Statement at the conclusion of an IMF Staff Visit to Azerbaijan

An International Monetary Fund (IMF) staff mission visited Baku on November 8-20, to discuss policies and prospects for the Azerbaijani economy, in preparation for the next Article IV Consultation mission, tentatively planned for the late February 2013.  The IMF team met with senior government officials and non-governmental representatives. 

At the conclusion of the visit, the mission chief for Azerbaijan, Mr. Almargozi, made the following remarks: 

“The near term growth prospects are generally favorable. Non-oil growth largely driven  by public spending – could reach 8%   in 2013 and more than offset decline in oil output.  Twelve 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 titled 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 declining spending from current oil prices to 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 will 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-lost provisions   regulations. Prudential measures could help control the pace of credit, particularly on consumer lending.  Though preparations are still on going, the missions regrets further delays in the joint IMF/World Bank Financial Sector Assessment Program at this  crucial time for the banking  system.  As agreed with the authorities, the FSAP will take place in early  2014. 

“Deep structural 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 will less dependence  from oil.” –0--