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Azerbaijan – a country with high average income

Analysis Materials 19 October 2010 12:09 (UTC +04:00)

Last week, during discussions over public budget at the Parliament, important statements were made on the economic policy of Azerbaijan. In 2011, GDP per capita is projected at $5,540, Shahin Mustafayev, Minister of Economic Development, said. "According to the forecasts, the rates of economic growth will hit 3.8 percent and the nominal value of GDP is projected to the amount of 40.2 billion manat (about $ 50 billion)," the minister said.

Azerbaijan has a task to move from the first to the second group of middle-income countries, chairman of the Central Bank of Azerbaijan (CBA) Elman Rustamov said.

According to World Bank classification, the countries with "low income" are states in which per capita income does not exceed $825 per year. Countries with indicators $825-3,255 makes up a group of "low average incomes", and the group of "high average incomes" is formed by the states with indicators of $3,255-10,066, the rest form a group of states with "high income".

"Azerbaijan over the last 15 years of its development path has become a middle-income country: though earlier Azerbaijan faced a problem of over 60 percent of poverty, now the country has a quite different task - to go on developing," Rustamov said. He said middle-income countries are divided into three groups. Now Azerbaijan is in the first group and its main task in the new strategic period for the next 8-10 years is to move to the second group by ensuring double economic growth.

For this purpose, the main goal is to diversify its economy and to ensure its sustainability. Economic policy and medium-term forecasts of the state budget, monetary, macroeconomic, currency and anti-inflationary policies are assessed right from this position. The country's financial sector is expected to complete measures to improve the banking sector, privatization and development of financial mediation, which will enhance and consolidate the banking sector.

There is potential for dynamic socio-economic development in all sectors of Azerbaijani economy next years. The mid-term economic growth is projected at 7 percent till 2014. As GDP per capita hits $7,100 in 2014, Azerbaijan will strengthen its position among the countries with high average income. Inflation rates are expected to hit 5 percent rate next year. The national currency will hit 0.804 manat compared to U.S. dollar. Taking into account the forecasts of international organizations and the oil-producing countries, oil prices were fixed at $60 per barrel in the state budget.

The legislative base and state regulatory systems, business climate will be improved. The activities on state, especially small and medium enterprises will be expanded. Foreign and local investments are planned to be attracted to ensure this growth on behalf of the Azerbaijani President to develop the private sector. The actions are planned to be made to develop non-oil sector within the state program of socio-economic development of regions.
Over 211 enterprises, including 80 industrial companies, 57 - agricultural companies and 63 - companies rendering services are being built now, minister said.

The growing currency reserves of the country also contribute to appearing in the list of countries with high average incomes. Thus, according to the Ministry of Finance, Azerbaijan's strategic currency reserves hit $26.5 billion. Strategic foreign exchange reserves are formed from CBA foreign exchange reserves, SOFAZ assets and government deposits. As of the end of the third quarter, the currency reserves of the Central Bank of Azerbaijan (CBA) amounted to $6.057 billion in late third quarter. The figure is more by 895.9 million or 19 percent compared to early 2010.  

Already in 2008, the CBA balanced currency composition of the portfolio and today 60 percent of the available currency reserves are in USD, while the remaining 40 percent - in euros and pounds sterling.

The forecast on the state budget was developed in accordance with the strategic objectives and development priorities of Azerbaijan, and focused on maintaining social and economic reforms; strengthening social security, defense capabilities, economic, energy, food and environmental security; ensuring socio-economic development of the country's regions; funding of the targeted state programs and other important events.

Revenues of the 2011- state budget will increase, by 4.8 percent to 12.061 billion manat (30 percent of GDP) compared to 2010 and expenditure - by 3.9 percent to 12.748 billion manat (31.7 percent of GDP). Deficit of Azerbaijan's 2011-state budget projected at 687 million manat or 1.7 percent of GDP.

The main goals in forming the budget forecasts were the less dependence on the oil sector, efficient use of economic and resource potential of the regions, improvement of the efficiency of social services funded from the state budget and ensuring of targeting of financial aid.

The Ministry of Economic Development forecasts that will get rid of oil dependence: 39 percent of the GDP will fall on the oil sector in 2014 and its share will reach 47 percent of the GDP in 2011. 

The profits received from the oil sector allow sponsoring the projects needed to achieve the Millennium Development Goals by 2015. In this regard, the main task of the government is to effectively and transparently use the resources for the benefit of present and future generations. Azerbaijan continues to use the incomes from the oil sector for the development of non-oil sector, and provides a more equitable distribution of income growth among all regions and layers of the population.

The state policy propagates actions for improving social and economic welfare, encourages development of the private sector, expansion of economic opportunities, improvement of jobs and ensuring equal access to social security. To achieve poverty reduction the country has a state program on realization of employment strategy, which reduced unemployment from 7.06 percent in 2005 to 6 percent in 2009.

Important reforms have been carried out in the field of education. The strategy for educational reforms, designed for 2003-2013, mainly focused on the reform of compulsory education. Azerbaijan has also made significant progress in health, and significant efforts have been made to reduce maternal and infant mortality.

Within achieving the Millennium Development Goals, Azerbaijan pays special attention to the environment, taking control over the issue to reduce forest, has launched a number of infrastructure projects, which also contributes to the development of neighboring regions. Azerbaijan also initiated the establishment of an information superhighway "East-West. The project aims to connect a total of 20 countries and plays an important role in the development of the region. The project implementation will eliminate the "gap" between countries within Western Europe and the Pacific basin.

In 2011, in the tax policy the main attention will be paid on ensuring the growth rate of tax and non tax revenues, improving tax administration, reducing tax liabilities.

Topical issue include increasing rivalry in accordance with global markets and production of agricultural products to meet the domestic demand,  expanding share of internal investments in total capital investing, creating a mechanism of public and private cooperation to attract private investments to implementing project in the country.

The World Bank also notes that Azerbaijan will become a country with high average income. WB states that over the past few years Azerbaijan has achieved a serious economic rise, which led to cut in poverty ratio. One of the tasks now is to diversify the economy and enhance the non-oil export so that Azerbaijan could become a country with level of average income in the mid-term prospect. By this end, 2011 will be the last FY for Azerbaijan for receiving WB's privileged loan.

Thus, Azerbaijani economy is demonstrating a successive rise and stability. The country's economic increase exceeded 15 percent in 2009-2010.

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