IMF offers Azerbaijan to stop focusing on oil price

By Azernews

By Nigar Abbasova

The International Monetary Fund (IMF) offered Azerbaijan to stop focusing on oil price while setting up the budget for the following years.

The head of IMF mission in Azerbaijan Mohammed el Gorchi told Trend that Azerbaijan should make an emphasis on a tax system oriented towards a long-term outlook, underlining that this will allow to reduce the influence of low and fluctuating prices in the oil market on the state budget, therefore there will not be a need to adjust the budget by means of transfers from the State Oil Fund (SOFAZ).  

Al Gorchi said that expectations of the Fund on the positive influence of low oil prices on the state of world economy proved to be wrong.

“Reduction of prices has not lead to the increase in demand (which was expected), while the forecast was based on the assumption that the increase of demand in importer-countries will prevail over the decrease of demand in exporter-countries,” he said.

Oil prices for 2016, 2017, 2018 will stand at $43, $50, and $53 per barrel respectively, according to the most recent forecast of the Fund.  

Meanwhile, forecast indicators of the state budget and a draft concept of the socio-economic development for 2017 and subsequent three years have already been presented to the Cabinet of Ministers. The Forecast is based on oil prices standing at $40 per barrel. Moreover, the country has also prepared two additional scenarios for forecasting the state budget given the price at $35 and $45 per barrel.

Banking sector

The head of mission also said that effective cleansing of the banking sector will resume flow of credit to the real sector of economy, underlining the importance of structural reforms for the development of non-oil sector of economy.

In its recent report the Fund recommended Azerbaijan to tighten the supervision over the financial sector and continue structural reforms, emphasizing that stronger macroeconomic policy frameworks and better financial sector supervision are needed to maintain stability in the financial sector of the coutnry .

IMF hailed the ongoing measures to close non-viable banks, and recommended further prompt actions to bolster the resilience of financial sector, recommending the authorities to move ahead with the restructuring of the largest state bank with a view to its privatization, and address the problems in the rest of the banking system.

Development of non-oil sector

The head of mission said that the shift to a new economic model, one based more on the  growth of non-oil sector, will require a fuller liberalization of goods, labor, and product markets, properly functioning financial markets, and greater efforts to improve governance.

El Qorchi added that a number of positive economic reforms have already been undertaken in Azerbaijan, but more needs to be done.

Development of non-oil sector and plans to minimize oil dependence still remain one of the most important issues for the country, which has been searching for alternatives to petrodollars received from the oil and gas export since long time ago. The government is paying special attention to diversification, relevant programs were adopted at the state level on the development of non-oil sector, which covers mainly agriculture, industry and IT sectors.

Economic indicators

The IMF improved its forecast of inflation in Azerbaijan for 2016 and 2017 by reducing the level to 10.2 and 8.5 respectively. The previous forecast of the Fund was at the level of 12.8 and 9.5 for 2016 and 2017 respectively.

The rate of inflation is expected to sharply reduce to 4.2 percent by 2018, while it is forecasted to stand at 4.1 and 4 in 2019 and 2020.

The Fund appreciates measures taken by the government, as well as the recent increase of interest rate, which is aimed at deterrence of inflation in the country. IMF experts believe that the policy pursued in the country will lead to the gradual reduction of consumer prices.

IMF's office has operated in Baku since 1992. The Fund allocated loans worth $577.3 million to Azerbaijan for supporting the country's economic reform program during 1995-2005. Azerbaijan has fully repaid the loans.