Baku, Azerbaijan, July 10
By Sara Israfilbayova, Matanat Nasibova, Kheyraddin Nasirzade - Trend:
The Central Bank of Azerbaijan (CBA) believes that this year the inflation will remain within the declared framework, that is, at 4±2 percent, a source in the CBA told Trend.
According to CBA estimates, stabilizing factors remain that allow balancing short-term inflation risks.
The main factors affecting the stabilization of inflation include favorable international situation, a surplus balance of payments, a balanced foreign exchange market and monetary conditions of anti-inflationary nature, the CBA said.
In turn, Azerbaijani MP, a member of the parliamentary committee on economic policy, industry and entrepreneurship Rufat Guliyev said that high inflation isn’t expected in Azerbaijan.
In an interview with Trend, he noted that if salary growth continues in Azerbaijan, this may be accompanied by a rise in inflation by a maximum of one percent.
He substantiated his forecast by the fact that the volume of gold and foreign exchange reserves is growing in Azerbaijan, which also holds back all possible risks associated with changes in oil prices. This factor is taken into account in the budget law for this year, and funds are provided for leveling the impact of price changes in the oil market, the MP noted.
Thanks to successful economic policy, the level of public debt was reduced from 22 to 19 percent of GDP, he said, adding that the growth of the non-oil sector, exports and import substitution are the evidence of sustainable economic development in the country.
Due to the intensive development of the economy, the devaluation of the national currency isn’t expected, because in the first quarter this year, GDP growth was 3 percent, which is already a good indicator, Guliyev said.
He noted that Azerbaijan seeks to develop the economy, bringing it to the European model, in which the share of small and medium-sized businesses in total exceeds 50 percent of the country’s GDP. The expert also noted that government promotion of microbusiness accelerates the process of economic development and creates fertile ground for the investment climate.
The expert added that it is necessary to improve the domestic market and the quality of export products, making it more knowledge-intensive and capital-intensive.
The assumptions of some experts that the introduction of a social package, an increase in the minimum salary and pensions in Azerbaijan will lead to sharp increase in inflation aren’t justified, Elshad Mammadov, professor at Azerbaijan State University of Economics (UNEC), said.
In an interview with Trend, he said that there can be demand-pull inflation and cost-push inflation.
“Demand-pull inflation is observed when there is an excess of money supply, which in turn affects price increases,” he said. “Cost-push inflation also occurs when, due to high prices for monetary resources, high prices for product are also formed. That is, in fact, prices are rising due to high prices on costs and high monopolization of the market.”
In Azerbaijan, starting from the time when the state gained independence, there was cost-push inflation, and a lack of demand-pull inflation, which was associated with high prices for credit resources and a high level of monopolization, which led to shortage of money in the national economy, he noted.
Meanwhile, today it is already scientifically proven that inflation is formed both in the case of an excess of money supply, and in the case of its shortage, he added.
“In our case, there is lack of money supply, which prevents the progressive development of the national economy,” he said. “Accordingly, the decision of the head of state to increase the social spending package is a thoughtful step, as it aims to increase the money supply in the country.”
The Azerbaijani economist noted that there is no inflationary risk associated with an excess money supply in Azerbaijan.
“On the contrary, I believe that it is necessary to further increase social spending, as this step won’t lead to an increase in inflation,” he added. “However, there are other risks to which attention should be paid. They may arise if some unscrupulous businessmen increase prices for their products using their own monopoly status in conditions of weak competition in the market. Consequently, the relevant state services should clearly work towards de-monopolizing the market and prevent artificial price increases. There are reasons to believe that inflation may rise not because of the excess money supply, but because of the market monopolization.”
He said that the inflation rate in Azerbaijan by the end of this year won’t exceed 5 percent.
In Azerbaijan, through raising the minimum salary to 250 manats by order of President Ilham Aliyev dated June 18, 2019, the minimum salary exceeded the subsistence minimum for the first time.
The current subsistence minimum is 180 manats, and starting from September 1, the minimum salary will exceed the subsistence minimum by almost 40 percent.
At the same time, as a new legislative initiative by President Ilham Aliyev, the minimum pension will rise from 160 manats to 200 manats from October 1, thereby the minimum pension will exceed the subsistence minimum of pensioners up to 34.2 percent (149 manats).
The increase in the minimum salary will cover 950,000 people, and the growth of salaries in various spheres of the public sector – 400,000 people.
The social package provided this month has allowed a serious increase in salaries of 1.35 million people, pensions of over 750,000 pensioners, and a total of salaries and pensions of 2.1 million people.
The additional financial burden of the state on this increase amounted to 2 billion manats.