ENCOURAGING CONCLUSIONS

A head of the adoption of the new Azerbaijani state budget leading world international financial institutions have published encouraging conclusions regarding the current state and future economic development of our country. Meanwhile, the government is also saying that maintaining stable rates of growth against a background of the negative influence of external crises and concentrating on an even greater strengthening of the non-oil sector continue to be the basis of the policy of running the economy.

The European Bank of Reconstruction and Development (EBRD) has noted an acceleration of economic growth in Azerbaijan this year, for which reason the forecast for rate of growth of GDP for this year has been increased to 4.5 per cent compared with the May predictions of 3.5 per cent. "Growth of economic development in Azerbaijan has accelerated thanks to significant fiscal and monetary measures, as well as the stabilization of hydrocarbon extraction following its reduction over the last two years," an updated report of the EBRD on the prospects for economic development in the region states.

In the opinion of the EBRD's experts, the growth rates of the non-oil sector of the Azerbaijani economy as a result of government support for state expenditure and the credit boom have expanded to a double-digit level and there is a risk of "overheating". "Next year the rates of growth of the economy will remain at a stable level - in the region of 3-4 per cent - thanks to the country's macroeconomic policy and the completion of the process of the revival of oil production," the report says.

At the same time, the EBRD has halved its prediction for a growth in the Armenian economy - to 2.5 per cent this year and by 0.5 per cent in 2014 (to 3.5%) and the Georgian economy from 3 per cent to 2 per cent and 5 per cent to 4 per cent respectively. This year Azerbaijan has had the highest rate of economic growth among the countries of Eastern Europe and the Caucasus. "Economic growth in the region remains limited because of the complex external environment and internal political instability in a number of countries. Rates of growth have slowed considerably in Armenia, Belarus and Georgia, but are accelerating in Azerbaijan, where oil extraction has stabilized," the bank's review notes.

Experts of the International Monetary Fund (IMF) have come out with the same positive assessments of the economic situation in Azerbaijan. "The rates of economic growth in Azerbaijan are normal. According to the forecasts, average annual growth in 2013-2014 will be 5 per cent ," the head of the IMF's mission for Azerbaijan, Raja Almarzogi, said, among other things, at a press conference in Baku on the results of the fund's latest mission. He said that Azerbaijan's draft state budget for 2014 is a definite positive signal.  "The draft budget for 2014 provides for some reduction in the non-oil deficit of the state budget through an increase in non-oil revenues. But at the same time the high level of state expenditure shows that budget risks still prevail," he noted.

The IMF also highlights the fact that inflation in Azerbaijan is at a controllable level - according to the fund's predictions, at the end of this year it will be less than 3 per cent, and next year around 3 per cent.

In short, according to the EBRD's updated predictions, inflation in Azerbaijan is expected to be at a level of 2.7 per cent this year compared with the May level of 3.4 per cent (in 2012 growth was 1.1 per cent).

Meanwhile, the chairman of the board of Central Bank, Elman Rustamov, has said that in conditions of a more than 10 per cent growth in the country's non-oil sector and an improving investment and business climate, maintaining inflation at a low level is a very acceptable result for the national economy. "Inflation is currently only 2.3 per cent, and is expected to be 3.2 per cent by the end of the year. This is many times less than the rates of growth of wages and pensions. By the end of the year this figure is expected to be no more than 10 per cent, which will play an important role in anti-inflation policy," the head of Central Bank said, adding that in the nine months since the beginning of the year the CBA had maintained a rate of growth in the money supply at around 7.3 per cent.

In the opinion of the IMF, the Central Bank of Azerbaijan should continue the measures aimed at strengthening the country's banking-and-finance sector. For example, the priorities for the short term period should be improving the classification of banks' assets, resolving questions of guarantees and carrying out new macro-prudential measures. The fund also recommends that the CBA continues to conduct measures to control the growth in consumer credit.

It is worthy of note that literally on the day the IMF completed its mission - 15 November - the CBA announced an extension of the deadline for banks to fulfil the new capital requirement by one year. Banks whose capital has not attained the level of 50 million manats by 1 January 2014 will be given a deferment until 1 January 2015.

As Rustamov pointed out, only 5 per cent of banks failed to fulfil the demand and customized capitalization programmes are being drawn up for them by the CBA. "However, this doesn't mean that banks can relax. They need to work and develop," the country's leading banker believes. This requirement for capitalization, he says, was a response to the events linked with the global economic crisis. "Other countries also had such precedents in order to protect themselves. As a result of this capital in Azerbaijan's banking sector increased by 48 per cent," Rustamov said.

As far as consumer credit is concerned, he noted that demand in this market prevails over supply. "I hope that in the future the measures we are taking will lead to a situation where the consumer credit market will be a market of supply. After that the business credit segment will also become a market of supply, and in the future rates will be reduced to a single-figure level," the leading banker added. 

In short, by all accounts the decisions and actions of the Azerbaijani government have outstripped the recommendations of international finance institutions which will ultimately be revealed in their published positive reviews and ratings.