Economists: EBRD Softly Warned Azerbaijan of the Need of Real Reform

The European Bank for Reconstruction and Development (EBRD) has published an economic report yesterday, which, in particular, reflected the situation in Azerbaijan and gave the appropriate advice.

    The main points were the comments that only accumulated petrodollars have softened unexpected macroeconomic risks until now, but it does not diversify the local economy. Emphasized is that the decline in oil production has led to a fall in GDP growth so much that only an increase in budget spending on investment projects saved the situation, while at the same time increased the proportion of non-oil sector.

    In addition, the EBRD has made an adjustment to the forecast of economic growth in 2012, reducing it from 3.5% to 2.5%. At the end of next year, the bank expects economic growth at 3%.

    Local experts assess the situation almost in the same way. According to the MP Ali Masimli, the stability is mostly affected by the real sector. The basis of it can make agriculture, whose share in GDP is less than 5.5%. Money raised from the hydrocarbons should be directed not to purchase any consumer goods in order to create the appearance of a huge range, but to raise the level of agriculture and scientific potential. In addition, if there is no artificial monopolization and if the exporter countries overcome the crisis, inflation can be even at the level of 4-5%.

    The Member of the Parliamentary Committee on Economic Policy said that demand for oil in the EU (the country’s main foreign trade partner) will decrease, and the prices of knowledge-based, high-tech products sold to us will rise sharply, which will also produce a negative impact on the success of crisis containment.

    Doctor of Economic Sciences, head of the Center for Economic Research Gubad Ibadoglu agreed in general with the opponent. In his remarks, the country's dependence on oil leads to negative consequences as a result of reducing the export of hydrocarbons. "The excessive dependence on oil did not bring the desired results, even in the seemingly successful Arab countries," he said.

    According to him, the EBRD, speaking about the forecast of GDP growth by the end of the year at 2.5%, is optimistic. The International Monetary Fund more realistically assessed the situation and predicted 1.9%. In this case both the bodies directly associate the increase with disbursements from the State Oil Fund and the State Oil Company and the infusion of these funds to investment projects such as Eurovision - 2012, the resort complex Shahdag and so on. For this reason, the growth of non-oil sector could be called relative, because it did not affect the immediate impact, and will hardly bring real benefits in the future. As they say, it is not worth powder and shot.

    According to Ibadoglu, whereas Azerbaijan needed foreign investment in the past, and its share in the investment portfolio was 80%, today the picture has changed quite the opposite - the state target transfers reach almost 60% of the total budget.

    In order to avoid stagnation in the future, we must abandon the psychology of favorites, he said. Be sure to take steps to improve the business environment and promote competition. Measures to improve public sector management should be aimed at combating corruption in tax and customs authorities and streamlining their operations by ensuring compliance with the established rules. Industry regulators should encourage a more active competition (especially in telecommunications, transport and financial sectors) and to encourage the involvement of strategic foreign investors.

    As for the financial sector, the government promised to give the International Bank of Azerbaijan to "robust private hands," but so far no reforms or privatization attempts have ever been seen. One of the conditions is the country's accession to the WTO, that is, the liberalization of the customs code, the unification of standards for products and legislation. So far, Azerbaijan has signed protocols with a dozen governments. This means that the process will drag on for years.

    However, it is worth noting some positive moments. Thus, the modernization of the railway Baku - Tbilisi – Kars is being completed, a new international sea port is being built, and money is invested in the gas corridor linking Azerbaijan with brotherly Turkey and then with Europe. -17D-