Briefing Notes for the Launch in Baku, 6 May 2010
Impact of the crisis
- The GDP of Azerbaijan grew by 9.3% in 2009, buoyed by strong domestic demand. Retail trade grew by 8.9% in that period. The industrial sector which expanded by 8.6% in 2009 was one of the main contributors to economic growth of the country. Agricultural production grew by 3.5% in 2009 owing to buoyant wheat harvest which is expected to adequately cover domestic demand in 2009.
- In 2008, inflation was 20.8%, the highest rate for a decade, but in 2009 it was expected to decline to 1.5%.
- The current account surplus of Azerbaijan was expected to reduce from 35.5% of GDP recorded in 2008 to 16.0% of GDP in 2009 owing mainly to the steep fall in international oil prices and a contraction in external demand. Exports and imports declined by 69.2% and 14.6% respectively in 2009. As a result, the trade surplus narrowed from more than US$40 billion in 2008 to US$8.6 billion in 2009. Hydrocarbons exports accounted of more than 80% of the total export earnings.
- The Government had the advantage of higher taxes coming from corporations following rising oil prices. Nevertheless because of increased social spending and on large infrastructure projects, the budget deficit rose from 6.1% of GDP in 2008 to 8.2% of GDP in 2009. The Government continued to increase expenditure on government pledges to increase social spending and to maintain financial support for large infrastructure projects.
- Monetary policy played a more limited role during the crisis. There were two key policy targets - curbing rising inflation and providing exchange rate stability. As a result of the global financial crisis, the national currency of Azerbaijan experienced downward pressures. At the same time, central banks had to reduce interest rates to protect domestic businesses, which faced wide interest rate spreads owing to high business risks emerging from the crisis.
- Weak institutional capacity, low capitalization and lack of coordination between fiscal and monetary policy continued to be the main constrains that hampered the effectiveness of monetary policy in the country in 2009.
Outlook and policy challenges
- Azerbaijan is expected to be among the fastest growing economies in 2010 at 7% owing mainly to expected high fuel prices and increased external demand. However, the performance of the non-oil sector is expected to lag behind the oil sector.
- Annual consumer price inflation could reach 6% in 2010 due to higher energy and commodity prices, increased capital inflows and expected rise in domestic demand.
- The foreign capital inflows are expected to increase in 2010 owing to the resumption of global growth.
- The current account surplus is expected to rise owing to increase in oil export.