IMF: Azerbaijan properly tackling its challenges

/By Azernews/

By Gulgiz Dadashova

Azerbaijan is properly tackling its challenges, and the International Monetary Fund (IMF) would do its best to assist the country in the face of huge economic challenges.

IMF Managing Director Christine Lagarde was commenting on the oil-hit economies in an interview with The Punch on February 12.

The state has enjoyed a growth boom over two decades, but the fall in oil prices forced the country to accelerate shift to the new development model. The government has started to adjust fiscal policy to the fall in oil revenues. Public investment, which boomed when oil prices surged, has been lowered while new revenue generating fiscal measures have been introduced.

The energy-rich Caspian state relies on oil and gas for 95 percent of its exports, 60 percent of budget revenues and 30 percent of GDP.

Lagarde said Azerbaijan has been hard hit by about 70 percent oil price decline shock, because its economy depends heavily on oil exports, both in terms of trade, and in terms of revenue.

“Azerbaijan has certainly taken a good fiscal approach, is reassessing spending, is really trying to restore its position, and it is also using the exchange rate as a buffer,” she stressed.

The country enjoys sufficient foreign exchange reserves, which are kept at state oil fund SOFAZ. Fund’s Executive Director Shahmar Movsumov earlier announced that in total, the reserves stand at about $39.14 billion, which play a role of the security buffer.

The country already announced economic reforms and tightened the fiscal policy as the oil producing country struggles against a crisis triggered by the plunge in oil prices to 13-year lows.

The Central Bank of the country maintained the stability of the manat till late December 2015. But, with reserves falling and external shocks intensifying, the CBA devalued the manat, and shifted to a managed float exchange rate regime, which helped to improve business competitiveness.

The government has taken steps to ease the impact of the manat’s fall, including a VAT exemption for a number of goods, simplifying of business licensing and a rise in pensions and wages by 10 percent. Furthermore, President Ilham Aliyev has recently ordered a plan for privatization of state assets to be drawn up.

The government revises its budget, which had been drawn up on the basis of a $50 oil price, and as part of the upcoming budget revision, its expenditure part will be increased to 16.5 billion manats ($10.4 billion), and the income part to 18.3 billion manats (11.5 billion). The government forecasts a deficit of 1.7 billion manats (1.07 billion).

The IMF mission that recently visited the country announced that economic growth and balance of payments pressures are likely to remain major challenges for the authorities in the near term, reminding that the authorities are well placed to overcome these challenges.

“Policy priorities include formulating and pre-announcing a multi-year fiscal consolidation plan, bolstering the monetary policy framework to support the move to exchange rate flexibility, strengthening the financial sector and supervision, and undertaking structural reforms to make the economy more diverse. In this regard, we support the government’s intention to further reduce public investment to more sustainable levels in 2016, with greater focus on project efficiency. The authorities and IMF staff have agreed to maintain a close policy dialogue and to increase technical assistance support,” the IMF report said.

Meanwhile, Azerbaijan has increased its quota in the IMF from 160.9 million SDR ($224.34 million) to 391.7 million SDR ($546.14 million), of which 44 percent (173.1 million SDR or 377.7 million manats) may be placed in the national currency.

This quota determines a maximum amount of the country’s financial commitments to the IMF and its number of votes. It also affects the country's access to the IMF financing.