By Bahattin Gonultas
The International Monetary Fund (IMF) on Friday said Azerbaijan’s economy stabilized in 2017 thanks to active macroeconomic policies and "stronger oil prices".
"Growth prospects are positive in the near term," Mohammed El Qorchi, the fund's mission chief to the country, said in a statement following his 15-day visit to Baku to assess Azerbaijan’s economy.
With expanding public investment and social spending, the nonhydrocarbon sector is expected to increase by four percent in 2018, he added.
The IMF expects the country's growth rate to be 2 percent in 2018 but this should range between 3.5 to 4 percent in the medium term as new natural gas fields come online.
As base year effects wear off, inflation should decline to seven percent in 2018, and gradually recede, the fund said.
El Qorchi said the nonhydrocarbon economy started to expand mainly due to reviving service and agriculture sectors.
"Higher oil prices, better nonhydrocarbon exports, and import compression have also restored the current account surplus," he said.
But the fund said the country's annual headline inflation, however, remained elevated mainly due to the impact of exchange-rate pass-through effects and one-off increases in administrative prices.
For 2017, the mission now projects real GDP to contract by 0.3 percent, and inflation to average 13 percent, it said.
Oil prices, Brent crude, have been rising steadily to above $60 in December from $45 per barrel in June of 2017.
IMF mission praises Azerbaijan’s reforms
The fund praised improvements made in social protection and labor markets, including a new unemployment insurance fund, implementation of a pension reform and a shift from passive to active labor market programs.
“When the oil price shocks materialized, the authorities appropriately tightened macroeconomic policies, allowed exchange rate flexibility, and started to address banking system fragilities," El Qorchi reported.
"With the recession now petering out and oil prices rising, there may be pressure to return to a fixed exchange rate regime and to unsustainably high public investment. This must be resisted..." the mission chief added.
Fiscal spending -- particularly capital spending -- is set to increase markedly in 2018, he said.
"While higher oil prices should help to contain the negative impact on Azerbaijan’s fiscal balances, there is concern about the quality of public investment, and the economy’s capacity to absorb a large jump in capital spending," the statement read.
According to the IMF, wide-ranging reforms are vital for macroeconomic stability, which, El Qorchi said, the Azerbaijani authorities recognized.
"The mission welcomes the authorities’ progress in implementing their structural reform agenda..... implementation of structural reforms, however, are critical. The impact of measures will be heavily diluted if they are not fully and vigorously applied," El Qorchi added.