The past three quarters of the year showed that the economy of Azerbaijan has not come out of the recession. The year, apparently, will end with a minus growth of 1-1.1%, as predicted by international financial organizations. Nevertheless, the economic indicators of the three quarters show that, in general, the recession is stopped by most macroeconomic indicators. Even in investments that have been catastrophically declining for the past two years, finally, the slide has stopped (the growth rate is 100.1%). Since the beginning of the year, the surplus in the foreign trade balance has been maintained, and the surplus here was $ 1 billion 992 million for eight months. Strategically, foreign exchange reserves reached $ 42 billion in three quarters of the year, although it is obvious that part of these funds will be channeled to the budget and to major state projects. This is evidenced by the changes made recently by the President to the budget of SOFAZ. The growth of the non-oil sector by 2.6% is, of course, good, but we note that there were years when this growth was 9-10%. But this did not reduce the dependence of the country on oil, because that growth was associated, mainly, with state investments in infrastructure and growth of incomes of the population against the backdrop of growing oil revenues. Even excluding the possibility of statistical manipulation, we note that the share of the oil sector in the formation of GDP grew from 34.3% at the beginning of the year to 37.2% in three quarters. There is still no escape from oil, not to mention the 87% share of the oil and gas sector in exports or its share in the country"s budget.

Small Business Becomes Outsider

The economy this year had a benchmark, on which the work of the government was built - the Strategic Roadmap for the Development of Azerbaijan until 2025. The Center for Analysis and Communication of Economic Reforms of Azerbaijan announced the report on semi-annual monitoring and estimated five more strategic directions. It turned out that the highest indicator of the strategic road map was achieved in the Road Map Perspectives - 62%, the lowest - in the production of goods by small and medium-sized entrepreneurs (only 3% in exports) and the development of telecommunications and information technologies - 27% each.

Apparently, it is necessary to begin with the recognition of the fact that in essence, there were no serious reforms in 2004-2014. The government began to take new institutional steps only after the crisis began. In the sphere of government, this is the creation of the Financial Markets Supervision Authority (FIMSA), the reform of the customs and the tax service, the unification of a number of ministries, and the creation of legal entities of public law. Since this year, mechanisms for investment and export promotion have begun to work. The government began to react more quickly to new situations. The crisis in the banking sector showed that the depositor is sufficiently protected by the Deposit Insurance Fund. But, finally, the government has made a new logical step towards protecting creditors. The Credit Guarantee Fund of Azerbaijan is being established.

Inflation Eats Earnings

The biggest current problem is high inflation in the country. It not only worsens the social status of the population. With the disposable income of the population for eight months at 7.4%, inflation was 14%, that is, it "devours" virtually all new incomes of the population. The standard of living of the population has fallen by half during the three crisis years.

Inflation also has a detrimental effect on the interest rates of banks, and through this also on business. Trying to curb inflation, the CBA squeezes money supply in the economy, which further worsens the economic situation.

Oil prices were convenient enough. So, the answer to the question of why the economy cannot get out of growth lies in the sphere of economic relations in society. For a breakthrough in the economy, it is necessary to review the entire system of economic relations in the country - a decisive fight against corruption, monopoly and unfair competition. Even in private and almost everyday situations, the government cannot ensure the rule of law or the protection of private property, while continuing to count on the arrival of foreign investors. Household corruption has decreased, but corruption at other levels has sharply increased.

Economy as Hostage of IBA and MNS Syndrome

The economy still cannot get rid of the consequences of such economic shocks as the unthinkable level of embezzlement in the International Bank of Azerbaijan (IBA), racketeering and corruption in the former Ministry of National Security (MNS) and the Ministry of Communications, that is, in the key links of the economy. In fact, this is a systemic failure in management, because it is unclear how departments and ministries were beyond the control of supervisory structures. The consequences of this will affect the events for a long time - from the growth of the government"s obligations to the Central Bank of the country until the recent restructuring of IBA debts to creditors, which will significantly increase the size of the country"s foreign debt. Trying to discuss corruption, the government took serious steps to reduce cash flow. It is trying to narrow the shadow economy by strengthening control over informal employment. The next step is to introduce the declaration of incomes of bureaucracy. But nothing happens here for exactly ten years. The decision to declare income is blocked. And the government is closing its eyes to this, apparently fearing to lose loyalty of the bureaucracy on the eve of the presidential election.

Disastrous Monopoly

Monopoly has a detrimental effect on the economy. Agriculture is at the center of economic policy. The state renders all kinds of assistance to its development, and the export of Azerbaijani agricultural products has grown. But GDP growth itself was nine months below the expected - 2.6%. Attempts to achieve growth here are rather chaotic: in particular, the sharply increased stake on cotton production already reduces the planting of other crops and the areas of pastures for livestock. The development of farms has practically stopped.

Investor Cannot Be Lured

No investor can be lured into a country where there is no normal competitive environment. After a five-year break, the government again began to understand that the Code of Competition will have to be accepted. The same can be said for independent regulators in industries, such as energy and communications.

Prospects for economic growth in the next two years seem very good, although there will not be significant increase anymore. In particular, the peak of GDP per capita of $ 8,050 was recorded at the end of 2014. According to IMF forecasts, even in the distant 2022, GDP per capita will be only $ 5,840.

We Must Not Succumb to Illusions Once More

A contract has just been signed to extend the work of the Azeri-Chirag-Gunesgli (ACG) consortium until 2050. Next year the first gas supplies via the South Gas Corridor from the Shah-Deniz-2 field will begin, and at the end of October 2017 the Baku-Tbilisi-Kars railway starts to operate. To this we must add the work of new industrial enterprises and the activation of state-created industrial and agrarian zones. But we cannot once again give way to illusions on the growth of oil revenues. In December, the US Federal Reserve will likely increase its discount rate again, followed by a decline in oil prices. Although the world economy began to grow, the demand for oil remains low and it is no accident that OPEC appealed to the US government to reduce oil production. And the West"s rejection of the so-called quantitative easing policy will make external borrowing expensive.

Leave a review


Follow us on social networks

News Line