance (percent of non-oil GDP): -30.6 (2020); -23.9 (2021); -22.4 (2022); -24.4 (2023); -22.5 (2024); -20.6 (2025); -18.0 (2026); -16.4 (2027); -15.3 (2028).",
    "General government debt (percent of GDP): 26.3 (2020); 17.3 (2021); 18.3 (2022); 18.0 (2023); 18.6 (2024); 19.3 (2025); 20.8 (2026).",
    "General government and government-guaranteed debt (percent of GDP): 54.0 (2020); 41.6 (2021); 26.9 (2022); 24.3 (2023); 24.7 (2024); 24.9 (2025); 25.1 (2026); 26.4 (2027).",
    "Current account (percent of GDP): 15.1 (2020); 12.4 (2021); 10.5 (2022); 5.9 (2023).",
    "Gross official international reserves (in millions of U.S. dollars): 6,369 (2020); 7,075 (2021); 8,996 (2022); 11,281 (2023); 11,481 (2024); 11,681 (2025); 11,881 (2026); 12,081 (2027); 12,281 (2028).",
    "Nominal GDP (in millions of manat): 72,578 (2020); 93,203 (2021); 133,826 (2022); 130,617 (2023); 135,534 (2024); 140,720 (2025); 146,474 (2026); 152,568 (2027); 159,409 (2028).",
    "Nominal non-oil GDP (in millions of manat): 51,132 (2020); 57,432 (2021); 69,826 (2022); 79,583 (2023); 86,323 (2024); 93,838 (2025); 101,493 (2026); 109,247 (2027); 117,548 (2028).",
    "Nominal GDP (in millions of U.S. dollars): 42,693 (2020); 54,825 (2021); 78,721 (2022); 76,833 (2023); 79,726 (2024); 82,776 (2025); 86,161 (2026); 89,746 (2027); 93,770 (2028).",
    "Oil Fund Assets (in millions of U.S. dollars): 43,564 (2020); 45,025 (2021); 49,034 (2022); 51,120 (2023); 52,819 (2024); 53,205 (2025); 53,425 (2026); 53,744 (2027); 54,424 (2028).",
    "Assumed oil price, WEO plus $2-$3 premium (in U.S. dollars per barrel): 44.8 (2020); 71.2 (2021); 98.4 (2022); 82.5 (2023); 81.9 (2024); 78.0 (2025); 74.7 (2026); 71.9 (2027); 69.5 (2028).",
    "Assumed natural gas price, WEO plus a premium (in U.S. dollars per thousands of cubic meters): 173.5 (2020); 368.1 (2021); 740.0 (2022); 384.8 (2023); 393.1 (2024); 291.7 (2025); 362.6 (2026); 322.6 (2027); 319.0 (2028).",
    "Exchange rate (manat/dollar, end of period): 1.7 (2020).",
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    "[Republic of Azerbaijan and the IMF](http://www.imf.org/external/country/AZE/index.htm)",
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    "[PRESS CENTER](http://presscenter.imf.org/)",
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