BAKU, Azerbaijan, October 26. Economic reforms that strengthen the business environment and encourage entrepreneurship will increase private investment in Azerbaijan and accelerate overall annual GDP growth by about 0.3 percentage points until 2050, Trend reports via the "Azerbaijan. Country Economic Memorandum" publication from the World Bank (WB).
"Historically, Azerbaijan reports moderate rates of private investment compared to its income peers. In UMICs [Upper Middle-Income Countries], private investment ranges from 10 to 35 percent of GDP, with several countries reporting rates above 20 percent of GDP. The simulated scenario assumes that Azerbaijan would implement reforms to improve market efficiency and competition, boosting private investment to 20 percent of GDP by 2030," the report said.
According to the WB, these reforms would have a strong impact on growth in the early years, generating an additional 0.5 percentage points of GDP growth in the 2030s. However, in the absence of additional productivity-enhancing reforms, the return on private investment will decline significantly over time. As a result, additional growth will decline to 0.1 in the 2040s. This slowdown indicates that investment alone does not ensure sustainable long-term growth.
At the same time, WB noted that a growth strategy based on increased public investment would lead to small economic gains.
"The simulated public investment path is assumed to be growth-supporting till 2030 (given the necessary increased fiscal spending on reforms) but would start to wane slowly between 2030-2035. Increasing public investment to 8 percent of GDP until 2030 would generate only a small boost to GDP growth in the medium term (+0.2 percentage points in the 2020s) and nearly zero extra growth in the longer term," the report said.
As the WB explained, two factors explain the small impact. First, global experience shows that it is difficult to maintain high levels of public investment for over several decades. Second, as with private investment, the return on public investment declines over time without additional reforms.
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