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In the news: Azerbaijan sees robust economic growth, but poverty remains

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
February 2005
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Despite robust growth and relatively low inflation in recent years, combating poverty remains a key challenge in Azerbaijan, the IMF said in its annual economic assessment. In 2000-03, economic growth was driven by foreign direct investment in the oil sector, related spillover effects in the construction and transportation sectors, substantial gains in agriculture following land reform in the mid-1990s, and solid growth in non-oil exports. Prudent macroeconomic policies and some progress in structural reforms also contributed to growth, rising gross international reserves, savings in the Oil Fund, and declining external debt ratios, the IMF Executive Board concluded.

The Board said effective management of the oil revenue surge is an important challenge and welcomed the recent adoption of a long-term strategy targeting a sustainable use of oil wealth and strong growth in non-oil sectors. It further supported the government’s decision to increase non-oil fiscal deficits gradually over the next three years, a move consistent with the strategy.

The Board encouraged the authorities to strengthen the implementation of structural reforms, which aim at diversifying the economy, reducing rigidities, and creating an investor-friendly environment. It particularly stressed the importance of enhancing financial and energy sector reforms and improving governance.

Azerbaijan20012002200320042005
Projections
(percent change)
Real GDP9.69.710.87.821.6
CPI (end of period)1.33.33.610.05.0
(percent of non-oil GDP)
Non-oil fiscal balance-10.4-14.9-16.0-14.4-16.8
(percent of GDP)
External public debt20.220.120.117.514.6
Data: IMF staff report.
Data: IMF staff report.

The use of the exchange rate as a nominal anchor has served Azerbaijan well, and the overall mix of macroeconomic policies has been appropriate, the Board agreed. To keep inflation low, the Board recommended that the authorities allow upward pressure on the real exchange rate, arising from the targeted rise in non-oil fiscal deficits, to lead to nominal appreciation.

Although some progress has been made in alleviating poverty, the Board urged the authorities to design and implement targeted social assistance and increase pro-poor government spending to cushion vulnerable groups against the adverse impact of reforms.

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