In 2007-2008 the World Bank forecasts an annual rise in expenses of the Government of Azerbaijan by approximately 35% overall, Trend reports citing WB's Partnership Strategy with Azerbaijan Government in 2007-2010. The key reason for the rise is the continuation of the construction program.
WB and IMF voiced their concern over the increase in public expenses at the current rate, which puts pressure on inflation. The Government considers that over the past few years the Azerbaijani economy has received foreign investments on a level exceeding 30% in connection with the implementation of the project on the construction of the Baku-Tbilisi-Ceyhan main export oil pipeline, the South Caucasus pipeline with relation to the oil and gas exploration. After the investments have been utilized, the Government intends to carry out a major investment on the infrastructure. However, the Government is aware of the risk of inflation and is eager to cut the rate of investments and other measures to increase it.
From 2009 the WB forecasts the cut in the growth rate of expenditure by approximately 10%.
The reports noted that in 2007-2008 the non-oil fiscal deficit, exceeding 40%, will reach its maximum and then will decrease. The government's policy will be stable in case of maintenance of current oil prices. As a result the assets of the State Oil Fund of Azerbaijan (SOFAR) will reach $35bln in 2010.
However, the current strategy has a risk of heating the non-oil sector and there is a risk of Dutch Syndrome and a decrease in value of resources. In 2007-2008 the growth rate of annual inflation is forecast at a level of 17%, but is expected to fall to 10%.
WB recommends the continuation of structural reforms to minimize the risk. As a result the domestic resources will become vacant, operation expenses will reduce and productivity will increase, which in turn will prevent any negative outcomes from the increase in the efficient rate of the manat (national currency).