The year of 2017 had severe challenges for the economy of Azerbaijan as it experienced a 3.1% decline in 2016, which is the first negative GDP growth of Azerbaijan since 1995. According to the estimations of the EBRD, the economy has experienced another negative GDP growth equal to 0.5% in 20171. State Statistical Committee reports only a 0.
2% negative growth for the January – November period2. President of Azerbaijan, however, mentioned in a meeting on 10th of January that there has been a small increase in the economy3. The recessionary environment coupled with continuing fall in oil prices in early 2017 made matters grim for the country for whose economy is heavily dependent on the oil sector. Inflation, according to the State Statistical Committee is still as high as 12.
9%4. In the mean time, growth in wages is lagging far behind the inflation rate, which decreases the purchasing power of the population. The trend of decreasing state budget expenditures stopped this year with a new amendment on July after the oil prices increased. With this new amendment, the deficit of the state budget has also increased by 387.
1% and reached 1,175 million manats, or in terms of dollars, 691.5 million US Dollars5. As a result, high spending by the government continues to pose a threat for the development of the private sector.
Ongoing problems in the financial sector and loss of confidence of population in commercial banks resulted in further bank failures, and together with high interest rates, led to a large contraction of credits. Defaulting of the International Bank of Azerbaijan due to years long administrative problems further increased liabilities of the government. Not only the IBA, but as well as the financial losses of other State Owned Enterprises (SOEs) are another factor contributing to the indebtedness of the government. Credit rating of the government has been downgraded from Ba2 to Ba1 by Moody’s on August after the sharp decline in economic strength. According to Moody’s, the new credit rating and stable outlook “reflect the vulnerability of the economy, government finances and banking system to oil price volatility”6. 2.49 billion Manats ($1.
46 billion) have been transferred directly from the State Oil Fund of Azerbaijan (SOFAZ) to the Central Bank for the purpose of “providing macroeconomic stability”7. On the other hand, Manat has been more or less stable during most of the 2017, hovering around 1$ = 1.7002 AZN mostly. This is most likely due to intervention by the Central Bank in the foreign exchange market to keep the rate stable, despite the fact that the official exchange policy is currently stated as floating exchange rate. 1European Bank for Reconstruction and Development, Regional Economic Prospects Updates, November 2017http://www.ebrd.com/cs/Satellite?c=Content&cid=1395236497710&d=Mobile&pagename=EBRD%2FContent%2FContentLayout2State Statistical Committee of Azerbaijan, Macro-economic indicators, January – November 2017 https://www.stat.gov.az/news/macroeconomy.php?page=13 http://president.az/articles/267094 State Statistical Committee of Azerbaijan, Inflationhttps://www.stat.gov.az/news/index.php?id=3726?lang=en5President of Azerbaijan, legislation on amendment on the 2017 state budget, July 2017 http://president.az/articles/246746Moody’s, Global Credit Research, September 2017 https://www.moodys.com/research/Moodys-Azerbaijans-credit-profile-reflects-countrys-vulnerability-to-volatile-oil–PR_3720027State Oil Fund of Azerbaijan, revenue and expenditure statement for January – September 2017 http://www.oilfund.az/en_US/hesabat-arxivi/rublukh/2017_1/2017_1_3/