On September 6, 2019, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with the Republic of Azerbaijan.
The economy is continuing to recover from a banking crisis and recession. Real GDP growth reached 1.4 percent in 2018 and 2.4 percent in the first half of 2019, supported by increases in natural gas production and activity in the services sector. Higher oil prices have helped improve internal and external balances. Lower food prices and a stable exchange rate have kept inflation subdued, below the midpoint of the target band (4±2 percent). With inflation expectations well anchored and the fiscal position strengthening, the Central Bank of Azerbaijan has started to ease monetary policy. The business environment has been improving as bank lending and manat deposits have picked up.
Looking ahead, economic growth is expected to reach 2.7 percent in 2019 on strong hydrocarbon production and robust domestic demand, benefitting from new spending measures. In the medium term, economic growth is projected to settle at 2½ percent, as hydrocarbon expansion stabilizes at about 1¼ percent, and nonoil growth gradually rises above 3 percent. Inflation should remain under control, given low projected food price inflation and continued fiscal consolidation envisaged under a new fiscal rule. With oil prices expected to hover around $60 per barrel, the current account surplus is forecasted to remain sizeable. Public debt is set to decline relative to the size of the economy. Challenges remain, however, including fragilities in bank balance sheets, structural rigidities, governance weaknesses, and lack of transparency. Risks to the outlook are tilted to the downside, but Azerbaijan has room to respond to adverse shocks, given its strong net foreign asset position.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.