ADB Sees Azeri Economy Falling by 1.1 Percent

The Asian Development Bank sees the economy in oil-rich Azerbaijan contracting this year despite some positive developments and wants to see more reforms aimed at diversifying the country’s revenues, the bank’s local manager told Reuters.

The slide in the price of oil, which with gas accounts for about 75% of the state revenues and 45% of the gross domestic product, has hit growth, the budget, the balance of payments, the manat currency and foreign exchange reserves.

The ex-Soviet country’s gross domestic product shrank by 3.8% year-on-year in 2016, down from 1.1% growth in 2015, but rose by 0.8% in January. The government expects the economy to grow by 1% this year.

“Our preliminary assessment (for the growth in 2017) as of today is minus 1.1% ... and it’s most likely that our ... assessment of GDP for this year will remain at the negative level,” Nariman Mannapbekov told Reuters in an interview.

He said the ADB, one of the major lenders to Azerbaijan, wanted to see more measures “to diversify the economy, to create jobs and to boost social-targeted assistance through reforms”.

“I know that the government is also keen to develop in this direction,” Mannapbekov said and added that the ADB might consider two loans for Azerbaijan this year, one of which in an indicative amount of $400 million would be for a railway upgrade project.

The ADB disbursed a $500 million countercyclical support facility loan last December to help Azerbaijan to tackle economic and social issues, mitigating the adverse impact of a decline in oil prices.

“We are pleased that the disbursement of this loan among others has also helped to reduce the state budget’s deficit recorded at 0.5% in 2016, much lower than it was projected in February last year,” Mannapbekov said.

He said that the government might be able to keep the budget deficit at 1-2% in 2017, if oil prices stay at around $56-$57 per barrel during the year. Brent crude oil was down to $50.7 per barrel on Tuesday.

Mannapbekov praised the government’s efforts aimed at fiscal consolidation, with tax and custom revenues rising in the first two months of 2017 as well as some improvements in the financial sector, including stable non-performing loans ratio and rising appetite for short-term loans in manats.

Mannapbekov said “continued constructive engagement is always better than disengagement” when asked to comment on the outcome of the Extractive Industries Transparency Initiative Board meeting in Bogota last week.