AGAINST THE CURRENT

The economic policy being conducted in Azerbaijan in recent years has produced another tangible and real result - the country's dependence on the oil factor is slowly but steadily reducing. And this is very gratifying against the backdrop of a global economic recession which has introduced chaos to the system of trade relations, unclear fluctuations in the crude price in stock exchanges, uncertainty on the gas market, lack of food in the world, etc.

Even at such difficult times, when all leading countries of the world are panicking about their economies falling apart, Azerbaijan is not simply managing to keep it stable but even secure a 4.1% growth. Non-oil sector growth in the first quarter of 2009 made up 14%.

"This is a result of reforms conducted in the last five years, a result of the practical steps we have taken to diversify the economy," President Ilham Aliyev told a Cabinet meeting marking the results of socioeconomic development in the first quarter of 2009.

Non-oil breakthrough 

Indeed, in the last five years the Azerbaijan economy grew 2.6 times, while the industrial potential increased 2.5 times. The level of poverty has dropped 3-4 times and budget expenses have risen more than 10 times. The country has embarked on the implementation of major social programs. In other words, foundation has been laid for a stable development in the future.

The year 2009 is going to be a starting year for a new development stage. It happens to come at a critical time when most countries are registering a worsening in macroeconomic indicators, as well as problems such as reduction in the GDP and foreign trade, large-scale unemployment, serious deficit of liquidity.

Azerbaijan has managed to avoid all these problems thanks to considerable currency reserves, a conservative borrowing policy, minimal dependence on foreign financial markets and stability of the Manat. According to Economic Development Minister Sahin Mustafayev, it is no by chance that both international financial organizations and renowned rating agencies and experts have unequivocally noted that the Azerbaijani economy is capable of withstanding the global financial and economic crisis. Thus, the economic memorandum circulated by the WB in March says that, in comparison with other countries, Azerbaijan will not be affected by the crisis a lot, while its financial sector has managed to avoid a recession. Fitch Ratings has said that GRP would reduce in 19 out of 21 European countries, would remain unchanged in one, while Azerbaijan would actually experience a growth. In fact, the Asian Development Bank predicted the growth at a level of 8%. 

The picture would be less pleasant without the growth in the non-oil sector. Due to technical reasons in oil production, industrial production has reduced by 2.2% to last year's, while prices on oil exchanges were considerably below expectations… However, as a result of the measures taken, agricultural production in the first quarter increased by 4.3%, the total volume of freight traffic by 11%, transportation of non-oil cargo by 5%, retain turnover by 10% and paid services by 20.5%.

All this preconditioned a 13.7% growth in the non-oil sector to 2008 and had a directly proportional impact on the social well-being of the population whose incomes rose by 25% and average wages by 26.5%. And this happened at a time when elsewhere in the world people are saving money either because they are about to lose their jobs or have already lost them…

It has to be acknowledged that the increase in real incomes and the purchasing power of the power was also preconditioned by the reduction of prices in recent months - in comparison with last year the inflation pressure on the economy was 8.3%, while the index of consumer prices has dropped by 2.1% in 2009. As President Ilham Aliyev said, people working in state budget organizations have benefit the most from that because the national currency is stable, wages and pensions are being paid in time, while consumer prices are falling. "The reduction in prices on food and construction materials is contributing to the solution of social issues and improvement of the social well-being in Azerbaijan," the head of state said. The president also pointed to the downside of the price reduction. "We can't afford to have large deflation because this would affect our economic potential," he said.

There will be no depreciation!

The political and economic stability in Azerbaijan is the best foundation for foreign investment. This is confirmed by figures: investment in main capital have risen by 15.2%, including 72.3% in the non-oil sector. Despite a considerable reduction of financial resources in the world and a serious problem with liquidity in banks, there are no problems with the provision of credits to Azerbaijan. In fact, the government frequently receives good offers from international financial institutions and commercial banks.

The volume of public funds spent on financing investment projects has increased even more, reaching 1.79 AZN billion, which is 1.9 times, or 521 AZN, more than last year. It appears that the crisis will not hamper the government's infrastructure plans, and investment in these projects will continue to be made.

It goes without saying that the treasury is not endless, money tends to run out, especially if it is squandered. Therefore, the government's next task this year is to strengthen the financial discipline, and this is even more important now because the threefold reduction of the oil price cannot be limit material capacities of the budget.

A certain share of public funds will have to be spent on maintaining the national currency to prevent its depreciation, which would immediately affect public well-being. It can be said that in all neighboring countries, in FSU republics, in Eastern and Central Europe national currencies have undergone serious depreciation: by 10, 30 and at times even 50%. As President Aliyev said, the depreciation of the national currency by 50% means that every citizen has become 50% poorer. "Rumors were circulated by different people in Azerbaijan that the manat would depreciate after the referendum. First of all, I would like to say that the referendum has nothing to do with our economic or political steps and our foreign policy. We have never made populist statements or taken steps for political ends or for the sake of election. I expressed my opinion on that in March - the rate of the manat will remain stable. Everyone can see that the Manat is indeed stable, we have a strong currency. We don't want our people to be affected by the crisis," he said.

Another important achievement is the fact that Azerbaijan is self-sufficient in terms of food supply - the vast majority of food products consumed in the republic is local. This has largely been attained by benefits provided to farmers in buying fertilizer, fuel, seeds, subsidies. Farmers could also receive low-interest loans and their volume is expected to increase 70-80% this year thanks to the additional funds allocated from the state budget and the repayment of credits issued earlier.

Thus, the new stage in the development of the Azerbaijani economy will, as was the case in the previous five years, aim to strengthen the non-oil sector, namely the enhancement of agriculture, processing and, of course, the countryside. All this is part of the five-year regional development program. The economic results of the first quarter of 2009 are giving a good boost for its implementation.