After the resolution by the Tariff Council of Azerbaijan, dated 6 January 2006, on increase of tariffs of utilities, energy resources, transport fairs in city transport, two many forecasts are made on further development of economy in the country. Taking into consideration that international organizations recommended the Government of Azerbaijan to bring the prices in line with the world standards, Basel Zavoico, Head of the International Monetary Fund (IMF) Baku Office, commented on the situation in his exclusive interview with Trend.
Question: What is the difference in calculation of the growth rate of inflation by the Fund and Government of Azerbaijan? IMF forecasted two-digit inflation in Azerbaijan without consideration of this increase, while the Government of Azerbaijan insists on maintaining single-digit inflation.
Answer: There are two forms of calculation of consumer price index вЂ" general and basic. The common inflation is calculated through combination of all prices that the consumer faces and the difference between the two periods is calculated. IMF calculates the general inflation basically through the difference between the indexes for December 2005 and December 2006. The NBA calculates the average indicator for 12 months of one year and compares it with the similar period of previous year. Sometimes, it leads to different results.
At the end 2006 IMF forecasted 11.5%-rise in inflation in Azerbaijan, whereas the NBA calculated the basic inflation for 2006 in the amount of 8.5%. It means that NBA has achieved its objectives on preservation of single-digit inflation in the country.
While comparing the growth rate of inflation from year to year the inflation rate turns out higher if price rise occurs at the end of the year. If to imagine that no changes have occurred over 11 months, then a big difference will be obtained while comparing the indices for December of two years rather 12 months of 2 years. So, it is necessary to know the periods of coverage while calculating the inflation.
As to the difference between the general and basic inflation, the index of consumer prices includes several indices and one of these groups cannot be resulted by NBA. The National Bank cannot forecast them in advance. This group includes electricity, water prices, transport tariffs, etc. NBA cannot be aware of further steps by the Government in this direction.
Another indicator that cannot be forecasted is the prices of foodstuff, because it depends on many factors, particular the climatic conditions. The production of foodstuff reduces even in unfavorable weather conditions and prices at the market grow. While shaping its monetary policy NBA takes into consideration this group of indices. So, basic inflation was taken into consideration while forecasting a single-digit inflation ratio in 2006.
I think over the past few years the National Bank improved its skills in the formation of policy and fulfillment of monetary policy. The personnel have been expanded, international technical assistance by the Government of Switzerland, BP, within the framework of technical assistance to the State Oil Fund to assist NBA. We believe that a serious group has been formed at the NBA.
Question: What are your views on the outcomes of current price rise and what can be IMF recommendations to Azerbaijan in this respect?
Answer: This question will be considered during the February mission of IMF, because we have not determined the level and concrete directions of the price rise in the country. We are going to send all necessary materials to the IMF so that the mission could begin appraisal work.
We are attentively treating the impact of this resolution on all directions, including the public budget. It is impossible to conclude this work so rapidly, because the volume of new data is quite large. The work on the appraisal will be concluded in February during the visit of IMF mission headed by Vitaliy Kramarenko, the IMF Near East and Central Asia Department Deputy Director.
Question: How much were the IMF recommendations to the Government of Azerbaijan on the cut in rate of use of public budget funds implemented?
Answer: We consider that the Government should carefully approach the pubic expenses. Otherwise it will influence not only the inflation processes, but complicate the quality of the funds use. During the forthcoming mission one of the issues will be the consideration of the growth rate of budget expenses and their relevance to the rates proposed by IMF.