Azerbaijan’s government plans to review its 2018 state budget as higher oil prices have given rise to a more optimistic forecast for the hydrocarbon-rich country’s economy this year.
Oil prices are trading at their highest level since 2014, with Brent crude hovering at close to $80 on May 22, having passed the $80 mark for the first time since November 2014 last week. Prices have been supported by the Organization of the Petroleum Exporting Countries (OPEC) production cutting deal that was also joined by Azerbaijan, Kazakhstan, Russia and other non-OPEC countries. In recent days worries over Venezuela’s falling output and a possible drop in Iran’s exports have added to the upward pressure, Reuters reported.
Baku is therefore going to review this year’s state budget, MP Rufat Guliyev, who is a member of the Azerbaijani parliament’s committee on economic policy, industry and entrepreneurship, told Trend, News.az reported.
Other factors that could lead to a revision in the budget are higher than expected GDP growth in the first quarter of this year, together with budget revenues that were also above forecast, mainly due to the development of the non-oil sector, Guliyev told Trend.
The original budget for this year anticipated revenues of AZN20.127bn (€10bn) and expenditures of AZN21.047bn, according to News.az.
Azerbaijan’s economy has had a turbulent few years. After a hydrocarbon-fuelled boom that saw GDP average 10.9% per year between 2000 and 2014, according to International Monetary Fund (IMF) data, falling oil prices and a failure to sufficiently develop other sectors of the economy led to a dramatic fall in growth in the last few years. In 2016, the economy contracted by 3.1% and it turned to very modest growth of just 0.1% last year.
The end of the era of rampant economic growth in turn led to a political clampdown by a government fearful that the sudden downturn could trigger an “Azerbaijani Spring”.
However, in April the IMF revised this year’s growth projection for Azerbaijan up from 1.3% to 2%. Growth is then expected to accelerate further to 3.9% y/y in 2019, when a new gas exploration and export project comes on line. Commercial deliveries of gas from the second phase of the giant offshore Shah Deniz field are expected to start flowing through the new Tanap pipeline across Turkey from mid-June, and via the Trans-Adriatic Pipeline (TAP) across the Balkans to Italy within two years.
Azerbaijan is not the only regional economy to get a boost from the recent revival in oil prices. As bne IntelliNews wrote in a recent Moscow Blog, Brent futures passing the $80 a barrel mark on May 16 transformed Russia’s fiscal landscape, making the ambitious promises made by President Vladimir Putin in his March state of the nation speech suddenly seem achievable.