IMF Calls for ‘Decisive’ Overhaul in Azerbaijan Economic Policy

The International Monetary Fund is urging Azerbaijan to embark on a “decisive” revamp of its economic policy to boost competitiveness of the largest oil producer in the former Soviet Union after Russia and Kazakhstan.

“This will require decisive changes in the current course of economic policies, focused on improving the efficiency of public spending while reducing its size, strengthening the financial sector and improving the business climate,” Raja Almarzoqi, the IMF’s mission chief for Azerbaijan, said in a statement distributed to reporters today in the capital, Baku.

The changes are needed to put the economy on a sustainable path to growth by 2020, according to the Washington-based lender. Companies led by London-based BP Plc have invested more than $35 billion in oil and natural gas fields of Azerbaijan, a Caspian Sea nation of more than 9 million people,

The IMF predicts public spending will help the non-oil economy expand almost 9 percent this year, bringing growth of gross domestic product to 4.5 percent, up from 2.2 percent in 2012, Almarzoqi said. Government outlays will probably fan inflation, with consumer prices set to rise 7 percent by year-end from 1.1 percent in 2012, he said.

“The 2013 budget is expansionary and creates overheating risks,” Almarzoqi said. “Plans for continued large deficits in subsequent years, if implemented, would increase Azerbaijan’s oil dependence and raise concerns about fiscal sustainability and efficiency.”

Azerbaijan’s oil output dropped for a second year to 43 million tons in 2012. The country increased output of marketable natural gas last year 5.4 percent to 17 billion cubic meters.

The IMF is recommending that the Azeri government take steps to narrow the budget’s non-oil deficit, the shortfall excluding revenue from the energy industry, as crude output stagnates.

“Public investment can be cut without hurting growth if projects are prioritized and their selection and appraisal is done in line with best international practice,” the IMF said.

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