The International Monetary Fund (IMF) recommends that the budget for the current and next fiscal years to be based on the world oil prices of $50.00 per barrel. The IMF statement reads that this will allow limiting reduction of assets of the State Oil Fund (SOFAZ) and reducing the risk of strengthening inflation after the devaluation in February 2015, bringing the state investments to a more stable level and raising efficiency of the projects implemented by the government.
All foreign buffers (financial cushions), including the Oil Fund, cover the 35-month level import and resources of the Central Bank of Azerbaijan (CBA) have stabilized covering 7 months of import.
The short-term macroeconomic forecast has worsened. It is expected that growth of the non-oil GDP will slow down by 3.5% this year. Significant reduction of export profit and slowing down of the state investments will affect real economy, in particular, demand of the private sector, which was weakened by loss of trust of population after the devaluation.
As the oil prices went up a little bit this year, growth of the non-oil GDP could reach almost 4.5% in 2016. Most likely this year inflation rate will reach 8.5%, because of reduction of demand and inactivity of the government when it comes to prevention of price growth.
With the low oil prices, the positive balance of payment of Azerbaijan will drop to 5% of GDP and the budget balance will have a deficit of 6% of GDP, reported IMF.
The IMF mission was satisfied with the government’s plans to bring the state budget in correspondence with the reality caused by low oil prices.
