This paper examines Azerbaijan Republic’s 2004 Article IV Consultation and Fourth Review Under the Poverty Reduction and Growth Facility. A long-term oil revenue management strategy has been adopted by the authorities, targeting a path of non-oil deficits over the medium term that seeks to preserve macroeconomic stability and also avoid overstretching implementation capacity. To ensure coherent fiscal policy, annual budgets will need to start from the poverty reduction strategy and incorporate public investment and regional development programs.
1. The following information has become available since the issuance of the staff report. It does not change the thrust of the staff appraisal.
2. Macroeconomic developments remain consistent with program projections and objectives. Real GDP grew 10 percent during January-November 2004 relative to the same period in 2003. The CPI index increased 2.3 percent in November following the significant administrative increase in domestic energy prices (staff report, ¶ 49). Net of the direct effect of these energy price increases, inflation in November would have been 0.7 percent. The nominal manat/US dollar exchange rate has remained stable. The growth in monetary aggregates has slowed modestly, with annual manat reserve money growth declining to about 33 percent at end-November, compared to 38 percent at end-September.
3. There were four prior actions for the completion of the fourth review under the PRGF, as summarized in Table 8 of the staff report. All have now been implemented, as follows (i) the National Bank Law (NBL) has been adopted, as Parliament passed an NBL consistent with staff advice on December 10, 2004, and the President signed the law on December 21; (ii) the authorities informed the staff on December 15 that the policy of giving all banks the right to serve as collection points for gas and water bills has been in effect for some time, and the respective utilities also cooperate with all participating banks; (iii) a medium-term path of non-oil deficits consistent with staff advice has been approved through a Cabinet of Ministers’ instruction of December 6, 2004, specifying a 2.4 percent increase in the non-oil fiscal deficit relative to non-oil GDP in 2005, and a one percent increase in subsequent years through 2008; (iv) the authorities announced on December 7, 2004 that pensioners are free to choose the payment outlet (including private commercial banks) they wish to receive their pensions, and the ATM cards issued to pension recipients can now be used at any ATM in the country.