Azer Mursagulov, Advisor to the Executive Director at the IMF, on Azerbaijan’s economic achievements and goals for the future.
Since the onset of the century, Azerbaijan has emerged as one of the world’s most dynamic economies. Its economy has expanded on average by 15 percentage points per annum in the last decade, and throughout the global crisis it has shown extraordinary resilience. Macroeconomic and financial stability was maintained while large capital inflows from the sale of natural resources were prudently used to diversify the sources of economic activity. Today, the country’s economy is being primarily driven by industry, agriculture, trade, transport, and telecommunications, among other sectors.
There has been substantial progress as it relates to infrastructure modernization and development, which until recently was a legacy of the Soviet Union. Existing roads have been renovated to meet contemporary demands and new roads are being built as a part of the plan to transform Azerbaijan into an East-West and North-South transportation corridor. Within the last two years, 10 new power-generation stations have been created, transforming Azerbaijan from an energy importing country to a reliable energy exporter.
Similar breakthroughs have been achieved while developing the country’s business environment. In the past decade, reforms in all areas covered by the World Bank’s Doing Business metrics were implemented. Particularly during the years 2008-09, with business-friendly reforms in seven out of 10 regulatory reform areas—including the creation of a state-of-the-art online tax payment system and the introduction of a one-stop-shop for business registration—Azerbaijan was named “top reformer” according to the Doing Business report. This stride was also captured by the Global Competitiveness Report, which in its latest 2011/12 publication ranked Azerbaijan as the most competitive economy in the CIS region. In addition, the country has made remarkable progress in elevating the living standards of its citizens. Most social indicators have revealed this exceptional leap as the country developed into the upper middle-income category. The poverty level has decreased from close to 50% at the onset of the century to barely 8% in 2011. Similarly, the level of inequality, as noted in the latest IMF Article IV report, has declined rapidly from 42% to 34%, reflecting the increasingly equitable distribution of economic benefits throughout the population.
At the early stages of the oil boom, the authorities outlined an effective and long-term resource management strategy that enabled the country to accumulate large reserve buffers. Established in 1999, the State Oil Fund of Azerbaijan (SOFAZ), which is where the proceeds from sales of natural resources are accumulated, has played an important role in the country’s natural resource revenue management strategy. It serves as a buffer against oil price fluctuations as well as ensures intergenerational equality of benefits with regard to the country’s oil wealth, whilst improving the economic wellbeing of the population today and safeguarding economic security for future generations. Since its inception, SOFAZ has received around $60 billion in oil and gas revenues and has been able to save close to half of this figure. As of end-2011, SOFAZ’s balance stood at $29.8 billion, which roughly equals 53% of the country’s 2011 GDP. In contrast, public foreign debt is a mere $4.5 billion, which amounts to around 8%
The overall financial sector and banking sector in particular has grown rapidly, although from a shallow base. The Central Bank of Azerbaijan continues to keenly monitor the banking sector’s activities in the wake of global financial market instabilities, and most macro-prudential regulations are periodically updated and strictly enforced. Overall, the banking sector is well capitalized, and the latest tests have demonstrated that it is strong enough to withstand severe and protracted shocks.
This phenomenal performance has been acknowledged by many international financial institutions. For the first time in its history, Azerbaijan was upgraded to an investment grade rating by two leading international rating agencies, Fitch Ratings in 2010 and Standard & Poor’s in 2011.
Azerbaijan continues to collaborate intensely with international development organizations in framing strategies for future development challenges. The current Country Partnership Strategy with the World Bank, covering the period of 2011-14, for instance, envisages a lending envelope of about $1 billion, which will be complemented by a strong and enriched program of knowledge services. The plan is for the World Bank to increase its analytical work in the areas of job creation and growth, the financial sector, and agriculture and irrigation, among others. This is a clear indication of the government’s agenda to elevate the level of intellectual capacity going forward.
© The Business Year