Interview with Oktai Hagverdiyev, head of the Economy and Finance-Credit Policy Department of the Cabinet of Ministers
Question: The Azerbaijani economy is developing in unseen speedy pace. 2005 has become a turning year in the rise of major macro-economic indices and the tendency is expected to continue in 2006. However, some international and financial institutes assert that the вЂ�boomвЂ™ in the national economy was possible at the expense of the oil sector. How much grounded are such statements seen to you and do they reflect the reality?
Answer: Historically, oil and gas industry of Azerbaijan was the face of Azerbaijani economy, and it remains to. Why should we shy in this respect then? When we started the implementation of the oil strategy in 1994, we set only this goal. At least, this year we achieved it and there is nothing shameful in it. In 2004 and in the previous years the growth pace of the non-oil sector was 13.2%, while its share in the Gross Domestic Product (GDP) was 70%, but oil sector 2.5% and 30% respectively. In 2005 oil production from the contract areas grew by 4.8 million tons and gas вЂ" 831 million cu m. Obviously, such rise was to get reflection in
the structure of the GDP. In particular, it is expected to rise 20% in the GDP, while in the oil and gas sector it will exceed 40% and its share will increase from 30% in 2004 to 42%. So, rise in the non-oil sector will constitute 11-12%, and naturally, its share will reduce from 70% to 58%. Is 11-12%-rise in the non-oil sector a dynamic growth?
Question: In compliance with the forecasts of the International Monetary Fund (IMF) amid 24-30%-rise of the GDP in 2005, a growth of the non-oil component is to reduce to 8%. The calculations by the government differ from these figures. How could you explain the difference?
Answer: As to 2006 and the nearest perspectives, an increase of oil and gas production will be more considerable. In particular, oil production from the contract fields will increase from 11.3 million tons in 2005 to 52.3 million tons in 2009, while gas from 1.8 billion cu m to 3.4 billion cu m. Following a sharp rise in the oil and gas production growth pace in the oil and gas sector will decrease due to high comparable base. The governmentвЂ™s forecasts testify that annual growth pace in the fields of non-oil sector in 2006-2009 will be 10-12% and its share will constitute 70% in 2009.
Question: The IMF states on the first manifestations of the вЂ�Dutch DiseaseвЂ™ in Azerbaijan. How grounded are such statements?
Answer: Understanding that oil and gas are unrecoverable reserves, we will give priority to the development of non-oil sector, including the agriculture. So, it is absurd to urge that вЂ�Dutch DiseaseвЂ™ threatens Azerbaijan.
Question: In 2006 Azerbaijan expects considerable rise in the public budget indices, in particular, in the expenditure part. Could it result in rise of inflation ratio, taking into consideration the planned denomination?
Answer: As to inflation predictions in connection with the considerable use in the budget expenses, the government has effective mechanisms, enabling to increase the non-cash money mass from 30 to 50-55% along with the money mass. Besides, there appeared a chance which should not be lost: the legal entities and community should be enhanced while exchange of old manats in to new one at banks the legal promoting them to leave part of the new manat in the banks. At any rate, next year we will be able to avoid technical inflation due to rounding of prices and tariffs in the consumer market. It is possible to avoid it, if supply exceeds demand (for amount and structure) by 25-30% as minimum.
Question: Which line does the government plan to adhere in managing the foreign arrears? Which sectors can be regarded as priority for attracting foreign investments?
Answer: The foreign arrears of Azerbaijan comprise 18-20% of the GDP and this is the lowest figure in CIS and East Europe. We strictly follow the schedule annually in the full amount with interests. In the subsequent years we will probably refuse from loans. However, for the time being we attract the foreign credits mainly for the development of the production and social infrastructure.