International organization’s optimistic regarding Azerbaijani economy
Azerbaijan will continue economic growth, despite lower prices for raw materials and low growth rates in Russia and China, which significantly affects the regional economy,states the report of the International Finance Institute (IFI) on the Caucasus and Central Asia. According to the report, Azerbaijan is on course to expand its economy this year. The IFI projects the country's GDP to grow by 2.8 percent this year, and by 2.9 percent next year. Structural economic reforms in the country are ongoing, and the non-oil sector is playing an ever-increasing role, the organization’s report reads. The sharp depreciation of the currencies and the move toward more flexible exchange rates, particularly in Azerbaijan and Kazakhstan, have helped authorities manage external pressures, primarily related to the price situation in the oil markets. This increased competitiveness and helped reduce the impact of external shocks. The exchange rate against the US dollar was generally stable in 2018 and during the first 7 months of 2019, which helped to contain inflationary pressures.
But what are the factors that determine the optimistic outlook of the International Finance Institute regarding the Azerbaijani economy?
According to IIF analysts, growth in Azerbaijan is driven by the opening of the Southern Gas Corridor (SGC) and continued improvement in the services sector. The SGC should enable increased hydrocarbon production, particularly natural gas. A key element of the SGC is the Trans Adriatic Pipeline, which will allow to transfer 10 billion cubic meters per year of natural gas from the offshore Shah Deniz field to Europe starting in 2020. Both the fiscal and current account balances are in surplus, and favorable movements in global oil prices have contributed to the growth of gold and foreign exchange reserves. Cargo transportation increased by 1.5 percent in 2019 compared to a year earlier.
Azerbaijan’s state oil company SOCAR has produced oil and gas at the same level as in 2018; crude oil exports have increased modestly in volume terms, but natural gas, refined oil and petrochemicals have climbed substantially. At the same time, the country has become a net exporter of electricity to Eastern Europe.
Elshad Mammadov, professor at the Azerbaijan State University of Economics (UNEC) and doctor of economics, told Kaspi that the forecasts of international organizations on economic growth in Azerbaijan in fact coincide with the ones of local authorities and experts. "In the coming years, the growth rate is expected to be higher. Regarding the factors contributing to this increase, recent economic reforms, including budgetary and tax policy changes, increasing public spending and, thus, stimulating economic growth, should undoubtedly contribute to economic growth. In addition, the implementation of the Southern Gas Corridor, the transfer of Azerbaijani gas to Turkey and European markets, will undoubtedly contribute to the dynamics of economic growth. Therefore, economic growth projections in the coming years will be expressed at a positive rate,” he said.
According to the expert, a certain increase in government expenditures, easing of monetary policy to stimulate economic growth, increasing social spending, and a sharp increase in human capital and investment in gross domestic product contribute to the development of the Azerbaijani economy.
Economist Vugar Bayramov also sees the rapid growth in Azerbaijan's economy in the coming years. According to the expert, the growth rate of the non-oil sector gives us possibility to say that keeping the pace of growth in the Azerbaijani economy from 2009 and achieving rapid economic growth, especially in 2018, is predicted not only by the Azerbaijani government, but also by international financial institutions, according to which, economic growth will continue in 2019. There are several reasons for this forecast. The main reason is that the growth rate in the non-oil sector is higher than the overall economic growth rate. Over the past 6 months, the country's economy grew by 2.4 percent. The increasing percentage of the non-oil sector in GDP is 3.2. The non-oil industry has seen greater growth. Increase and continued reforms in the non-oil sector, in particular, have a direct impact on overall economic growth and maintain growth rates. On the other hand, oil prices are at an acceptable level, which is one of the factors that directly affect the economy,” the expert noted.
According to him, the growth in the non-oil industry is 15.7 percent, and looking at the indicators, it is clear that the non-oil sector has greater potential for overall economic growth. "This is one of the positive aspects of the first half of the year. Because one of our priorities was to increase the share of the non-oil sector in overall growth. In general, of course, economic growth depends on the level and scale of the reforms. The continued growth in the post-2017 period is due to greater reforms in the post-2015 period, which eventually created a base for higher economic growth in 2019,” the economist added.
Member of the parliamentary committee on regional affairs, MP Javid Osmanov, said that as a result of the implementation of 3 state programs, about 2 million new jobs, hundreds of businesses were created in Azerbaijan, about 15,000 kilometers of infrastructure were fully renovated, about 3,200 new schools and more than 600 hospitals were built or fully repaired. The MP emphasized that our regions are developing not only economically but also in the social sphere. "The social reforms carried out in Azerbaijan since the beginning of 2019 and the implemented packages have had a positive impact on the lifestyle and welfare of the region's population," he emphasized.
According to the IFI report, structural reforms are ongoing. Azerbaijan has risen to the 25th place in the Doing Business rankings, the highest in the CIS. The country is in the top 50 for most indicators. The challenge in the following period is fostering diversification, inclusion, and empowerment of the private sector.