Statement at the Conclusion of the IMF's 2011 Article IV Consultation Mission to AzerbaijanPress Release No. 11/389
November 2, 2011
An International Monetary Fund mission visited Baku during October 20-November 2, 2011, to conduct Article IV consultation discussions. It met with the Prime Minister, Minister of Finance, Chairman of the Central Bank of Azerbaijan (CBA) and other senior officials, representatives of the private sector, civil society, and the diplomatic community.
At the conclusion of the discussions, the mission chief for Azerbaijan, Mr. Nadeem Ilahi, made the following remarks in Baku today:
“Azerbaijan has experienced rapid economic growth, macroeconomic stability, and significant poverty reduction since the onset of the ongoing oil boom. This year, non-hydrocarbon economic growth is expected at near 9 percent, compared to 7½ percent last year, and could reach 6 percent in 2012, supported by public spending. Oil output dropped sharply in 2011 because of technical problems and hydrocarbon output is expected to remain broadly the same over the next decade, before beginning to decline. Inflation has moderated recently as global food price increases have eased, and is projected at around 8 percent by end 2011.
“The key challenges in the period ahead are: (i) keeping inflation low, especially if overheating pressures intensify; (ii) preserving financial stability while addressing banking sector issues; and (iii) reorienting the dependence of economic growth away from oil and toward a self-sustaining private sector.
“The large fiscal expansion envisaged in the 2012 budget could result in overheating pressures and inflation, since non-oil output is expected to reach its potential in late 2011. A significantly lower non-hydrocarbon deficit than envisaged in the draft budget would be consistent with the economy’s absorptive capacity and macroeconomic stability, and would still allow for sizable investment spending.
“Azerbaijan’s hydrocarbon resources are finite and with the economy having recovered well from the 2008-09 global financial crisis, fiscal sustainability considerations should now take precedence in economic policymaking. A clear commitment by the authorities to medium-term fiscal consolidation would allow better sharing of hydrocarbon wealth across generations.
“Monetary policies would need to be tightened in the near term if increases in the aggregate demand cause inflationary pressures. Over the medium term, the authorities would be well served to strengthen monetary policy tools to be able to better control inflation.
“Banking supervision should be strengthened and enforced uniformly, and macro-prudential measures applied more proactively. Liquidity and capital adequacy issues in the banking system need to be addressed promptly, while preserving financial stability. The mission welcomes the appointment of consultants to devise a strategy for IBA privatization, and recommends that the process be implemented transparently, and with a clear timetable.
“Addressing business environment and governance constraints is critical in allowing the private sector to become a self-sustaining engine of economic growth and generating employment. The mission recommends improving comptetition and addressing trade barriers as well as enhancing the quality of public investment spending, in particular the selection and appraisal of investment projects, require improvement. While there has been some progress recently in reducing corruption, a sustained and comprehensive effort is needed.
“The mission thanks the authorities for the open and constructive discussions.”