RELIABILITY THRESHOLD

As the new wave of the global crisis started and energy prices halved, almost all international financial institutions (IFIs), credit rating agencies, and experts sought to forecast the future of developing economies, in particular in the former Soviet Union. Different on a number of parameters, those forecasts generally promised a comparatively difficult period of development for countries with commodity markets.

"However, despite the decline in foreign trade and proceeds from crude sales, our economy has not slowed down and has been developing steadily," Azerbaijani President Ilham Aliyev told a recent government meeting. This message is clearly confirmed by the results of the first six months of the year: in the reporting period, GDP increased by almost 6 per cent. The non-crude sector grew by more than 9 per cent, agriculture grew 7.3 per cent, and the non-oil industry even grew 14 per cent. It is equally important that despite the February devaluation of the manat, the country managed by and large to maintain price stability. Over the first six months of the year, average annual inflation was 3.5 per cent, and the Central Bank of Azerbaijan believes that it will remain at one-digit level in 2015.

It is not surprising that Azerbaijan, which maintains a positive dynamic of GDP growth and the stability of basic macroeconomic indicators, has justly earned the status of the most crisis-resistant post-Soviet country. That is the opinion of, in particular, experts at the World Economic Forum (WEF), who have described Azerbaijan as the most competitive economy of 2015 in the CIS. The evolution of this country's economic achievements is clearly recorded in the WEF's annual reports. According to data from the Davos Forum, about four years ago, in terms of competitiveness Azerbaijan ranked 57th in the world and 3rd among former Soviet countries, only lagging behind the three Baltic republics.

Having achieved significant development over the past few years, in 2014 in terms of economic attractiveness Azerbaijan moved to 38th place among 144 countries surveyed by the WEF.

However, as the global crisis mounted, since the beginning of this year this country's economy has been experiencing ever-growing pressure from foreign factors that have affected the overall stability of the economy. This negative aspect also inevitably affects a number of parameters based on which WEF experts analyse the efficiency of national economies. The World Economic Forum's The Global Competitiveness Report 2015-2016 ranked Azerbaijan with its 4.5 points 40th among 140 countries in terms of general competitiveness of the economy. However, although Azerbaijan's economy declined two places, it is still acknowledged as the most competitive in the CIS region. For comparison - Kazakhstan with 4.49 points ranked 42nd, while Russia with 4.44 points ranked 45th. The situation is significantly worse for Azerbaijan's nearest neighbours: Turkey ranked 51st, Georgia 66th, while Armenia, an eternal outsider, only made it to number 81 in the rankings table. Kyrgyzstan came with the worst indicators (102nd).

"In terms of aggregate factors, Azerbaijan scores highest in its region, having weathered the recent crisis better than neighbouring economies. It benefits from a strong macroeconomic environment, characterized by low inflation and favourable public finances," the WEF report says.

The World Economic Forum's rankings are based on a combination of public statistics and results of surveys of company managers. WEF experts' assessments of countries' competitiveness are based on 114 indicators grouped into 12 pillars, including economic and legal environment, infrastructure, macroeconomic environment, health and primary education, higher education and training, goods market efficiency, labour market efficiency, financial market development, technological readiness, market size, business sophistication, and innovation.

In each segment, a country is assigned an average score, and here it is appropriate to note that on some local indicators the country gained far better assessments from international experts.

In particular, Davos Forum experts believe that Azerbaijan owes its continuing high economic competitiveness primarily to the high stability of its macroeconomic environment. After earning 6.4 points on this parameter, Azerbaijan ranked 10th in the world. The domestic labour market has also been named as highly efficient: on this parameter the country scored 4.6 points and ranked 13th.

It is noteworthy that the positive opinion of WEF experts regarding the attractiveness of and prospects for the development of our economy largely coincides with recent assessments from other IFIs and credit rating agencies.

For example, an updated report from the Asian Development Bank (ADB) - titled Asian Development Outlook 2015 Update - says that next year Azerbaijan will manage to keep inflation at 5.5 per cent. At the same time, ADB experts believe that GDP growth in 2016 will amount to 2.8 per cent. Interestingly, experts at Azerbaijan's Economic Development Ministry are more conservative in their assessment of economic growth next year. They project it to be 1.8 per cent.

In turn, experts at the international agency Fitch Ratings also forecast steady growth in non-crude sectors of the economy and relatively low inflation this year. According to the experts, strict government control over tariffs, as well as compression of business margins and the relatively mild nature of the February devaluation ensure the stability of consumer prices.

Fitch Ratings believes that the country owes its macroeconomic stability to the low level of public debt - about 14 per cent of GDP this year, as well as a large stock of net foreign assets. Fitch Ratings says that the Azerbaijani government is committed to making adjustments to capital spending and tax revenue next year in order to ensure the preservation of existing financial buffers. The assets of SOFAZ [State Oil Fund of Azerbaijan] were 49 per cent of GDP at the end of 2014, and experts at Fitch expect them to rise to 57 per cent of GDP by the end of 2017. Fitch experts believe that before 2019-20 the price of Brent crude oil will rise to 70-80 dollars per barrel, which will ensure sufficient profitability of extraction of gas from the Shah Deniz 2 field and its export to Europe. And if Fitch's basic forecasts for oil prices are realized, the overall deficit of Azerbaijan's state budget in 2015 will amount to 4 per cent of GDP (2.3bn manats). Moreover, budget parameters may come to equilibrium in 2016, and by 2017 the country will have a surplus of about 4 per cent of GDP.

Experts at another rating agency - Moody's Investor Service - are also positive about Azerbaijan's ability to overcome the crisis with minimal risks. Moody's believes that Azerbaijan has the greatest capacities among post-Soviet countries to maintain macroeconomic stability and avoid risks associated with the decline in oil prices. According to experts at the agency, Azerbaijan will preserve positive dynamics of GDP growth even at an oil price of 50-55 dollars per barrel.

Moody's believes that to some extent it was possible to neutralize the negative impact of the crisis due to the February devaluation of the manat, which made it possible to replenish the revenue of the treasury and keep the country's state budget deficit in single digit. The weakened exchange rate of the manat not only reduced the pressure from lower oil prices on public finance, but also made Azerbaijani non-oil output more competitive at international level. As a consequence, this factor will contribute to the growth of non-oil output.

As we can see, in the issue of short-term forecasts for the Azerbaijani economy, influential credit rating organizations are, in a certain sense, even more optimistic than the government.