MOMENT OF TRUTH

Forecasts by international experts of an imminent waning of the hurricane force "global financial crisis" which has swept through the economy of numerous countries, dispelled any remaining scepticism about the sustainability of the Azerbaijani economy. The country has withstood a testing year of crisis: not only did Azerbaijan not slide into economic depression, it even managed to produce small growth in many of its macroeconomic indicators and, what is doubly important, it continued to implement social and infrastructure programmes. 

"Azerbaijan's economy has been developing successfully for many years, our economy is diversified, and this is the main factor in our favour in this difficult test," said President Ilham Aliyev, summarizing the government's activities in the first half of 2009.

Regional leader

As the head of state rightly pointed out, the crisis was a moment of truth for those who doubted the capabilities of the Azerbaijani economy. In the first half-year alone, gross domestic product grew by 3.6 per cent, while the non-oil sector grew by 4.1 per cent. These statistics alone are particularly remarkable against the background of the International Monetary Fund's forecast of a decline of 1.4 per cent in the global economy in 2009.

Accompanying this rise, inflation has remained at 3.7 per cent - for food it stood at 2.1 per cent - that is to say, we cannot talk about any impact on the social situation of the population. And if one considers that the money income of the population increased by 19 per cent this year (average monthly wages increased by about 15 per cent), then it turns out that the growth in real income was approximately 15-16 per cent.

Comparisons are interesting. According to the International Monetary Fund's recent forecast for the world economy, in 2009 the gross domestic product of developed countries will shrink by 2.5 - 5 per cent, in European Union countries by 4.7 per cent, in the newly industrialized countries of Asia by 6 per cent and in CIS countries by 4 per cent collectively.

Meanwhile, the economic situation in Azerbaijan's nearest neighbours has raised serious concern. According to an updated forecast by the National Bank of Georgia, in 2009 Georgia's GDP is expected to fall by 4 per cent, rather than by 1.5 per cent, as projected earlier. Note that a growth in GDP of 12.3 per cent was registered in Georgia in 2007, and 2.1 per cent in 2008.

Almost the same story holds true in Armenia: the economic downturn there for January-June 2009, according to the National Statistics Service, was 16.3 per cent, compared to the same period in 2008. The decline resulted mainly from a decline in construction (by 53.5 per cent). We must say that in May this year the Central Bank of Armenia predicted an economic downturn of 5.8 per cent for the country in 2009. In early June, the vice chairman of the Central Bank of Armenia, Vache Gabrielyan, announced that the decline in GDP for 2009 would be by 7-8 per cent, and at the end of June, the International Monetary Fund forecast that the recession in the economy of Armenia would be 9.5 per cent, rather than 5 per cent. And this is while, according to the state budget, GDP growth in Armenia for 2009 was planned to be 9.2 per cent, with inflation at 4 per cent (± 1.5 per cent).

In Azerbaijan the only macroeconomic statistic in decline is, perhaps, inflation. However, at the same time, there are some reductions in budget revenues, which is natural in the context of falling oil prices. Incidentally, international financial institutions also warned the Azerbaijani government about the risks of maintaining a high level of budget expenditure, because of the reduction in budget revenues and foreign lending opportunities. However, only the financing of non-urgent investment projects was deferred. The implementation of all social programmes relating to pensions, wages and targeted social assistance has continued. In addition, it is also notable that over the last six months another 35,000 new jobs have been created in Azerbaijan; 25,000 of them are permanent.

The economic leadership of Azerbaijan is also confirmed by the assessment of the international rating agencies Moody's Investor Service and Fitch Ratings, which left Azerbaijan in 2009 with the lending ratings set in previous years - Ba1 and BB+ respectively. At the same time, in contrast to Azerbaijan, the agencies had overestimated the credit ratings of a number of CIS states, as well as Central and Eastern European countries, from mid-2008 to the present, reducing them by one or two points.

As a result of the first evaluation, the Standard & Poors agency set a BB+ rating - the level given to the Republic of Azerbaijan by similar agencies earlier, in more favourable economic conditions, further demonstrating the great potential and stability of the national economy.

Maintain the rating

The path of economic development taken by the government in coming years to maintain a high level of social and financial well-being, is very important. After all, as they say, you get used to good things very quickly and, in recent years, the people of Azerbaijan have got used to regular rises in salaries, pensions and benefits, improvements in the infrastructure and public services and other attributes of a successful economic policy. Yes, the crisis has not knocked the republic off track, but we cannot deny its impact on the banking, construction and other sectors. Will the previous pace of growth resume if we stick to a conservative economic policy?

This conservatism has, incidentally, been repeatedly criticized by international experts and financial institutions, but as life has shown, this position has justified itself in times of crisis. "Sometimes, they recommended that we join integration trends faster and integrate into international trade patterns. But our position has always been very cautious, as the economy of Azerbaijan is self-sufficient. Unlike some other countries, we are not dependent on foreign aid," said President Aliyev.

He stressed that, unlike other countries, our national currency has not been devalued. This is also a very important economic and social indicator. "Some countries have carried out artificial devaluations, aimed at promoting opportunities for local manufacturers. We could have done this as well, but we did not because, first of all, it is necessary to think about people's living standards. I am sure that no changes will occur in this area in the coming months," said the head of state.

Conservatism has become a symbol of stability in economic policy, and eventually the international experts who had earlier criticized the Azerbaijani government, were forced to admit this. From this point of view, a report by experts at the Standard & Poor's rating agency is very telling, as it clearly states: the main risks to the creditworthiness of the Azerbaijani government have already reached their peak. "We believe that the well-balanced policy of the country's leadership with regard to the risks that exist in the short term is the main factor determining the level of the sovereign ratings of Azerbaijan," the experts emphasized in their report.

According to experts, given the government's efforts to restore confidence in the banking sector and maintain its liquidity, as well as the expected growth in assets in the budget system for 2009 (especially in relation to the anticipated rise in oil prices and increased oil production), Azerbaijan, in contrast to other countries in a similar rating category, will retain good balance in the state budget.

This will be facilitated by the fact that, in the medium term, the funds accrued from the export of raw materials will help balance the negative effect of structural deficiencies which hamper the growth of the non-oil sector in Azerbaijan. However, in this case, international experts make the reservation that, in order to maintain revenues in the long term, the government must continue to give more attention to diversifying the economy, further integration into the world economy and improving institutional systems.

"Based on current information, we can say that there is no danger of the sovereign credit rating of Azerbaijan being downgraded in the foreseeable future, first of all, due to increasing oil production and oil prices, as well as to the high positive balance of the public sector in Azerbaijan," this is the conclusion of the experts at the international institute.

As already noted, this conclusion is very telling - there was a time when almost every step taken by the Azerbaijani government was criticized from the outside, they frightened us with talk of "Dutch disease", and decline in living standards and in the industrial and agricultural sectors. And, most importantly, they tried to convince us that without external support and loans, the country would not survive. And what happened? Recently, the Inter-national Monetary Fund cut back on its office in the country because of restrictions on cooperation, and interaction with many other similar institutions is probably also in the nature of consultation and technical assistance on individual projects. And the loans they provide are being used not to maintain the economy, but to partially fund infrastructure projects. Azerbaijan has proved that any decisions determining economic policy should be based on national interests. Only then can we talk about stability and long-lasting development.