Azerbaijan’s economy will shrink by 1% this year, according to the latest International Monetary Fund (IMF) forecast, but will return to growth next year with a 2% expansion, the fund said on August 12.
Heavily dependent on oil production, Azerbaijan’s economy has been amongst the hardest hit by the collapse in oil prices at the end of 2014. The government has made a concerted effort to diversify the economy since the country’s boom, but has made little real progress.
In the the middle of the noughties the country delivered an insane 35% annual growth rate after its oil fields were hooked up to the international pipeline export network, but the population is still largely employed by the agriculture sector and remains poor. Progress towards diversification has been slow and piecemeal.
The IMF also forecast that double-digit inflation will continue, reports Reuters, citing the IMF. CPI inflation ticked up slightly in July to 14% y/y.
Jihad Azour, the IMF's director of the Middle East and Central Asia department, was in Baku this week and gave an upbeat press conference with the thin-skinned President of Azerbaijan Ilham Aliyev. “This [economic] forecast is preliminary and may be adjusted by the end of 2017,” Azour said. An IMF mission is scheduled to arrive in Baku in December to undertake a more through assessment.
Azeri GDP shrank 3.8% y/y in 2016 and by another 1.4% over the first six months of this year. Moody’s said in a note in the middle of August that it expects Azerbaijan’s economy to contract for the second year in a row in 2017, Reuters reported.
Azerbaijan has been reluctant to engage with the IMF, although there were talks on an emergency $4bn loan in January 2016, when the country was still reeling from the oil shock, but it never came to anything. Now the economy is stabilising the interest of the government in an IMF program has waned again as it has in other countries in the region, such as Belarus.
“IMF has no plans to resume lending to Azerbaijan in the near future as the Azerbaijani government has not requested this,” Azour said.
That leaves the IMF a limited role where it does little more than provide advice on economic policy and technical assistance to some state agencies. The World Bank also plays a small role and has offered some limited finance for infrastructure projects but little more.