International Monetary Fund reveals results on its mission in Azerbaijan

International Monetary Fund reveals results on its mission in Azerbaijan
# 19 June 2021 11:13 (UTC +04:00)

An International Monetary Fund (IMF) staff team led by Natalia Tamirisa conducted a remote mission from April 19 to May 21, 2021 in the context of the 2021 Article IV consultation with Azerbaijan, APA-Economics reports citing IMF.

At the conclusion of the mission, Ms. Tamirisa issued the following statement:

"Risks to the outlook are broadly balanced, although uncertainty about the future of the pandemic remains high. Vaccination is expected to help defeat COVID-19 and support recovery. GDP growth is projected to pick up to 2.3 percent in 2021, as the sectors affected by stringent lockdown re-open. The new Southern Gas Corridor pipeline will boost exports of natural gas, mitigating the decline in oil production.

Inflation is projected to increase moderately to around 4 percent. Following a sharp widening in 2020, consolidated budget deficit is projected to remain high at 5.6 percent of GDP, owing to continued COVID-19 spending and increased reconstruction spending, before starting to narrow in 2022. Higher oil prices should improve the current account, turning it to a surplus of 2.4 percent of GDP, from a small deficit in 2020.

Fiscal policy would need to remain flexible in the uncertain environment, and, if downside risks were to materialize, automatic stabilizers should be allowed to operate and additional, targeted relief should be provided as needed.

Interest rate cuts, in the context of the de facto peg to the U.S. dollar, and the easing of prudential regulation usefully complemented fiscal relief during the pandemic and kept credit flowing. However, amid weak monetary transmission, bank lending rates eased only moderately and remain relatively high.

Further improvements in the CBA’s policy frameworks and initiatives to develop financial markets and improve financial intermediation and access to finance would provide additional support to the diversification of the economy and improvements in its productivity and resilience. At the same time, the CBA’s ongoing efforts to improve financial oversight should continue, supported by cooperation with international financial organizations through technical assistance.

Diversifying the economy and promoting the development of a dynamic nonhydrocarbon sector is crucial for boosting Azerbaijan’s economic growth prospects and creating jobs. In this respect, recent focus on improving the governance and efficiency of state-owned enterprises is appropriate, and should be supported by steps to promote competition, improve governance and transparency and access to finance, and ensure sufficient funding for education, healthcare and social protection to help the workforce deal with the scarring from the pandemic and better prepare for the long-term challenges posed by the exhaustion of oil resources, digitalization and climate change."