The oil price shock on top of the Covid-19 pandemic is taking a toll on Azerbaijan’s economy, APA-Economics reports citing Regional Economic Prospects.
Following robust growth at the beginning of 2020, growth in the non-oil sector turned negative with the introduction of public health measures in March. Containment measures were extended multiple times and limitations on regular business activities remain, particularly in the service sector, though they have been loosened.
Output in the non-oil and gas sector reached a trough in June before it started slowly recovering. In total, non-oil GDP contracted by 1.7 percent year-on-year in the first eight months, while total GDP fell by 3.0 percent year-on-year in the same period. External and fiscal surpluses have turned into deficits on the back of significantly lower oil revenues and rising expenditures aimed at supporting the economy.
Annual inflation has remained low and stood at 2.9 percent year-on-year in August 2020, on the back of the currency peg, which is supported by foreign exchange transfers from the State Oil Fund of Azerbaijan (SOFAZ). The combined assets of the central bank and of SOFAZ, the state oil fund, amounted to nearly US$ 50 billion, more than the projected 2020 GDP.
Azerbaijan’s economy is expected to decline by 3.0 percent in 2020, with growth recovering to 2.5 percent in 2021. Key risks remain, especially related to a possible resurgence of the pandemic and continued weaknesses in the oil market.