Azernews.Az

Prospects for short-term development of Azerbaijan`s economy are generally favorable, the IMF`s deputy head for Middle East and Central Asia, Nadeem Ilahi, has said.

``In 2011, the main indicator of economic development of the country, namely, the non-oil GDP, grew by 9.9 percent,`` Ilahi told a press conference in Baku last week. ``This is a very good indicator. This year, we expect non-oil GDP growth at six percent. Hydrocarbon production is unlikely to increase.``

Ilahi noted that in general, the IMF forecasts growth of Azerbaijan`s economy at a level of three percent in 2012.

``The inflation rate in Azerbaijan, which has recently declined like world food prices, could reach five percent by the end of the year,`` Ilahi said.

He said prudent fiscal policy is a key factor in maintaining macroeconomic stability in the short term.

``Reduction of the non-oil budget deficit by limiting capital expenditure will help keep inflation in 2012 at a low level,`` Ilahi stressed.

An IMF mission has paid a week-long visit to Azerbaijan. Discussions focused on the macroeconomic trends in the country to assess the short and medium term objectives of the government on economic development prospects. This is necessary for outlining priorities of discussions under item IV of the IMF agreement, which will be in focus during consultations due in fall.

The IMF mission welcomed Azerbaijani authorities` intention to avoid any additional expenditure increases this year in connection with the recent and projected increases in world oil prices.

Ilahi said further that cessation of growth in Azerbaijan`s hydrocarbon production stresses the need for a speedy transition to fiscal consolidation in order to ensure fiscal sustainability over the medium term.

``We hold regular discussions with the government on maintaining fiscal sustainability. In our opinion, the fiscal policy of the country should be adjusted in the future,`` Ilahi said. He noted that at present the state budget deficit, excluding the oil sector, is quite large.

``The government directs oil revenues to support the process of development. In the future, maintaining budget spending at such a high level will be impossible, therefore, changes are necessary in this regard,`` Ilahi said, adding that this requires the non-oil sector`s becoming the driving force of the Azerbaijani economy.

Ilahi said the IMF recommends that Azerbaijan reconsider the scope of its monetary policy.

``Monetary policy may be toughened in case of pressure in terms of demand,`` he said. ``However, the existing tools are limited and require strengthening. The mission recommends redoubling efforts to develop a new framework for monetary policy to mitigate the volatility of inflation. It also urges official bodies to make an effort to boost debt and capital markets.``

The IMF`s permanent mission began operating in Azerbaijan in 1993. However, in 2009 the IMF decided to withdraw the head of the Fund`s Azerbaijan office and reduce its staff in the country. Currently, the IMF Baku office is managed by the regional office for Central Asia and Caucasus.

Crisis impact
The IMF does not expect the crisis in Europe to directly affect the economic situation in Azerbaijan as the South Caucasus republic`s economy is stable and resistant to its impact, Nadeem Ilahi said.

The IMF official said the impact of the crisis will not be serious as Azerbaijan`s trade and economic relations with Europe are not too strong.

``The 2008 crisis indirectly affected Azerbaijan,`` he continued. ``It had a considerable impact on the Russian economy and through it on Azerbaijan. Azerbaijan`s economy is ready for an indirect impact and serious consequences are not expected since the Central Bank of Azerbaijan and the State Oil Fund have sufficient reserves and the financial situation in the country is stable.``