Interview of Trend with the deputy director of the IMF Department for Central Asia and Middle East, Vitaliy Kramarenko
Question: Was there a proposal during your last talks with the Azerbaijani government about a new form of cooperation Stand-by, which stipulates support to macroeconomic stability?
Answer: The Azerbaijani government is more interested in regular consultations in the context of control over macroeconomic situation. It depends on many parameters and reviews will be made as minimum once a year in compliance with Article 4 of the Agreement on the IMF within the framework of large mission. As required there can be one or two missions
Question: Was the IMFs proposal on changes in the system of taxation of the State Oil Company of Azerbaijan (SOCAR) considered in the meetings held at this oil company and the Azerbaijani government?
Answer: I think the system has been changed and it found its refection in 2006 public budget. A progressive export tax was injected and now the government is working over the methods of calculation of tax remittances by the SOCAR. As the budget has a force of law, non-injection of the notion export tax in Tax Code suits us (the IMF offered injection of export tax on oil in the Tax Code Trend).Rise in the oil prices will bring additional incomes.
Question: Did the discussions concern the question on the use of the funds of the Stabilization Account, which was given to the disposal of the SOFAR, in case the oil prices turn out lower than those set in the public budget ($40 per barrel)?
Answer: As oil prices have reached $70 per barrel, then most part of oil revenues will remain in the Oil Fund, as all profits directly go to the SOFAR. In case the prices vary from $40 to $70 the funds will also flow to the SOCAR. The Government can collect more non-oil incomes and they will be transferred to the public budget.
Question: Could you inform about the IMFs new proposals presented to the Azerbaijani government for more efficient management and use of oil revenues?
Answer: We have proposed the government to transfer all incomes linked with the profits from the oil production, including the export tax remitted by the SOCAR and profit tax, to the SOFAR. It is the natural resource rent and should be accumulated in the Oil Fund, which in its turn must finance all government expenses through one big transference.
The government explained that a range of issues should be resolved to plan the actions and it cannot be adopted within a year. It is very important that the revenues of the SOFAR and the public budget are submitted to the consideration of the parliament and the Milli Majlis [Azerbaijan parliament] knows the directions of the use of these funds, as the budget is consolidated.
Everything is normal in Azerbaijan in sense of transparency, while in respect to the management of revenues it will be more efficient to accumulate the oil funds in one place. In this case the NBA would also find easy to conduct monetary policy. It is very important that the government adheres a principle of adoption of all incomes and revenues through the parliament.
If all oil revenues entered the State Oil Fund and remitted to the public budget from one source in manats, they would not depend on the oil prices and fluctuations in the currency rates. It would easy the budget management and conduct of the monetary policy.
Question: What is your attitude on the NBAs policy on consolidation of the rates of national currency, which has been conducted since last year?
Answer: It reflects pressures by the market. The market now offers more and more dollars and this pressures is made by the private sector and government, as well as the SOFAR. The National Bank has its own private quantity indices on money base and in its policy it replies to the reaction by the market. It cannot be regarded as an artificial increase or cut in rates, it is pressure by the market.
It is normal, as manat is to be converted to pay the expenses. If to view the successful development of oil export we can observe that it comprised over $750m last year and these funds fell on domestic market. Non-oil exporters and private sector also convert dollar to carry out the transactions.
In this respect growth pace of inflation will depend on possibility of sterilization of all purchase operations with currency which the NBA carries out with the government, and the flexibility of the government - if it is necessary to cut expenses to assist the NBA to achieve own indices on monetary policy.
There are still risks that the inflation will come out double-digit in case the NBA finds insufficient flexibility in the currency and interest rate policy and if the government entirely fulfills the budget. It will not be too high, but can become a double-digit. If the governments forecasts become into reality, first all mechanisms of monetary policy will be utilized. Unless they turn out effective, the budget will have to help and the inflation can be a digit figure.
Question: The State Statistics Committee supposes that it has perfect method of calculation of the consumer price index and it coincides to the last instructions by the International Labor Organization (ILO), the IMF and the Organization of Economic Cooperation and Development (OECD). In this respect the Committee does not see necessity for the development of a new methodology and technical assistance by the Fund…
Answer: No revision of the kind has been carried out. Absolutely new methodology was injected and many improvements were introduced. Index on many indices of the State Statistics Committee of Azerbaijan was brought in line with the international standards. However, in order to define how it came closer to all parameters another large technical mission is required to get familiar with all aspects of calculation of the index.
The mission is expected in the nearest 6-9 months and it will conduct full analysis of all aspects of calculation of consumer price index, which was done in compliance with the new methodology.