By Gulgiz Dadashova
It's time to bury expectations that Azerbaijan’s economy will not be able to stand strong under pressure from falling oil prices and economic growth, earlier driven by the energy revenues, will be below zero.
True, Azerbaijan, the largest country in the southern Caucasus with over 9 million people, has seen a fall in revenues from energy exports in dollar terms. But because the country’s Central Bank has ceased the manat’s peg to the dollar, the manat value of revenues will be higher than they otherwise would be.
The good news for the economy is that financial institutions such as Fitch share the CBA’s views that no further devaluation is expected.
Unlike Azerbaijan, other CIS countries have faced deeper devaluations. In the case of Azerbaijan, however, Fitch does not consider this as a baseline scenario, Dmitry Vasiliev, the director of the agency’s Financial Institutions told Trend.
The country also outpaces many regional countries for its macro-economic indicators. In the first six months of 2015, Azerbaijan's GDP grew by 5.7 percent, while the GDP of Kazakhstan showed only a 1.7 percent growth, and Georgia grew only at about 2.6 percent. Some countries, such as Russia, Belarus, or Ukraine, are burdened with negative growth in their respective economies so that for the first six months of 2015, Russia's GDP fell by 4.6 percent, Belarus by 3.3 percent, while saw a whopping by 16.3 percent fall in the GDP.
Meanwhile, Azerbaijan’s non-oil economy has grown by over 9 percent, the inflation is at a very low level, agriculture has increased by 7.3 percent, the non-oil industry has grown by 14 percent, said Azerbaijani President Ilham Aliyev during a meeting dedicated to preparing the 2016 state budget.
International financial institutions such as European Bank for Reconstruction and Development, and the Asian Development Bank expect Azerbaijan’s economy to grow at a rate of 1.5 this year.
The World Bank, in turn, expects 2 percent growth of Azerbaijan's economy in 2015.
"We have revised our forecast upward because Azerbaijan's economy showed unexpected growth by more than five percent in the first half of 2015,” WB’s Baku office told Trend on September 10.
The actual growth of the GDP, however, may exceed these expectations given the measures taken to diversify the economy, namely the manufacture of finished industrial products, the development of production capacity, and the processing of agricultural products.
As President Aliyev said at the September 8 meeting, steps taken towards diversification and development of Azerbaijan’s non-oil sector helped to go out of the situation with minimum losses. So today, against the background of a dismal world economic outlook, Azerbaijan stands as one of the few countries that has managed to preserve its sovereign rating.
Recently, Fitch Ratings confirmed the long-term issuer default ratings (IDR) of Azerbaijan in foreign and local currencies at ‘BBB-’, representing a "stable" outlook. When compared to instability in the rest of the world, this is actually quite an achievement, especially in terms of attracting foreign investment.
The real growth of the non-oil sector in 2015 will reach 5 percent and real GDP growth will top 2.3 percent, according to Fitch. Already in 2017, non-oil sector revenues are projected at 15 per cent of the GDP.
Also, Azerbaijan continues to have a positive balance of trade considering the significant financial challenges facing a number of oil-exporting countries. At a time when many energy exporter countries have foreign trade deficits due to the sharp decline in financial revenue from the sale of oil, Azerbaijan's exports were twice as high as imports in late July 2015. The positive balance in foreign trade has reached $2.167 billion in the first seven months of 2015.
The country also could provide further economic growth through a more efficient distribution of domestic production, which helped reduce costs and minimize the negative impact of the crisis. The establishment of Azerishig can be cited as an example. Azerishig, which became the only institution that deals with all processes related to the distribution of energy while helping improve the efficiency of the energy system of the country.
The government also revised its policy on extraction of precious metals by creating AzerGold. The creation of this separate structure will not only increase the production of non-ferrous metals, but also to optimize the entire production and manufacturing process. Last but not least, one should remember that precious metals like gold have always acted as a “safe haven” during crises.
The optimization also affects state agencies, which have brought with them the development of e-services in the country. Ultimately, this makes life easier and improves the standard of living, simplifies doing business, and reduces government spending, which is especially important in the context of the ongoing crisis in the world.
Azerbaijan is also betting on agriculture, as this year has been declared a "Year of Agriculture". Azerbaijan ranks the 58th among 109 countries of the world according to the Global Food Security Index 2015. This year, Azerbaijan stands 10th among Asia and Pacific countries.
The government also began to heavily invest in road, rail, and air networks to attract rising Eurasian trade. This year already saw an important event for the transport sector with the arrival of the first container train at the Baku International Sea Trade Port from China via the Trans-Caspian international transport route. The year-end will mark the launch of another major regional project—the Baku-Tbilisi-Kars railway project, which is expected to bring enormous benefits.
Of course, Azerbaijan is not fully able to avoid the negative impact of falling oil prices on the economy as some experts argue that oil prices will still be lower in 2016. Nevertheless, the government continues to work towards improving the efficiency and optimization of public spending, which has shown positive results based on economic indicators in recent months.
Azerbaijan’s durability, together with developing sectors such as tourism, agriculture, transport and renewable energy resources provides real potential for growth.
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