Azernews.Az

By Gulgiz Dadashova

The Central Bank of Azerbaijan (CBA), which oversees financial market and financial system stability and operations in the country, is keen on keeping focus on a new quality of economic development, while realizing the monetary policy in 2014.

In the mid-term, the bank lists flexible fiscal and monetary policy and further improvement of currency service as primary objects.

Azerbaijan's economic growth is projected to hit 5.2 percent and exceed the average growth rate in the world and CIS area by 2 to 2.5 percent. Double-digit increase is expected in the non-oil sector, while the state investments will play a significant role in formation of internal investment activation.

According to the bank's projections, high employment among population, increase in their revenues, and consumer loans will boost positive trend in consumer demand next year. In this regard, the gradual substitution of interior demand with external demand and export diversification are among the strategic goals for 2014.

The Bank notes that export oriented development model stipulates increase of the trade sector's share in the economic development and formation of special weight in employment that will result in the rise of state budget. Strong macroeconomic buffer and stability are the main basis that will ensure the steps to be taken.

"Fiscal maneuver policy being realized in Azerbaijan, which is successfully completing the most active cycle of budget policy, provided a new level of economic development in addition to ensuring fiscal sustainability. From this perspective, the development quality will be ensured with the increased role of the private and external demand," the CBA statement on main directions of monetary policy and financial stability in 2014 reads.

Inflation targeting will again be a hot topic of 2014 as the CBA macroeconomic policy for next year will be aimed at preservation of single digit inflation.

Despite the Tariff Council of Azerbaijan's decision to increase the price of fuel and energy products, the level of inflation in the country in the current year will remain as it was predicted.

"The average inflation rate in the country in January to November this year was 2.3 percent, despite the double-digit growth in the oil sector and the high consumption and investment demand. Slowdown in global food prices, the positive dynamics of money supply growth and stability of the national currency are essential to curb inflation. Increasing food self-sufficiency by boosting domestic production also played a stabilizing role. Inflation rate over food, which constitutes a significant part of the consumer basket, was 2.2 percent," the statement reads.

The Central Bank will provide the necessary support for implementation of the inflation forecasts for the next year, using the available tools at its disposal to influence the regulation of core inflation.

The bank developed several scenarios of monetary policy for the next year, depending on the macroeconomic situation.

"In case of the risk of exceeding the real price growth over the projected figure, anti-inflationary measures will be taken. Also, the bank will take into account the possibility of easing monetary policy if the actual inflation will be lower than the projected, or in the case of risks in economic growth in the oil sector," the statement reads.

According to the state forecasts, consumer price inflation is expected at around 3.5 percent in 2014, 3.8 percent in 2015, 3.9 percent in 2016, and 4.1 percent in 2017.

The CBA, the strategic currency reserves of which form the country's strategic assets, forecasts to save the surplus balance of payments in 2014 and in the medium term.

The forecasts suggest that the current account surplus will be significant in 2014 and will reach 15 percent of GDP, while foreign exchange reserves will continue to grow.

The currency reserves of the CBA amount to $13.58 billion as of November.

Azerbaijan's strategic currency reserves rose by 8.5 percent in the first eleven months of current year, surpassing $50 billion. The country has entered the list of world's top 20 states over the ratio of the strategic currency reserves to the state's GDP.

The CBA, which is also in charge of regulating the size of nation's money supply, availability and cost of credit, and the foreign-exchange value of its currency, will further aim to enhance the competitiveness of non-oil sector of the economy and maintain financial stability.

"The bank's exchange rate policy will be focused on maintaining the stability of the national currency and a balance in the currency market in 2014. The operation frameworks under this policy will also be defined in the framework of bilateral targeting of the dollar/manat," the statement reads.

The central bank also noted that the trade surplus has become a major macroeconomic factor affecting the rate of inflation in 2013.

"On the background of the significant balance of payments surplus and active spending of the growing cash income for social and economic development, excessive strengthening of the national currency was prevented. To this end, foreign currency in the amount of $2.1 billion was seized from the market. Since the beginning of the year the rate of manat to U.S. dollar increased by only 0.08 percent. Manat keeps the position as the most stable and reliable currency in the region," the CBA noted.

Also, measures will be strengthened to protect and improve the quality of the banks' loan portfolio in 2014.

"To maintain a balance between consumer credit and solvency of the population, the bank will identify new regulatory measures aimed at preventing high leverage of consumer loans. It is planned to apply the ratio of lending debt to income, and the Central Bank will determine the maximum threshold on this factor," the bank said.

In addition, a "responsible lending" policy will be applied in banks in the future.

To reduce interest rates on loans the bank intends to develop new lending instruments that are based on advanced standards.

'"The promotion of competition in the banking sector, improving operations management in banks, development of other segments of the financial market and the increase in resources of population and economic entities will be among priorities.

These measures, according to the Central Bank, aimed at expanding the resource base of banks and improve the economic and financial conditions for the reduction of interest rates on loans based on the effective management of the resource base.

The activities of regional networks of financial institutions, including non-bank credit institutions and microfinance institutions, will also be encouraged with a view to increase the regions' access to financial resources.

The banks' assets grew by 22 percent in January-November 2013, and the loan portfolio sector by 25 percent. The volume of loans directed to the regions also increased by 31 percent. Lending to the private sector increased in this period by a quarter, as well.

Currently, the private sector accounts for 85 percent of Azerbaijan's economy. The country's foreign debt accounts for only 8 percent of the gross domestic product. The state is investing in the non-oil sector, which accounts for 55 percent of the economy.

The 2014 budget signals a good fiscal year. The state budget revenues and expenses for the next year are projected to be 18.384 billion manats and 20.063 billion manats, respectively.