Statement at the Conclusion of an IMF Staff Visit to AzerbaijanPress Release No. 12/450
November 20, 2012
An International Monetary Fund (IMF) staff mission visited Baku during November 8-20, 2012, to discuss government policies and prospects for the Azerbaijani economy, in preparation for the next Article IV Consultation mission, tentatively planned for late February 2013. The IMF team met with senior government officials and non-government representatives.
At the conclusion of the visit, mission chief for Azerbaijan Mr. Almarzoqi made the following remarks:
“The near-term growth prospects are generally favorable. Non-oil growth—largely driven by public spending—could reach 8 percent in 2013 and more than offset projected decline in oil output. 12-month inflation has recently declined but could increase in 2013, with sustained public spending and the pass-through of recent increases in global food prices. Risks to the global and regional outlook are tilted to the downside but upside risks in the world oil supply could be triggered by the geopolitical situation.
“Reducing the 2013 non-oil deficit relative to the 2012 outturn by prioritizing investments will help contain risks to macroeconomic stability and strengthen the policy buffer to face a potential deterioration in the global economy. Revamping the fiscal framework by delinking spending from current oil prices and bringing more predictability and credibility in fiscal policy will be key for fostering private investment. The IMF stands ready to provide technical assistance on oil revenue management and pension reforms.
“The Central Bank would need to tighten monetary policy if demand pressures emerge from government spending and the recent pick up in credit growth. Policy tools are limited and thus strengthening the interest rate transmission mechanism while allowing greater exchange flexibility will help better control inflation volatility over the long term.
“The increase in the minimum capital requirement is a welcome step if combined with new non-performing loans and loan-loss-provisions regulations. Prudential measures could help control the pace of credit, particularly on consumer lending. Though preparations are still ongoing, the mission regrets further delays in the joint IMF/World Bank Financial Sector Assessment Program (FSAP) at this crucial time for the banking system. As agreed with the authorities, the FSAP will take place in early 2014.
“Deep structural reforms will be crucial to develop a competitive private sector led non-oil economy able to foster exports, create jobs, and sustain diversification. Implementation of the new customs code, finalization of the WTO accession, and easing of barriers for competition will be key to develop a new growth strategy with less dependence from oil.
“The mission thanks the authorities for their hospitality and the constructive discussions.”