Azernews.Az

By Ilaha Mammadli

Azerbaijan plans to move away from the category of countries with average income and approximate to high-income countries by 2025, according to a classification of the World Bank based on the level of national per capita income.

Moreover, the UN Development Programme forecasts that it will draw closer to the group of countries with "the highest level of human development" from those in the "high human development" category.

The government's plans were announced in the draft of a long-term strategy of Azerbaijan's economic development for 2011-2015, prepared by the Ministry for Economic Development.

However, such economy cannot be created absolutely without "planting", which means helping small, but very fast-growing companies. The strategy was drawn up with an emphasis on these breakthrough areas.

Regional commercial center

The draft document sets the task of bringing non-oil exports per capita up to $5,000 by 2025, thus turning the country into a commercial center of the region.
Another basic long-term objective is to increase export volumes in the non-oil sector, as strengthening the economy's competitiveness is conducive to transforming Azerbaijan from a regional leader into a major global player in international economic relations.

Economic competitiveness will be achieved by maintaining macroeconomic stability, increasing the effectiveness of monetary and fiscal policy, developing the financial services market, improving the funding of businesses and the business environment, streamlining investment and foreign-trade policy, and developing the transport infrastructure and energy supply. Reaching this goal also requires broadening the possibilities of information and communications technology and innovations, developing the human potential and raising the effectiveness of state management.

Optimizing the structure of the economy will be achieved by developing the services and trade sector, optimizing the investments structure, improving the country's financial solvency, developing non-oil production and processing, regional specialization and supporting balanced development in the regions, optimizing agricultural production, expanding the utilization of alternative sources of energy and developing the petrochemical and oil and gas refining industry.

According to projections, Azerbaijan's GDP is expected to double within 15 years to $103.6 billion. The proportion of the non-oil sector in the gross domestic product will increase from the current 3.2 percent to 14.2 percent.

The economy's dependence on the oil and gas industry will be substantially reduced -- the proportion of this sector in GDP will go down from 50.9% in 2009 and 48.5% in 2010 to 13.8% in 2025.
At the same time, Azerbaijan plans to focus on the development of alternative and renewable energy sources and bring its ratio from two percent in 2009 to a minimum of six percent by 2025.

Among measures in energy, petrochemicals sector and environmental protection, bringing the quality of fuel produced in the country to Euro-5 environmental standards can be singled out, which calls for the construction of a new refinery complex and gas processing plant. A whole number of measures to modernize the country's petrochemical industry and work on a production network of finished products involves the private sector.

Exchange rate flexibility

The Central Bank of Azerbaijan plans to move to a free-floating national currency exchange rate against a background of a flexible exchange rate policy in the long term.

In the draft strategy, the average annual change in the nominal manat exchange rate is projected at 1 percent. The exchange rate of the national currency was consolidated by 1.8 percent in 2009 and by 0.6 percent in 2010.
A strengthening of the manat rate may, to a certain extent, hinder the development of the country's non-oil sector, but in the question of inflation, this is, undoubtedly, a positive factor, as national currency strengthening means cheaper imports.

Today the main task of the Central Bank of Azerbaijan is to keep inflation at a stable single-digit level. The country is setting itself the task to keep inflation at a low level and to avoid a sharp change in the national currency exchange rate towards depreciation or appreciation.

The draft strategy for 2025 predicts the rate of the annual change in the consumer price index at three percent level.

Apart from switching to a flexible exchange rate to ensure more effective targeting of inflation, provision is being made for a new framework of monetary policy and its effective adaptation, a reduction in interest rates in a synchronized way by means of the implementation of the objectives pertaining to inflation. The strategic objective for the central bank is to ensure the active role of the financial system in the diversification of the economy.

The banking sector remains the core of the country's financial system. The government's projections cite an increase in the ratio of the banks' credit portfolio to GDP from 24.7 percent in 2009 to 50 percent by 2025. Taking into consideration the forecasts for an increase in the ratio of the deposit portfolio to 35 percent (from a level of 12.4 percent), it is very important to strive even more to increase confidence in the country's banking sector.

Along with the banking sector, the government has great expectations for the development of other areas of the financial sector -- insurance and leasing. The potential of the insurance and leasing markets in the country is assessed in virtually the same way and it is being forecast that in the course of 15 years the volumes of each of them will reach tree percent of GDP, or $3bn.

Enough safe food

The subject of food security could be applied to Azerbaijan, as being rich in land resources. The issue of mass production of genetically modified produce is pressing worldwide. Foreign scientists suggest that in about 40 years' time the problem of the world's food security could become especially acute.

The draft for Azerbaijan's economic development for 2011-2025 proposes increasing the farming area per capita roughly from three percent in 2009 to ten percent in 2025. An increase in the ratio of ecologically pure agriculture in general crop acreage from 0.45 percent to ten percent is being projected.

The range of measures within the framework of the long-term strategy will help to resolve global social problems, among which a reduction in poverty and unemployment are of special importance. Thus, the government is setting itself a target to reduce the level of unemployment from six percent in 2009 to three percent in 2025.

These objectives are, clearly, quite ambitious but they are perfectly feasible, bearing in mind the current situation in the country's economy, existing possibilities and political will. If Azerbaijan succeeds in implementing these plans in full, in 15 years' time the country will enter a qualitatively new stage in its development and will occupy a completely different niche in the world classification of countries for the level of development.