REPLACE AND COMPENSATE

The decline in oil production in Azerbaijan and the serious concern expressed about this at the highest level in the middle of 2012 are a clear indication that no sharp rise should be expected in the economic growth figures in the country in the past year. It is no secret that most of Azerbaijan's export (90.16 per cent in 2012) falls to oil and oil products, and, of course, the decline in this indicator has a direct impact on the income of the state in general and the state of individual sectors of the economy in particular. However, it is also a fact that the inflation rate last year stayed at 1.1 per cent, providing a consistent level of welfare.

It must be noted that the gross domestic product (GDP) grew by 2.2 per cent last year. This was achieved due to a 9.7-per-cent growth in the non-oil sector, while the volume of total production in the oil and gas sector decreased by 5 per cent. According to President Ilham Aliyev, in fact it is a very high figure for developed countries, especially in crisis years. "If you consider that last year saw a decline in oil production and industrial production fell by 2.3 per cent, the 2.2-per-cent increase in the gross domestic product is a very positive indicator," the head of state said while summing up 2012 at a meeting of the Cabinet of Ministers. He added that Azerbaijan thus achieved the objectives of diversifying its economy set several years ago.

It is noteworthy that agricultural growth was 6 per cent, and this is an essential step in achieving a high level of food security. "Through the establishment of large farms, the implementation of soil-reclamation measures, issue of loans, addressing issues of infrastructure, roads, etc., we will make Azerbaijan self-sufficient in basic foodstuffs. It will be a historic achievement," the head of state said.

As for industrial production, it is known that the non-oil industry has achieved an annual growth of 7.8 per cent. Last year more than 100 industrial enterprises were put into operation. These include heavy industrial and accurate processing plants at the Sumqayit Technology Park, the Ganja aluminum plant, cement production plants in Naxcivan and Qaradag, factories for processing and recycling municipal solid waste, etc. At present, the construction of more than 90 industrial enterprises continues, and in the end, this will generate the above figure of development in the non-oil sector.

Returning to inflation and welfare, we should note that in the past, the difference between inflation and monetary income was more than 10 per cent, which is one of the highest rates in the world. It must be noted that the government tried very hard to keep the inflation at that level. After all, more money was put into circulation last year as a result of the implementation of social programmes such as compensation for Soviet-era deposits (and this is hundreds of millions of manats). In addition, last year, investment spending reached a record level of more than $ 22 billion.

Moreover, according to statistics, it was possible to increase foreign exchange reserves to $ 46 billion, i.e. up to 70 per cent of GDP. "I believe that we are in a leading position in this rate," President Aliyev said.

We must say that, despite the situation in the oil sector, which had a direct impact on the overall economic growth of the country, reputable international organizations express a more optimistic position in their assessments than local experts. However, many of these institutions have long sought to ensure that Azerbaijan proves its ability to survive without oil revenues, so the growth in non-oil GDP could not go unnoticed. According to the Davos World Economic Forum, the Azerbaijani economy takes 46th place in the world in competitiveness and first place in the CIS. The World Bank also continues to highly assess the conditions for doing business in our country.

Against the background of the continuing crisis in Europe, the European Bank for Reconstruction and Development (EBRD) also improved its forecast for GDP growth in Azerbaijan in 2013.

According to the bank's report "Regional Economic Prospects in EBRD Countries of Operations", if in October last year the country's GDP was expected to increase by 3 per cent, according to the new report, the growth is expected to be 4 per cent. "Having successfully overcome the global financial crisis, Azerbaijan's economy has slowed its growth amid falling oil production. The decline in production was partially offset by a major increase in the non-oil sector, which was mainly stimulated by budget expenditure. The relative restoration of production in the oil sector and the continued expansion of the non-oil economy will lead to the

acceleration of GDP growth in 2013. The strong fiscal position of the country continues to mitigate sudden macroeconomic risks," the report says.

It should be remembered that the 2013 budget is the largest in recent years and, in general, in the history of the independent Azerbaijani state with expenditure of almost 20 billion manats. Naturally, this year the number one task is to preserve macroeconomic stability and one-digit inflation. By the way, this year its level is projected to be 3-5 per cent. According to a statement by the Central Bank of Azerbaijan (CBA) on the main directions of monetary and financial stability in 2013, "to this end the Central Bank will try to influence the rate of monetary growth with classical regulatory instruments. At the same time, we will focus on providing the necessary macroeconomic, institutional and structural conditions for the introduction of a new and more effective regime of monetary policy in terms of impact on inflation and the economic cycle in the long-run. Among these conditions, the application of a flexible exchange rate will play a particularly important role, which will provide a more effective monetary control over money supply and interest rates. To switch to this mode, according to the CBA, it is especially important to turn the diversification of the economy and exports, the strengthening of fiscal sustainability, the development of the financial market and interest rates into a primary means of influence on inflation.

If we manage to do what is planned, this year it is planned to achieve another historic task which was set 10 years ago - to completely eliminate poverty in Azerbaijan. "This year we will complete our 10-year development plan, which was defined in 2003. In early 2004, a programme of regional development was adopted, and its second phase will be completed this year. I am sure that before the end of the year, the task will be completed as a result of the implementation of new infrastructure projects and social programmes," President Ilham Aliyev said. We must note that in 2012, the poverty rate declined from 7.6 to 6 per cent as unemployment fell to 5.2 per cent.

Meanwhile, according to President Ilham Aliyev, Azerbaijan's achievements to date already suggest that the country has gone beyond regional boundaries. "As they say, we have long left such status as a post-Soviet country in the past. We are not a post-Soviet country. We are the independent Azerbaijani state." And the stable economy is the strongest guarantee of this independence.