Azerbaijan expects non-oil exports to grow over 8pct [UPDATE]

By Azernews

By Amina Nazarli

The international rating agency Fitch expects the growth of the Azerbaijani economy by 0.2 percent in 2017.

This was indicated in the report of the agency on Azerbaijan, presented on March 16 at the sixth annual meeting in Baku.

In addition, experts of the rating agency forecast the growth to resume from 2017 and continue in 2018. The agency also expects that inflation in the country will fall in the next two years.

“GDP growth in Azerbaijan is projected to be 0.2 percent in 2017, and the country's economy will increase by 1.7 percent in 2018. We also expect a gradual decline of inflation. If in 2016 the average annual inflation was 12.4 percent, then in 2017, consumer price growth is expected to be at the level of nine percent, and in 2018, five percent,” Fitch experts believe.

Speaking at the meeting Fitch's Senior Director Paul Gamble noted that the macroeconomic environment in Azerbaijan was primarily affected by sharp decline in oil prices, the reduction of public investment, the devaluation of the manat rate and the focus on short-term stabilization.

Referring to the forecasts on the balance of current operations in Azerbaijan, Gamble noted that the balance will reach the surplus by 2018.

"The deficit of balance of current operations accounted for 2.9 percent of GDP in 2016. We believe that this year the deficit will decrease to 2.4 percent, and in 2018 the balance of current operations will reach a five percent surplus," Gamble said.

Restructuring Azerbaijan’s banking sector may also continue in 2017, says a report of the international agency.

Fitch analysts expect the failure of several banks and the continuation of cleansing in the sector in the light of capital insufficiency, which is related to poor asset quality and currency risks.

The devaluation of manat continues to put pressure on the banking sector of Azerbaijan, according to Fitch analysts, and banks face with continuing decline in capital.

Fitch analysts note that the sector also faces a high impact of project financing, where the quality of loans is largely not tested because of their long-term and privileged periods.

"Banks will not be able to cope with the increase of new problem loans due to capital restrictions. Therefore we expect a 5-percent decrease in lending in 2017," the report said.

Azerbaijan’s Economy Ministry expects the real GDP growth of the country in 2017 at the level of one percent, Director of the Institute for Scientific Research on Economic Reforms of the country’s Economy Ministry Vilayat Valiyev said.

“The share of the non-oil sector of Azerbaijan’s GDP will grow 2.5 percent and amount to 67.9 percent, according to forecasts,” Valiyev said. “The share of the non-oil exports of Azerbaijan’s GDP is projected to grow 8.4 percent.”

Addressing the event, Leyla Yusifzade, head of the Financial Stability Analysis Department of the Center for Research and Development of the Central Bank of Azerbaijan (CBA), said the rise of key interest rate of the U.S. Federal Reserve System (Fed) won’t have a direct impact on the Azerbaijani manat’s rate.

The Federal Open Market Committee has raised the base interest rate from the level of 0.5-0.75 percent to 0.75-1 percent per year after its March meeting.

 Yusifzade noted that the rise in the Fed interest rate may affect the manat rate only indirectly, and this influence will be rather psychological.

In turn, Maxim Edelson, a Fitch senior director, said that average price of oil is expected to be $52.5 per barrel in 2017.

The price may slightly deviate from this figure depending on the OPEC decisions and changes in supply and demand in the market, he underlined.